Document ID: EPA-HQ-OAR-2009-0472-11424
Agency: epa
Document Type: Rule
Title: Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards; Final Rule
Posted Date: 2010-05-07T04:00Z

[Federal Register: May 7, 2010 (Volume 75, Number 88)]
[Rules and Regulations]               
[Page 25323-25728]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07my10-8]                         
 

[[Page 25323]]

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Part II

Environmental Protection Agency

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Department of Transportation

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National Highway Traffic Safety Administration

40 CFR Parts 85, 86, and 600; 49 CFR Parts 531, 533, 536, et al.

Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate 
Average Fuel Economy Standards; Final Rule

[[Page 25324]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 85, 86, and 600

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 531, 533, 536, 537 and 538

[EPA-HQ-OAR-2009-0472; FRL-9134-6; NHTSA-2009-0059]
RIN 2060-AP58; RIN 2127-AK50

 
Light-Duty Vehicle Greenhouse Gas Emission Standards and 
Corporate Average Fuel Economy Standards; Final Rule

AGENCY: Environmental Protection Agency (EPA) and National Highway 
Traffic Safety Administration (NHTSA).

ACTION: Final rule.

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SUMMARY: EPA and NHTSA are issuing this joint Final Rule to establish a 
National Program consisting of new standards for light-duty vehicles 
that will reduce greenhouse gas emissions and improve fuel economy. 
This joint Final Rule is consistent with the National Fuel Efficiency 
Policy announced by President Obama on May 19, 2009, responding to the 
country's critical need to address global climate change and to reduce 
oil consumption. EPA is finalizing greenhouse gas emissions standards 
under the Clean Air Act, and NHTSA is finalizing Corporate Average Fuel 
Economy standards under the Energy Policy and Conservation Act, as 
amended. These standards apply to passenger cars, light-duty trucks, 
and medium-duty passenger vehicles, covering model years 2012 through 
2016, and represent a harmonized and consistent National Program. Under 
the National Program, automobile manufacturers will be able to build a 
single light-duty national fleet that satisfies all requirements under 
both programs while ensuring that consumers still have a full range of 
vehicle choices. NHTSA's final rule also constitutes the agency's 
Record of Decision for purposes of its National Environmental Policy 
Act (NEPA) analysis.

DATES: This final rule is effective on July 6, 2010, sixty days after 
date of publication in the Federal Register. The incorporation by 
reference of certain publications listed in this regulation is approved 
by the Director of the Federal Register as of July 6, 2010.

ADDRESSES: EPA and NHTSA have established dockets for this action under 
Docket ID No. EPA-HQ-OAR-2009-0472 and NHTSA-2009-0059, respectively. 
All documents in the docket are listed on the http://
www.regulations.gov Web site. 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 either electronically through http://
www.regulations.gov or in hard copy at the following locations: EPA: 
EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., 
NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 
4:30 p.m., Monday through Friday, excluding legal holidays. The 
telephone number for the Public Reading Room is (202) 566-1744. NHTSA: 
Docket Management Facility, M-30, U.S. Department of Transportation, 
West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue, SE., 
Washington, DC 20590. The Docket Management Facility is open between 9 
a.m. and 5 p.m. Eastern Time, Monday through Friday, except Federal 
holidays.

FOR FURTHER INFORMATION CONTACT:
    EPA: Tad Wysor, Office of Transportation and Air Quality, 
Assessment and Standards Division, Environmental Protection Agency, 
2000 Traverwood Drive, Ann Arbor MI 48105; telephone number: 734-214-
4332; fax number: 734-214-4816; e-mail address: wysor.tad@epa.gov, or 
Assessment and Standards Division Hotline; telephone number (734) 214-
4636; e-mail address asdinfo@epa.gov. NHTSA: Rebecca Yoon, Office of 
Chief Counsel, National Highway Traffic Safety Administration, 1200 New 
Jersey Avenue, SE., Washington, DC 20590. Telephone: (202) 366-2992.

SUPPLEMENTARY INFORMATION: 

Does this action apply to me?

    This action affects companies that manufacture or sell new light-
duty vehicles, light-duty trucks, and medium-duty passenger vehicles, 
as defined under EPA's CAA regulations,\1\ and passenger automobiles 
(passenger cars) and non-passenger automobiles (light trucks) as 
defined under NHTSA's CAFE regulations.\2\ Regulated categories and 
entities include:
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    \1\ ``Light-duty vehicle,'' ``light-duty truck,'' and ``medium-
duty passenger vehicle'' are defined in 40 CFR 86.1803-01. 
Generally, the term ``light-duty vehicle'' means a passenger car, 
the term ``light-duty truck'' means a pick-up truck, sport-utility 
vehicle, or minivan of up to 8,500 lbs gross vehicle weight rating, 
and ``medium-duty passenger vehicle'' means a sport-utility vehicle 
or passenger van from 8,500 to 10,000 lbs gross vehicle weight 
rating. Medium-duty passenger vehicles do not include pick-up 
trucks.
    \2\ ``Passenger car'' and ``light truck'' are defined in 49 CFR 
part 523.

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                                                 Examples of potentially
         Category            NAICS codes \A\       regulated entities
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Industry.................  336111, 336112.....  Motor vehicle
                                                 manufacturers.
Industry.................  811112, 811198,      Commercial Importers of
                            541514.              Vehicles and Vehicle
                                                 Components.
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\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. Overview of Joint EPA/NHTSA National Program
    A. Introduction
    1. Building Blocks of the National Program
    2. Public Participation
    B. Summary of the Joint Final Rule and Differences From the 
Proposal
    1. Joint Analytical Approach
    2. Level of the Standards
    3. Form of the Standards
    4. Program Flexibilities
    5. Coordinated Compliance
    C. Summary of Costs and Benefits of the National Program
    1. Summary of Costs and Benefits of NHTSA's CAFE Standards
    2. Summary of Costs and Benefits of EPA's GHG Standards
    D. Background and Comparison of NHTSA and EPA Statutory 
Authority
II. Joint Technical Work Completed for This Final Rule

[[Page 25325]]

    A. Introduction
    B. Developing the Future Fleet for Assessing Costs, Benefits, 
and Effects
    1. Why did the agencies establish a baseline and reference 
vehicle fleet?
    2. How did the agencies develop the baseline vehicle fleet?
    3. How did the agencies develop the projected MY 2011-2016 
vehicle fleet?
    4. How was the development of the baseline and reference fleets 
for this Final Rule different from NHTSA's historical approach?
    5. How does manufacturer product plan data factor into the 
baseline used in this Final Rule?
    C. Development of Attribute-Based Curve Shapes
    D. Relative Car-Truck Stringency
    E. Joint Vehicle Technology Assumptions
    1. What technologies did the agencies consider?
    2. How did the agencies determine the costs and effectiveness of 
each of these technologies?
    F. Joint Economic Assumptions
    G. What are the estimated safety effects of the final MYs 2012-
2016 CAFE and GHG standards?
    1. What did the agencies say in the NPRM with regard to 
potential safety effects?
    2. What public comments did the agencies receive on the safety 
analysis and discussions in the NPRM?
    3. How has NHTSA refined its analysis for purposes of estimating 
the potential safety effects of this Final Rule?
    4. What are the estimated safety effects of this Final Rule?
    5. How do the agencies plan to address this issue going forward?
III. EPA Greenhouse Gas Vehicle Standards
    A. Executive Overview of EPA Rule
    1. Introduction
    2. Why is EPA establishing this Rule?
    3. What is EPA adopting?
    4. Basis for the GHG Standards Under Section 202(a)
    B. 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 CO2 attribute-based standards?
    3. Overview of How EPA's CO2 Standards Will Be 
Implemented for Individual Manufacturers
    4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    5. CO2 Temporary Lead-Time Allowance Alternative 
Standards
    6. Deferment of CO2 Standards for Small Volume 
Manufacturers With Annual Sales Less Than 5,000 Vehicles
    7. Nitrous Oxide and Methane Standards
    8. Small Entity Exemption
    C. Additional Credit Opportunities for CO2 Fleet 
Average Program
    1. Air Conditioning Related Credits
    2. Flexible Fuel and Alternative Fuel Vehicle Credits
    3. Advanced Technology Vehicle Incentives for Electric Vehicles, 
Plug-in Hybrids, and Fuel Cell Vehicles
    4. Off-Cycle Technology Credits
    5. Early Credit Options
    D. Feasibility of the Final CO2 Standards
    1. How did EPA develop a reference vehicle fleet for evaluating 
further CO2 reductions?
    2. What are the effectiveness and costs of CO2-
reducing technologies?
    3. How can technologies be combined into ``packages'' and what 
is the cost and effectiveness of packages?
    4. Manufacturer's Application of Technology
    5. How is EPA projecting that a manufacturer decides between 
options to improve CO2 performance to meet a fleet 
average standard?
    6. Why are the final CO2 standards feasible?
    7. What other fleet-wide CO2 levels were considered?
    E. Certification, Compliance, and Enforcement
    1. Compliance Program Overview
    2. Compliance With Fleet-Average CO2 Standards
    3. Vehicle Certification
    4. Useful Life Compliance
    5. Credit Program Implementation
    6. Enforcement
    7. Prohibited Acts in the CAA
    8. Other Certification Issues
    9. Miscellaneous Revisions to Existing Regulations
    10. Warranty, Defect Reporting, and Other Emission-Related 
Components Provisions
    11. Light Duty Vehicles and Fuel Economy Labeling
    F. How will this Final Rule reduce GHG emissions and their 
associated effects?
    1. Impact on GHG Emissions
    2. Overview of Climate Change Impacts From GHG Emissions
    3. Changes in Global Climate Indicators Associated With the 
Rule's GHG Emissions Reductions
    G. How will the standards impact non-GHG emissions and their 
associated effects?
    1. Upstream Impacts of Program
    2. Downstream Impacts of Program
    3. Health Effects of Non-GHG Pollutants
    4. Environmental Effects of Non-GHG Pollutants
    5. Air Quality Impacts of Non-GHG Pollutants
    H. What are the estimated cost, economic, and other impacts of 
the program?
    1. Conceptual Framework for Evaluating Consumer Impacts
    2. Costs Associated With the Vehicle Program
    3. Cost per Ton of Emissions Reduced
    4. Reduction in Fuel Consumption and Its Impacts
    5. Impacts on U.S. Vehicle Sales and Payback Period
    6. Benefits of Reducing GHG Emissions
    7. Non-Greenhouse Gas Health and Environmental Impacts
    8. Energy Security Impacts
    9. Other Impacts
    10. Summary of Costs and Benefits
    I. Statutory and Executive Order Reviews
    1. Executive Order 12866: Regulatory Planning and Review
    2. Paperwork Reduction Act
    3. Regulatory Flexibility Act
    4. Unfunded Mandates Reform Act
    5. Executive Order 13132 (Federalism)
    6. Executive Order 13175 (Consultation and Coordination With 
Indian Tribal
    Governments)
    7. Executive Order 13045: ``Protection of Children From 
Environmental Health Risks and Safety Risks''
    8. Executive Order 13211 (Energy Effects)
    9. National Technology Transfer Advancement Act
    10. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
    J. Statutory Provisions and Legal Authority
IV. NHTSA Final Rule and Record of Decision for Passenger Car and 
Light Truck CAFE Standards for MYs 2012-2016
    A. Executive Overview of NHTSA Final Rule
    1. Introduction
    2. Role of Fuel Economy Improvements in Promoting Energy 
Independence, Energy Security, and a Low Carbon Economy
    3. The National Program
    4. Review of CAFE Standard Setting Methodology per the 
President's January 26, 2009 Memorandum on CAFE Standards for MYs 
2011 and Beyond
    5. Summary of the Final MY 2012-2016 CAFE Standards
    B. Background
    1. Chronology of Events Since the National Academy of Sciences 
Called for Reforming and Increasing CAFE Standards
    2. Energy Policy and Conservation Act, as Amended by the Energy 
Independence and Security Act
    C. Development and Feasibility of the Final Standards
    1. How was the baseline and reference vehicle fleet developed?
    2. How were the technology inputs developed?
    3. How did NHTSA develop the economic assumptions?
    4. How does NHTSA use the assumptions in its modeling analysis?
    5. How did NHTSA develop the shape of the target curves for the 
final standards?
    D. Statutory Requirements
    1. EPCA, as Amended by EISA
    2. Administrative Procedure Act
    3. National Environmental Policy Act
    E. What are the final CAFE standards?
    1. Form of the Standards
    2. Passenger Car Standards for MYs 2012-2016
    3. Minimum Domestic Passenger Car Standards
    4. Light Truck Standards
    F. How do the final standards fulfill NHTSA's statutory 
obligations?
    G. Impacts of the Final CAFE Standards
    1. How will these standards improve fuel economy and reduce GHG 
emissions for MY 2012-2016 vehicles?
    2. How will these standards improve fleet-wide fuel economy and 
reduce GHG emissions beyond MY 2016?

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    3. How will these final standards impact non-GHG emissions and 
their associated effects?
    4. What are the estimated costs and benefits of these final 
standards?
    5. How would these standards impact vehicle sales?
    6. Potential Unquantified Consumer Welfare Impacts of the Final 
Standards
    7. What other impacts (quantitative and unquantifiable) will 
these final standards have?
    H. Vehicle Classification
    I. Compliance and Enforcement
    1. Overview
    2. How does NHTSA determine compliance?
    3. What compliance flexibilities are available under the CAFE 
program and how do manufacturers use them?
    4. Other CAFE Enforcement Issues--Variations in Footprint
    5. Other CAFE Enforcement Issues--Miscellaneous
    J. Other Near-Term Rulemakings Mandated by EISA
    1. Commercial Medium- and Heavy-Duty On-Highway Vehicles and 
Work Trucks
    2. Consumer Information on Fuel Efficiency and Emissions
    K. NHTSA's Record of Decision
    L. Regulatory Notices and Analyses
    1. Executive Order 12866 and DOT Regulatory Policies and 
Procedures
    2. National Environmental Policy Act
    3. Clean Air Act (CAA)
    4. National Historic Preservation Act (NHPA)
    5. Executive Order 12898 (Environmental Justice)
    6. Fish and Wildlife Conservation Act (FWCA)
    7. Coastal Zone Management Act (CZMA)
    8. Endangered Species Act (ESA)
    9. Floodplain Management (Executive Order 11988 & DOT Order 
5650.2)
    10. Preservation of the Nation's Wetlands (Executive Order 11990 
& DOT Order 5660.1a)
    11. Migratory Bird Treaty Act (MBTA), Bald and Golden Eagle 
Protection Act (BGEPA), Executive Order 13186
    12. Department of Transportation Act (Section 4(f))
    13. Regulatory Flexibility Act
    14. Executive Order 13132 (Federalism)
    15. Executive Order 12988 (Civil Justice Reform)
    16. Unfunded Mandates Reform Act
    17. Regulation Identifier Number
    18. Executive Order 13045
    19. National Technology Transfer and Advancement Act
    20. Executive Order 13211
    21. Department of Energy Review
    22. Privacy Act

I. Overview of Joint EPA/NHTSA National Program

A. Introduction

    The National Highway Traffic Safety Administration (NHTSA) and the 
Environmental Protection Agency (EPA) are each announcing final rules 
whose benefits will address the urgent and closely intertwined 
challenges of energy independence and security and global warming. 
These rules will implement a strong and coordinated Federal greenhouse 
gas (GHG) and fuel economy program for passenger cars, light-duty-
trucks, and medium-duty passenger vehicles (hereafter light-duty 
vehicles), referred to as the National Program. The rules will achieve 
substantial reductions of GHG emissions and improvements in fuel 
economy from the light-duty vehicle part of the transportation sector, 
based on technology that is already being commercially applied in most 
cases and that can be incorporated at a reasonable cost. NHTSA's final 
rule also constitutes the agency's Record of Decision for purposes of 
its NEPA analysis.
    This joint rulemaking is consistent with the President's 
announcement on May 19, 2009 of a National Fuel Efficiency Policy of 
establishing consistent, harmonized, and streamlined requirements that 
would reduce GHG emissions and improve fuel economy for all new cars 
and light-duty trucks sold in the United States.\3\ The National 
Program will deliver additional environmental and energy benefits, cost 
savings, and administrative efficiencies on a nationwide basis that 
would likely not be available under a less coordinated approach. The 
National Program also represents regulatory convergence by making it 
possible for the standards of two different Federal agencies and the 
standards of California and other states to act in a unified fashion in 
providing these benefits. The National Program will allow automakers to 
produce and sell a single fleet nationally, mitigating the additional 
costs that manufacturers would otherwise face in having to comply with 
multiple sets of Federal and State standards. This joint notice is also 
consistent with the Notice of Upcoming Joint Rulemaking issued by DOT 
and EPA on May 19, 2009 \4\ and responds to the President's January 26, 
2009 memorandum on CAFE standards for model years 2011 and beyond,\5\ 
the details of which can be found in Section IV of this joint notice.
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    \3\ President Obama Announces National Fuel Efficiency Policy, 
The White House, May 19, 2009. Available at: http://
www.whitehouse.gov/the_press_office/President-Obama-Announces-
National-Fuel-Efficiency-Policy/. Remarks by the President on 
National Fuel Efficiency Standards, The White House, May 19, 2009. 
Available at: http://www.whitehouse.gov/the_press_office/Remarks-
by-the-President-on-national-fuel-efficiency-standards/.
    \4\ 74 FR 24007 (May 22, 2009).
    \5\ Available at: http://www.whitehouse.gov/the_press_office/
Presidential_Memorandum_Fuel_Economy/.
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    Climate change is widely viewed as a significant long-term threat 
to the global environment. As summarized in the Technical Support 
Document for EPA's Endangerment and Cause or Contribute Findings under 
Section 202(a) of the Clear Air Act, anthropogenic emissions of GHGs 
are very likely (90 to 99 percent probability) the cause of most of the 
observed global warming over the last 50 years.\6\ The primary GHGs of 
concern are carbon dioxide (CO2), methane, nitrous oxide, 
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Mobile 
sources emitted 31 percent of all U.S. GHGs in 2007 (transportation 
sources, which do not include certain off-highway sources, account for 
28 percent) and have been the fastest-growing source of U.S. GHGs since 
1990.\7\ Mobile sources addressed in the recent endangerment and 
contribution findings under CAA section 202(a)--light-duty vehicles, 
heavy-duty trucks, buses, and motorcycles--accounted for 23 percent of 
all U.S. GHG in 2007.\8\ Light-duty vehicles emit CO2, 
methane, nitrous oxide, and hydrofluorocarbons and are responsible for 
nearly 60 percent of all mobile source GHGs and over 70 percent of 
Section 202(a) mobile source GHGs. For light-duty vehicles in 2007, 
CO2 emissions represent about 94 percent of all greenhouse 
emissions (including HFCs), and the CO2 emissions measured 
over the EPA tests used for fuel economy compliance represent about 90 
percent of total light-duty vehicle GHG emissions.9 10
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    \6\ ``Technical Support Document for Endangerment and Cause or 
Contribute Findings for Greenhouse Gases Under Section 202(a) of the 
Clean Air Act'' Docket: EPA-HQ-OAR-2009-0472-11292, http://epa.gov/
climatechange/endangerment.html.
    \7\ U.S. Environmental Protection Agency. 2009. Inventory of 
U.S. Greenhouse Gas Emissions and Sinks: 1990-2007. EPA 430-R-09-
004. Available at http://epa.gov/climatechange/emissions/
downloads09/GHG2007entire_report-508.pdf.
    \8\ U.S. EPA. 2009 Technical Support Document for Endangerment 
and Cause or Contribute Findings for Greenhouse Gases under Section 
202(a) of the Clean Air Act. Washington, DC. pp. 180-194. Available 
at http://epa.gov/climatechange/endangerment/downloads/
Endangerment%20TSD.pdf.
    \9\ U.S. Environmental Protection Agency. 2009. Inventory of 
U.S. Greenhouse Gas Emissions and Sinks: 1990-2007. EPA 430-R-09-
004. Available at http://epa.gov/climatechange/emissions/
downloads09/GHG2007entire_report-508.pdf.
    \10\ U.S. Environmental Protection Agency. RIA, Chapter 2.
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    Improving energy security by reducing our dependence on foreign oil 
has been a national objective since the first oil price shocks in the 
1970s. Net petroleum imports now account for approximately 60 percent 
of U.S.

[[Page 25327]]

petroleum consumption. World crude oil production is highly 
concentrated, exacerbating the risks of supply disruptions and price 
shocks. Tight global oil markets led to prices over $100 per barrel in 
2008, with gasoline reaching as high as $4 per gallon in many parts of 
the U.S., causing financial hardship for many families. The export of 
U.S. assets for oil imports continues to be an important component of 
the historically unprecedented U.S. trade deficits. Transportation 
accounts for about two-thirds of U.S. petroleum consumption. Light-duty 
vehicles account for about 60 percent of transportation oil use, which 
means that they alone account for about 40 percent of all U.S. oil 
consumption.
1. Building Blocks of the National Program
    The National Program is both needed and possible because the 
relationship between improving fuel economy and reducing CO2 
tailpipe emissions is a very direct and close one. The amount of those 
CO2 emissions is essentially constant per gallon combusted 
of a given type of fuel. Thus, the more fuel efficient a vehicle is, 
the less fuel it burns to travel a given distance. The less fuel it 
burns, the less CO2 it emits in traveling that distance.\11\ 
While there are emission control technologies that reduce the 
pollutants (e.g., carbon monoxide) produced by imperfect combustion of 
fuel by capturing or converting them to other compounds, there is no 
such technology for CO2. Further, while some of those 
pollutants can also be reduced by achieving a more complete combustion 
of fuel, doing so only increases the tailpipe emissions of 
CO2. Thus, there is a single pool of technologies for 
addressing these twin problems, i.e., those that reduce fuel 
consumption and thereby reduce CO2 emissions as well.
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    \11\ Panel on Policy Implications of Greenhouse Warming, 
National Academy of Sciences, National Academy of Engineering, 
Institute of Medicine, ``Policy Implications of Greenhouse Warming: 
Mitigation, Adaptation, and the Science Base,'' National Academies 
Press, 1992. p. 287.
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a. DOT's CAFE Program
    In 1975, Congress enacted the Energy Policy and Conservation Act 
(EPCA), mandating that NHTSA establish and implement a regulatory 
program for motor vehicle fuel economy to meet the various facets of 
the need to conserve energy, including ones having energy independence 
and security, environmental and foreign policy implications. Fuel 
economy gains since 1975, due both to the standards and market factors, 
have resulted in saving billions of barrels of oil and avoiding 
billions of metric tons of CO2 emissions. In December 2007, 
Congress enacted the Energy Independence and Securities Act (EISA), 
amending EPCA to require substantial, continuing increases in fuel 
economy standards.
    The CAFE standards address most, but not all, of the real world 
CO2 emissions because a provision in EPCA as originally 
enacted in 1975 requires the use of the 1975 passenger car test 
procedures under which vehicle air conditioners are not turned on 
during fuel economy testing.\12\ Fuel economy is determined by 
measuring the amount of CO2 and other carbon compounds 
emitted from the tailpipe, not by attempting to measure directly the 
amount of fuel consumed during a vehicle test, a difficult task to 
accomplish with precision. The carbon content of the test fuel \13\ is 
then used to calculate the amount of fuel that had to be consumed per 
mile in order to produce that amount of CO2. Finally, that 
fuel consumption figure is converted into a miles-per-gallon figure. 
CAFE standards also do not address the 5-8 percent of GHG emissions 
that are not CO2, i.e., nitrous oxide (N2O), and 
methane (CH4) as well as emissions of CO2 and 
hydrofluorocarbons (HFCs) related to operation of the air conditioning 
system.
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    \12\ Although EPCA does not require the use of 1975 test 
procedures for light trucks, those procedures are used for light 
truck CAFE standard testing purposes.
    \13\ This is the method that EPA uses to determine compliance 
with NHTSA's CAFE standards.
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b. EPA's GHG Standards for Light-duty Vehicles
    Under the Clean Air Act EPA is responsible for addressing air 
pollutants from motor vehicles. On April 2, 2007, the U.S. Supreme 
Court issued its opinion in Massachusetts v. EPA,\14\ a case involving 
EPA's a 2003 denial of a petition for rulemaking to regulate GHG 
emissions from motor vehicles under section 202(a) of the Clean Air Act 
(CAA).\15\ The Court held that GHGs fit within the definition of air 
pollutant in the Clean Air Act and further held that the Administrator 
must determine whether or not emissions from new motor vehicles cause 
or contribute to air pollution which may reasonably be anticipated to 
endanger public health or welfare, or whether the science is too 
uncertain to make a reasoned decision. The Court further ruled that, in 
making these decisions, the EPA Administrator is required to follow the 
language of section 202(a) of the CAA. The Court rejected the argument 
that EPA cannot regulate CO2 from motor vehicles because to 
do so would de facto tighten fuel economy standards, authority over 
which has been assigned by Congress to DOT. The Court stated that 
``[b]ut that DOT sets mileage standards in no way licenses EPA to shirk 
its environmental responsibilities. 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.'' The 
Court concluded that ``[t]he two obligations may overlap, but there is 
no reason to think the two agencies cannot both administer their 
obligations and yet avoid inconsistency.'' \16\ The case was remanded 
back to the Agency for reconsideration in light of the Court's 
decision.\17\
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    \14\ 549 U.S. 497 (2007).
    \15\ 68 FR 52922 (Sept. 8, 2003).
    \16\ 549 U.S. at 531-32.
    \17\ For further information on Massachusetts v. EPA see the 
July 30, 2008 Advance Notice of Proposed Rulemaking, ``Regulating 
Greenhouse Gas Emissions under the Clean Air Act'', 73 FR 44354 at 
44397. There is a comprehensive discussion of the litigation's 
history, the Supreme Court's findings, and subsequent actions 
undertaken by the Bush Administration and the EPA from 2007-2008 in 
response to the Supreme Court remand. Also see 74 FR 18886, at 1888-
90 (April 24, 2009).
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    On December 15, 2009, EPA published two findings (74 FR 66496): 
That emissions of GHGs from new motor vehicles and motor vehicle 
engines contribute to air pollution, and that the air pollution may 
reasonably be anticipated to endanger public health and welfare.
c. California Air Resources Board Greenhouse Gas Program
    In 2004, the California Air Resources Board approved standards for 
new light-duty vehicles, which regulate the emission of not only 
CO2, but also other GHGs. Since then, thirteen states and 
the District of Columbia, comprising approximately 40 percent of the 
light-duty vehicle market, have adopted California's standards. These 
standards apply to model years 2009 through 2016 and require 
CO2 emissions for passenger cars and the smallest light 
trucks of 323 g/mi in 2009 and 205 g/mi in 2016, and for the remaining 
light trucks of 439 g/mi in 2009 and 332 g/mi in 2016. On June 30, 
2009, EPA granted California's request for a waiver of preemption under 
the CAA.\18\ The granting of the waiver permits California and the 
other states to proceed with implementing the California emission 
standards.
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    \18\ 74 FR 32744 (July 8, 2009).
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    In addition, to promote the National Program, in May 2009, 
California announced its commitment to take several actions in support 
of the National Program, including revising its

[[Page 25328]]

program for MYs 2009-2011 to facilitate compliance by the automakers, 
and revising its program for MYs 2012-2016 such that compliance with 
the Federal GHG standards will be deemed to be compliance with 
California's GHG standards. This will allow the single national fleet 
produced by automakers to meet the two Federal requirements and to meet 
California requirements as well. California is proceeding with a 
rulemaking intended to revise its 2004 regulations to meet its 
commitments. Several automakers and their trade associations also 
announced their commitment to take several actions in support of the 
National Program, including not contesting the final GHG and CAFE 
standards for MYs 2012-2016, not contesting any grant of a waiver of 
preemption under the CAA for California's GHG standards for certain 
model years, and to stay and then dismiss all pending litigation 
challenging California's regulation of GHG emissions, including 
litigation concerning preemption under EPCA of California's and other 
states' GHG standards.
2. Public Participation
    The agencies proposed their respective rules on September 28, 2009 
(74 FR 49454), and received a large number of comments representing 
many perspectives on the proposed rule. The agencies received oral 
testimony at three public hearings in different parts of the country, 
and received written comments from more than 130 organizations, 
including auto manufacturers and suppliers, States, environmental and 
other non-governmental organizations (NGOs), and over 129,000 comments 
from private citizens.
    The vast majority of commenters supported the central tenets of the 
proposed CAFE and GHG programs. That is, there was broad support from 
most organizations for a National Program that achieves a level of 250 
gram/mile fleet average CO2, which would be 35.5 miles per 
gallon if the automakers were to meet this CO2 level solely 
through fuel economy improvements. The standards will be phased in over 
model years 2012 through 2016 which will allow manufacturers to build a 
common fleet of vehicles for the domestic market. In general, 
commenters from the automobile industry supported the proposed 
standards as well as the credit opportunities and other compliance 
provisions providing flexibility, while also making some 
recommendations for changes. Environmental and public interest non-
governmental organizations (NGOs), as well as most States that 
commented, were also generally supportive of the National Program 
standards. Many of these organizations also expressed concern about the 
possible impact on program benefits, depending on how the credit 
provisions and flexibilities are designed. The agencies also received 
specific comments on many aspects of the proposal.
    Throughout this notice, the agencies discuss many of the key issues 
arising from the public comments and the agencies' responses. In 
addition, the agencies have addressed all of the public comments in the 
Response to Comments document associated with this final rule.

B. Summary of the Joint Final Rule and Differences From the Proposal

    In this joint rulemaking, EPA is establishing GHG emissions 
standards under the Clean Air Act (CAA), and NHTSA is establishing 
Corporate Average Fuel Economy (CAFE) standards under the Energy Policy 
and Conservation Action of 1975 (EPCA), as amended by the Energy 
Independence and Security Act of 2007 (EISA). The intention of this 
joint rulemaking is to set forth a carefully coordinated and harmonized 
approach to implementing these two statutes, in accordance with all 
substantive and procedural requirements imposed by law.
    NHTSA and EPA have coordinated closely and worked jointly in 
developing their respective final rules. This is reflected in many 
aspects of this joint rule. For example, the agencies have developed a 
comprehensive Joint Technical Support Document (TSD) that provides a 
solid technical underpinning for each agency's modeling and analysis 
used to support their standards. Also, to the extent allowed by law, 
the agencies have harmonized many elements of program design, such as 
the form of the standard (the footprint-based attribute curves), and 
the definitions used for cars and trucks. They have developed the same 
or similar compliance flexibilities, to the extent allowed and 
appropriate under their respective statutes, such as averaging, 
banking, and trading of credits, and have harmonized the compliance 
testing and test protocols used for purposes of the fleet average 
standards each agency is finalizing. Finally, under their respective 
statutes, each agency is called upon to exercise its judgment and 
determine standards that are an appropriate balance of various relevant 
statutory factors. Given the common technical issues before each 
agency, the similarity of the factors each agency is to consider and 
balance, and the authority of each agency to take into consideration 
the standards of the other agency, both EPA and NHTSA are establishing 
standards that result in a harmonized National Program.
    This joint final rule covers passenger cars, light-duty trucks, and 
medium-duty passenger vehicles built in model years 2012 through 2016. 
These vehicle categories are responsible for almost 60 percent of all 
U.S. transportation-related GHG emissions. EPA and NHTSA expect that 
automobile manufacturers will meet these standards by utilizing 
technologies that will reduce vehicle GHG emissions and improve fuel 
economy. Although many of these technologies are available today, the 
emissions reductions and fuel economy improvements finalized in this 
notice will involve more widespread use of these technologies across 
the light-duty vehicle fleet. These include improvements to engines, 
transmissions, and tires, increased use of start-stop technology, 
improvements in air conditioning systems, increased use of hybrid and 
other advanced technologies, and the initial commercialization of 
electric vehicles and plug-in hybrids. NHTSA's and EPA's assessments of 
likely vehicle technologies that manufacturers will employ to meet the 
standards are discussed in detail below and in the Joint TSD.
    The National Program is estimated to result in approximately 960 
million metric tons of total carbon dioxide equivalent emissions 
reductions and approximately 1.8 billion barrels of oil savings over 
the lifetime of vehicles sold in model years (MYs) 2012 through 2016. 
In total, the combined EPA and NHTSA 2012-2016 standards will reduce 
GHG emissions from the U.S. light-duty fleet by approximately 21 
percent by 2030 over the level that would occur in the absence of the 
National Program. These actions also will provide important energy 
security benefits, as light-duty vehicles are about 95 percent 
dependent on oil-based fuels. The agencies project that the total 
benefits of the National Program will be more than $240 billion at a 3% 
discount rate, or more than $190 billion at a 7% discount rate. In the 
discussion that follows in Sections III and IV, each agency explains 
the related benefits for their individual standards.
    Together, EPA and NHTSA estimate that the average cost increase for 
a model year 2016 vehicle due to the National Program will be less than 
$1,000. The average U.S. consumer who purchases a vehicle outright is 
estimated to save enough in lower fuel costs over the first three years 
to offset

[[Page 25329]]

these higher vehicle costs. However, most U.S. consumers purchase a new 
vehicle using credit rather than paying cash and the typical car loan 
today is a five year, 60 month loan. These consumers will see immediate 
savings due to their vehicle's lower fuel consumption in the form of a 
net reduction in annual costs of $130-$180 throughout the duration of 
the loan (that is, the fuel savings will outweigh the increase in loan 
payments by $130-$180 per year). Whether a consumer takes out a loan or 
purchases a new vehicle outright, over the lifetime of a model year 
2016 vehicle, the consumer's net savings could be more than $3,000. The 
average 2016 MY vehicle will emit 16 fewer metric tons of 
CO2-equivalent emissions (that is, CO2 emissions 
plus HFC air conditioning leakage emissions) during its lifetime. 
Assumptions that underlie these conclusions are discussed in greater 
detail in the agencies' respective regulatory impact analyses and in 
Section III.H.5 and Section IV.
    This joint rule also results in important regulatory convergence 
and certainty to automobile companies. Absent this rule, there would be 
three separate Federal and State regimes independently regulating 
light-duty vehicles to reduce fuel consumption and GHG emissions: 
NHTSA's CAFE standards, EPA's GHG standards, and the GHG standards 
applicable in California and other States adopting the California 
standards. This joint rule will allow automakers to meet both the NHTSA 
and EPA requirements with a single national fleet, greatly simplifying 
the industry's technology, investment and compliance strategies. In 
addition, to promote the National Program, California announced its 
commitment to take several actions, including revising its program for 
MYs 2012-2016 such that compliance with the Federal GHG standards will 
be deemed to be compliance with California's GHG standards. This will 
allow the single national fleet used by automakers to meet the two 
Federal requirements and to meet California requirements as well. 
California is proceeding with a rulemaking intended to revise its 2004 
regulations to meet its commitments. EPA and NHTSA are confident that 
these GHG and CAFE standards will successfully harmonize both the 
Federal and State programs for MYs 2012-2016 and will allow our country 
to achieve the increased benefits of a single, nationwide program to 
reduce light-duty vehicle GHG emissions and reduce the country's 
dependence on fossil fuels by improving these vehicles' fuel economy.
    A successful and sustainable automotive industry depends upon, 
among other things, continuous technology innovation in general, and 
low GHG emissions and high fuel economy vehicles in particular. In this 
respect, this action will help spark the investment in technology 
innovation necessary for automakers to successfully compete in both 
domestic and export markets, and thereby continue to support a strong 
economy.
    While this action covers MYs 2012-2016, many stakeholders 
encouraged EPA and NHTSA to also begin working toward standards for MY 
2017 and beyond that would maintain a single nationwide program. The 
agencies recognize the importance of and are committed to a strong, 
coordinated national program for light-duty vehicles for model years 
beyond 2016.
    Key elements of the National Program finalized today are the level 
and form of the GHG and CAFE standards, the available compliance 
mechanisms, and general implementation elements. These elements are 
summarized in the following section, with more detailed discussions 
about EPA's GHG program following in Section III, and about NHTSA's 
CAFE program in Section IV. This joint final rule responds to the wide 
array of comments that the agencies received on the proposed rule. This 
section summarizes many of the major comments on the primary elements 
of the proposal and describes whether and how the final rule has 
changed, based on the comments and additional analyses. Major comments 
and the agencies' responses to them are also discussed in more detail 
in later sections of this preamble. For a full summary of public 
comments and EPA's and NHTSA's responses to them, please see the 
Response to Comments document associated with this final rule.
1. Joint Analytical Approach
    NHTSA and EPA have worked closely together on nearly every aspect 
of this joint final rule. The extent and results of this collaboration 
are reflected in the elements of the respective NHTSA and EPA rules, as 
well as the analytical work contained in the Joint Technical Support 
Document (Joint TSD). The Joint TSD, in particular, describes important 
details of the analytical work that are shared, as well as any 
differences in approach. These include the build up of the baseline and 
reference fleets, the derivation of the shape of the curves that define 
the standards, a detailed description of the costs and effectiveness of 
the technology choices that are available to vehicle manufacturers, a 
summary of the computer models used to estimate how technologies might 
be added to vehicles, and finally the economic inputs used to calculate 
the impacts and benefits of the rules, where practicable.
    EPA and NHTSA have jointly developed attribute curve shapes that 
each agency is using for its final standards. Further details of these 
functions can be found in Sections III and IV of this preamble as well 
as Chapter 2 of the Joint TSD. A critical technical underpinning of 
each agency's analysis is the cost and effectiveness of the various 
control technologies. These are used to analyze the feasibility and 
cost of potential GHG and CAFE standards. A detailed description of all 
of the technology information considered can be found in Chapter 3 of 
the Joint TSD (and for A/C, Chapter 2 of the EPA RIA). This detailed 
technology data forms the inputs to computer models that each agency 
uses to project how vehicle manufacturers may add those technologies in 
order to comply with the new standards. These are the OMEGA and Volpe 
models for EPA and NHTSA, respectively. The models and their inputs can 
also be found in the docket. Further description of the model and 
outputs can be found in Sections III and IV of this preamble, and 
Chapter 3 of the Joint TSD. This comprehensive joint analytical 
approach has provided a sound and consistent technical basis for each 
agency in developing its final standards, which are summarized in the 
sections below.
    The vast majority of public comments expressed strong support for 
the joint analytical work performed for the proposal. Commenters 
generally agreed with the analytical work and its results, and 
supported the transparency of the analysis and its underlying data. 
Where commenters raised specific points, the agencies have considered 
them and made changes where appropriate. The agencies' further 
evaluation of various technical issues also led to a limited number of 
changes. A detailed discussion of these issues can be found in Section 
II of this preamble, and the Joint TSD.
2. Level of the Standards
    In this notice, EPA and NHTSA are establishing two separate sets of 
standards, each under its respective statutory authorities. EPA is 
setting national CO2 emissions standards for light-duty 
vehicles under section 202(a) of the Clean Air Act. These standards 
will require these vehicles to meet an

[[Page 25330]]

estimated combined average emissions level of 250 grams/mile of 
CO2 in model year 2016. NHTSA is setting CAFE standards for 
passenger cars and light trucks under 49 U.S.C. 32902. These standards 
will require manufacturers of those vehicles to meet an estimated 
combined average fuel economy level of 34.1 mpg in model year 2016. The 
standards for both agencies begin with the 2012 model year, with 
standards increasing in stringency through model year 2016. They 
represent a harmonized approach that will allow industry to build a 
single national fleet that will satisfy both the GHG requirements under 
the CAA and CAFE requirements under EPCA/EISA.
    Given differences in their respective statutory authorities, 
however, the agencies' standards include some important differences. 
Under the CO2 fleet average standards adopted under CAA 
section 202(a), EPA expects manufacturers to take advantage of the 
option to generate CO2-equivalent credits by reducing 
emissions of hydrofluorocarbons (HFCs) and CO2 through 
improvements in their air conditioner systems. EPA accounted for these 
reductions in developing its final CO2 standards. NHTSA did 
not do so because EPCA does not allow vehicle manufacturers to use air 
conditioning credits in complying with CAFE standards for passenger 
cars.\19\ CO2 emissions due to air conditioning operation 
are not measured by the test procedure mandated by statute for use in 
establishing and enforcing CAFE standards for passenger cars. As a 
result, improvement in the efficiency of passenger car air conditioners 
is not considered as a possible control technology for purposes of 
CAFE.
---------------------------------------------------------------------------

    \19\ There is no such statutory limitation with respect to light 
trucks.
---------------------------------------------------------------------------

    These differences regarding the treatment of air conditioning 
improvements (related to CO2 and HFC reductions) affect the 
relative stringency of the EPA standard and NHTSA standard for MY 2016. 
The 250 grams per mile of CO2 equivalent emissions limit is 
equivalent to 35.5 mpg \20\ if the automotive industry were to meet 
this CO2 level all through fuel economy improvements. As a 
consequence of the prohibition against NHTSA's allowing credits for air 
conditioning improvements for purposes of passenger car CAFE 
compliance, NHTSA is setting fuel economy standards that are estimated 
to require a combined (passenger car and light truck) average fuel 
economy level of 34.1 mpg by MY 2016.
---------------------------------------------------------------------------

    \20\ The agencies are using a common conversion factor between 
fuel economy in units of miles per gallon and CO2 
emissions in units of grams per mile. This conversion factor is 
8,887 grams CO2 per gallon gasoline fuel. Diesel fuel has 
a conversion factor of 10,180 grams CO2 per gallon diesel 
fuel though for the purposes of this calculation, we are assuming 
100% gasoline fuel.
---------------------------------------------------------------------------

    The vast majority of public comments expressed strong support for 
the National Program standards, including the stringency of the 
agencies' respective standards and the phase-in from model year 2012 
through 2016. There were a number of comments supporting standards more 
stringent than proposed, and a few others supporting less stringent 
standards, in particular for the 2012-2015 model years. The agencies' 
consideration of comments and their updated technical analyses led to 
only very limited changes in the footprint curves and did not change 
the agencies' projections that the nationwide fleet will achieve a 
level of 250 grams/mile by 2016 (equivalent to 35.5 mpg). The responses 
to these comments are discussed in more detail in Sections III and IV, 
respectively, and in the Response to Comments document.
    As proposed, NHTSA and EPA's final standards, like the standards 
NHTSA promulgated in March 2009 for MY 2011, are expressed as 
mathematical functions depending on vehicle footprint. Footprint is one 
measure of vehicle size, and is determined by multiplying the vehicle's 
wheelbase by the vehicle's average track width.\21\ The standards that 
must be met by each manufacturer's fleet will be determined by 
computing the sales-weighted average (harmonic average for CAFE) of the 
targets applicable to each of the manufacturer's passenger cars and 
light trucks. Under these footprint-based standards, the levels 
required of individual manufacturers will depend, as noted above, on 
the mix of vehicles sold. NHTSA's and EPA's respective standards are 
shown in the tables below. It is important to note that the standards 
are the attribute-based curves established by each agency. The values 
in the tables below reflect the agencies' projection of the 
corresponding fleet levels that will result from these attribute-based 
curves.
---------------------------------------------------------------------------

    \21\ See 49 CFR 523.2 for the exact definition of ``footprint.''
---------------------------------------------------------------------------

    As a result of public comments and updated economic and future 
fleet projections, EPA and NHTSA have updated the attribute based 
curves for this final rule, as discussed in detail in Section II.B of 
this preamble and Chapter 2 of the Joint TSD. This update in turn 
affects costs, benefits, and other impacts of the final standards. 
Thus, the agencies have updated their overall projections of the 
impacts of the final rule standards, and these results are only 
slightly different from those presented in the proposed rule.
    As shown in Table I.B.2-1, NHTSA's fleet-wide CAFE-required levels 
for passenger cars under the final standards are projected to increase 
from 33.3 to 37.8 mpg between MY 2012 and MY 2016. Similarly, fleet-
wide CAFE levels for light trucks are projected to increase from 25.4 
to 28.8 mpg. NHTSA has also estimated the average fleet-wide required 
levels for the combined car and truck fleets. As shown, the overall 
fleet average CAFE level is expected to be 34.1 mpg in MY 2016. These 
numbers do not include the effects of other flexibilities and credits 
in the program. These standards represent a 4.3 percent average annual 
rate of increase relative to the MY 2011 standards.\22\
---------------------------------------------------------------------------

    \22\ Because required CAFE levels depend on the mix of vehicles 
sold by manufacturers in a model year, NHTSA's estimate of future 
required CAFE levels depends on its estimate of the mix of vehicles 
that will be sold in that model year. NHTSA currently estimates that 
the MY 2011 standards will require average fuel economy levels of 
30.4 mpg for passenger cars, 24.4 mpg for light trucks, and 27.6 mpg 
for the combined fleet.

                                      Table I.B.2-1--Average Required Fuel Economy (mpg) Under Final CAFE Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             2011-base         2012            2013            2014            2015            2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................            30.4            33.3            34.2            34.9            36.2            37.8
Light Trucks............................................            24.4            25.4            26.0            26.6            27.5            28.8
                                                         -----------------------------------------------------------------------------------------------
    Combined Cars & Trucks..............................            27.6            29.7            30.5            31.3            32.6            34.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 25331]]

    Accounting for the expectation that some manufacturers could 
continue to pay civil penalties rather than achieving required CAFE 
levels, and the ability to use FFV credits,\23\ NHTSA estimates that 
the CAFE standards will lead to the following average achieved fuel 
economy levels, based on the projections of what each manufacturer's 
fleet will comprise in each year of the program: \24\
---------------------------------------------------------------------------

    \23\ The penalties are similar in function to essentially 
unlimited, fixed-price allowances.
    \24\ NHTSA's estimates account for availability of CAFE credits 
for the sale of flexible-fuel vehicles (FFVs), and for the potential 
that some manufacturers will pay civil penalties rather than comply 
with the CAFE standards. This yields NHTSA's estimates of the real-
world fuel economy that will likely be achieved under the final CAFE 
standards. NHTSA has not included any potential impact of car-truck 
credit transfer in its estimate of the achieved CAFE levels.

  Table I.B.2-2--Projected Fleet-Wide Achieved CAFE Levels Under the Final Footprint-Based CAFE Standards (mpg)
----------------------------------------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................            32.3            33.5            34.2            35.0            36.2
Light Trucks....................            24.5            25.1            25.9            26.7            27.5
                                 -------------------------------------------------------------------------------
    Combined Cars & Trucks......            28.7            29.7            30.6            31.5            32.7
----------------------------------------------------------------------------------------------------------------

    NHTSA is also required by EISA to set a minimum fuel economy 
standard for domestically manufactured passenger cars in addition to 
the attribute-based passenger car standard. The minimum standard 
``shall be the greater of (A) 27.5 miles per gallon; or (B) 92 percent 
of the average fuel economy projected by the Secretary for the combined 
domestic and non-domestic passenger automobile fleets manufactured for 
sale in the United States by all manufacturers in the model year.* * * 
'' \25\
---------------------------------------------------------------------------

    \25\ 49 U.S.C. 32902(b)(4).
---------------------------------------------------------------------------

    Based on NHTSA's current market forecast, the agency's estimates of 
these minimum standards under the MY 2012-2016 CAFE standards (and, for 
comparison, the final MY 2011 standard) are summarized below in Table 
I.B.2-3.\26\ For eventual compliance calculations, the final calculated 
minimum standards will be updated to reflect the average fuel economy 
level required under the final standards.
---------------------------------------------------------------------------

    \26\ In the March 2009 final rule establishing MY 2011 standards 
for passenger cars and light trucks, NHTSA estimated that the 
minimum required CAFE standard for domestically manufactured 
passenger cars would be 27.8 mpg under the MY 2011 passenger car 
standard.

Table I.B.2-3--Estimated Minimum Standard for Domestically Manufactured Passenger Cars Under MY 2011 and MY 2012-
                                  2016 CAFE Standards for Passenger Cars (mpg)
----------------------------------------------------------------------------------------------------------------
       2011               2012               2013               2014               2015               2016
----------------------------------------------------------------------------------------------------------------
           27.8               30.7               31.4               32.1               33.3               34.7
----------------------------------------------------------------------------------------------------------------

    EPA is establishing GHG emissions standards, and Table I.B.2-4 
provides EPA's estimates of their projected overall fleet-wide 
CO2 equivalent emission levels.\27\ The g/mi values are 
CO2 equivalent values because they include the projected use 
of air conditioning (A/C) credits by manufacturers, which include both 
HFC and CO2 reductions.
---------------------------------------------------------------------------

    \27\ These levels do not include the effect of flexible fuel 
credits, transfer of credits between cars and trucks, temporary lead 
time allowance, or any other credits with the exception of air 
conditioning.

 Table I.B.2-4--Projected Fleet-Wide Emissions Compliance Levels Under the Footprint-Based CO2 Standards (g/mi)
----------------------------------------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................             263             256             247             236             225
Light Trucks....................             346             337             326             312             298
                                 -------------------------------------------------------------------------------
    Combined Cars & Trucks......             295             286             276             263             250
----------------------------------------------------------------------------------------------------------------

    As shown in Table I.B.2-4, fleet-wide CO2 emission level 
requirements for cars are projected to increase in stringency from 263 
to 225 g/mi between MY 2012 and MY 2016. Similarly, fleet-wide 
CO2 equivalent emission level requirements for trucks are 
projected to increase in stringency from 346 to 298 g/mi. As shown, the 
overall fleet average CO2 level requirements are projected 
to increase in stringency from 295 g/mi in MY 2012 to 250 g/mi in MY 
2016.
    EPA anticipates that manufacturers will take advantage of program 
flexibilities such as flexible fueled vehicle credits and car/truck 
credit trading. Due to the credit trading between cars and trucks, the 
estimated improvements in CO2 emissions are distributed 
differently than shown in Table I.B.2-4, where full manufacturer 
compliance without credit trading is assumed. Table I.B.2-5 shows EPA's 
projection of the achieved emission levels of the fleet for MY 2012 
through 2016, which does consider the impact of car/truck credit 
transfer and the increase in emissions due to certain program 
flexibilities including flex fueled vehicle credits and the temporary 
lead time allowance alternative standards. The use of optional air 
conditioning credits is considered both in this analysis of achieved 
levels and of the

[[Page 25332]]

compliance levels described above. As can be seen in Table I.B.2-5, the 
projected achieved levels are slightly higher for model years 2012-2015 
due to EPA's assumptions about manufacturers' use of the regulatory 
flexibilities, but by model year 2016 the achieved level is projected 
to be 250 g/mi for the fleet.

   Table I.B.2-5--Projected Fleet-Wide Achieved Emission Levels Under the Footprint-Based CO2 Standards (g/mi)
----------------------------------------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................             267             256             245             234             223
Light Trucks....................             365             353             340             324             303
                                 -------------------------------------------------------------------------------
    Combined Cars & Trucks......             305             293             280             266             250
----------------------------------------------------------------------------------------------------------------

    Several auto manufacturers stated that the increasingly stringent 
requirements for fuel economy and GHG emissions in the early years of 
the program should follow a more linear phase-in. The agencies' 
consideration of comments and of their updated technical analyses did 
not lead to changes to the phase-in of the standards discussed above. 
This issue is discussed in more detail in Sections II.D, and in 
Sections III and IV.
    NHTSA's and EPA's technology assessment indicates there is a wide 
range of technologies available for manufacturers to consider in 
upgrading vehicles to reduce GHG emissions and improve fuel economy. 
Commenters were in general agreement with this assessment.\28\ As 
noted, these include improvements to the engines such as use of 
gasoline direct injection and downsized engines that use turbochargers 
to provide performance similar to that of larger engines, the use of 
advanced transmissions, increased use of start-stop technology, 
improvements in tire rolling resistance, reductions in vehicle weight, 
increased use of hybrid and other advanced technologies, and the 
initial commercialization of electric vehicles and plug-in hybrids. EPA 
is also projecting improvements in vehicle air conditioners including 
more efficient as well as low leak systems. All of these technologies 
are already available today, and EPA's and NHTSA's assessments are that 
manufacturers will be able to meet the standards through more 
widespread use of these technologies across the fleet.
---------------------------------------------------------------------------

    \28\ The close relationship between emissions of 
CO2--the most prevalent greenhouse gas emitted by motor 
vehicles--and fuel consumption, means that the technologies to 
control CO2 emissions and to improve fuel economy overlap 
to a great degree.
---------------------------------------------------------------------------

    With respect to the practicability of the standards in terms of 
lead time, during MYs 2012-2016 manufacturers are expected to go 
through the normal automotive business cycle of redesigning and 
upgrading their light-duty vehicle products, and in some cases 
introducing entirely new vehicles not on the market today. This rule 
allows manufacturers the time needed to incorporate technology to 
achieve GHG reductions and improve fuel economy during the vehicle 
redesign process. This is an important aspect of the rule, as it avoids 
the much higher costs that would occur if manufacturers needed to add 
or change technology at times other than their scheduled redesigns. 
This time period also provides manufacturers the opportunity to plan 
for compliance using a multi-year time frame, again consistent with 
normal business practice. Over these five model years, there will be an 
opportunity for manufacturers to evaluate almost every one of their 
vehicle model platforms and add technology in a cost effective way to 
control GHG emissions and improve fuel economy. This includes redesign 
of the air conditioner systems in ways that will further reduce GHG 
emissions. Various commenters stated that the proposed phase-in of the 
standards should be introduced more aggressively, less aggressively, or 
in a more linear manner. However, our consideration of these comments 
about the phase-in, as well as our revised analyses, leads us to 
conclude that the general rate of introduction of the standards as 
proposed remains appropriate. This conclusion is also not affected by 
the slight difference from the proposal in the final footprint-based 
curves. These issues are addressed further in Sections III and IV.
    Both agencies considered other standards as part of the rulemaking 
analyses, both more and less stringent than those proposed. EPA's and 
NHTSA's analyses of alternative standards are contained in Sections III 
and IV of this preamble, respectively, as well as the agencies' 
respective RIAs.
    The CAFE and GHG standards described above are based on determining 
emissions and fuel economy using the city and highway test procedures 
that are currently used in the CAFE program. Some environmental and 
other organizations commented that the test procedures should be 
improved to reflect more real-world driving conditions; auto 
manufacturers in general do not support such changes to the test 
procedures at this time. Both agencies recognize that these test 
procedures are not fully representative of real-world driving 
conditions. For example, EPA has adopted more representative test 
procedures that are used in determining compliance with emissions 
standards for pollutants other than GHGs. These test procedures are 
also used in EPA's fuel economy labeling program. However, as discussed 
in Section III, the current information on effectiveness of the 
individual emissions control technologies is based on performance over 
the CAFE test procedures. For that reason, EPA is using the current 
CAFE test procedures for the CO2 standards and is not 
changing those test procedures in this rulemaking. NHTSA, as discussed 
above, is limited by statute in what test procedures can be used for 
purposes of passenger car testing, although there is no such statutory 
limitation with respect to test procedures for trucks. However, the 
same reasons for not changing the truck test procedures apply for CAFE 
as well.
    Both EPA and NHTSA are interested in developing programs that 
employ test procedures that are more representative of real-world 
driving conditions, to the extent authorized under their respective 
statutes. This is an important issue, and the agencies intend to 
continue to evaluate it in the context of a future rulemaking to 
address standards for model year 2017 and thereafter. This could 
include consideration of a range of test procedure changes to better 
represent real-world driving conditions in terms of speed, 
acceleration, deceleration, ambient temperatures, use of air 
conditioners, and the like. With respect to air conditioner operation, 
EPA discusses the public comments on these issues and the final 
procedures for determining emissions credits for controls on air 
conditioners in Section III.

[[Page 25333]]

    Finally, based on the information EPA developed in its recent 
rulemaking that updated its fuel economy labeling program to better 
reflect average real-world fuel economy, the calculation of fuel 
savings and CO2 emissions reductions that will be achieved 
by the CAFE and GHG standards includes adjustments to account for the 
difference between the fuel economy level measured in the CAFE test 
procedure and the fuel economy actually achieved on average under real-
world driving conditions. These adjustments are industry averages for 
the vehicles' performance as a whole, however, and are not a substitute 
for the information on effectiveness of individual control technologies 
that will be explored for purposes of a future GHG and CAFE rulemaking.
3. Form of the Standards
    NHTSA and EPA proposed attribute-based standards for passenger cars 
and light trucks. NHTSA adopted an attribute approach based on vehicle 
footprint in its Reformed CAFE program for light trucks for model years 
2008-2011,\29\ and recently extended this approach to passenger cars in 
the CAFE rule for MY 2011 as required by EISA.\30\ The agencies also 
proposed using vehicle footprint as the attribute for the GHG and CAFE 
standards. Footprint is defined as a vehicle's wheelbase multiplied by 
its track width--in other words, the area enclosed by the points at 
which the wheels meet the ground. Most commenters that expressed a view 
on this topic supported basing the standards on an attribute, and 
almost all of these supported the proposed choice of vehicle footprint 
as an appropriate attribute. The agencies continue to believe that the 
standards are best expressed in terms of an attribute, and that the 
footprint attribute is the most appropriate attribute on which to base 
the standards. These issues are further discussed later in this notice 
and in Chapter 2 of the Joint TSD.
---------------------------------------------------------------------------

    \29\ 71 FR 17566 (Apr. 6, 2006).
    \30\ 74 FR 14196 (Mar. 30, 2009).
---------------------------------------------------------------------------

    Under the footprint-based standards, each manufacturer will have a 
GHG and CAFE target unique to its fleet, depending on the footprints of 
the vehicle models produced by that manufacturer. A manufacturer will 
have separate footprint-based standards for cars and for trucks. 
Generally, larger vehicles (i.e., vehicles with larger footprints) will 
be subject to less stringent standards (i.e., higher CO2 
grams/mile standards and lower CAFE standards) than smaller vehicles. 
This is because, generally speaking, smaller vehicles are more capable 
of achieving lower levels of CO2 and higher levels of fuel 
economy than larger vehicles. While a manufacturer's fleet average 
standard could be estimated throughout the model year based on 
projected production volume of its vehicle fleet, the standard to which 
the manufacturer must comply will be based on its final model year 
production figures. A manufacturer's calculation of fleet average 
emissions at the end of the model year will thus be based on the 
production-weighted average emissions of each model in its fleet.
    The final footprint-based standards are very similar in shape to 
those proposed. NHTSA and EPA include more discussion of the 
development of the final curves in Section II below, with a full 
discussion in the Joint TSD. In addition, a full discussion of the 
equations and coefficients that define the curves is included in 
Section III for the CO2 curves and Section IV for the mpg 
curves. The following figures illustrate the standards. First, Figure 
I.B.3-1 shows the fuel economy (mpg) car standard curve.
    Under an attribute-based standard, every vehicle model has a 
performance target (fuel economy for the CAFE standards, and 
CO2 g/mile for the GHG emissions standards), the level of 
which depends on the vehicle's attribute (for this rule, footprint). 
The manufacturers' fleet average performance is determined by the 
production-weighted \31\ average (for CAFE, harmonic average) of those 
targets. NHTSA and EPA are setting CAFE and CO2 emissions 
standards defined by constrained linear functions and, equivalently, 
piecewise linear functions.\32\ As a possible option for future 
rulemakings, the constrained linear form was introduced by NHTSA in the 
2007 NPRM proposing CAFE standards for MY 2011-2015.
---------------------------------------------------------------------------

    \31\ Based on vehicles produced for sale in the United States.
    \32\ The equations are equivalent but are specified differently 
due to differences in the agencies' respective models.
---------------------------------------------------------------------------

    NHTSA is establishing the attribute curves below for assigning a 
fuel economy level to an individual vehicle's footprint value, for 
model years 2012 through 2016. These mpg values will be production 
weighted to determine each manufacturer's fleet average standard for 
cars and trucks. Although the general model of the equation is the same 
for each vehicle category and each year, the parameters of the equation 
differ for cars and trucks. Each parameter also changes on an annual 
basis, resulting in the yearly increases in stringency. Figure I.B.3-1 
below illustrates the passenger car CAFE standard curves for model 
years 2012 through 2016 while Figure I.B.3-2 below illustrates the 
light truck standard curves for model years 2012-2016. The MY 2011 
final standards for cars and trucks, which are specified by a 
constrained logistic function rather than a constrained linear 
function, are shown for comparison.
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    EPA is establishing the attribute curves below for assigning a 
CO2 level to an individual vehicle's footprint value, for 
model years 2012 through 2016. These CO2 values will be 
production weighted to determine each manufacturer's fleet average 
standard for cars and trucks. As with the CAFE curves above, the 
general form of the equation is the same for each vehicle category and 
each year, but the parameters of the equation differ for cars and 
trucks. Again, each parameter also changes on an annual basis, 
resulting in the yearly increases in stringency. Figure I.B.3-3 below 
illustrates the CO2 car standard curves for model years 2012 
through 2016 while Figure I.B.3-4 shows the CO2 truck 
standard curves for model years 2012-2016.
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    NHTSA and EPA received a number of comments about the shape of the 
car and truck curves. We address these comments further in Section II.C 
below as well as in Sections III and IV.
    As proposed, NHTSA and EPA will use the same vehicle category 
definitions for determining which vehicles are subject to the car curve 
standards versus the truck curve standards. In other words, a vehicle 
classified as a car under the NHTSA CAFE program will also be 
classified as a car under the EPA GHG program, and likewise for trucks. 
Auto industry commenters generally agreed with this approach and 
believe it is an important aspect of harmonization across the two 
agencies' programs. Some other commenters expressed concern about 
potential consequences, especially in how cars and trucks are 
distinguished. However, EPA and NHTSA are employing the same car and 
truck definitions for the MY 2012-2016 CAFE and GHG standards as those 
used in the CAFE program for the 2011 model year standards.\33\ This 
issue is further discussed for the EPA standards in Section III, and 
for the NHTSA standards in Section IV. This approach of using CAFE 
definitions allows EPA's CO2 standards and the CAFE 
standards to be harmonized across all vehicles for this program. 
However, EPA is not changing the car/truck definition for the purposes 
of any other previous rules.
---------------------------------------------------------------------------

    \33\ 49 CFR 523.
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    Generally speaking, a smaller footprint vehicle will have higher 
fuel economy and lower CO2 emissions relative to a larger 
footprint vehicle when both have the same degree of fuel efficiency 
improvement technology. In this final rule, the standards apply to a 
manufacturers overall fleet, not an individual vehicle, thus a 
manufacturers fleet which is dominated by small footprint vehicles will 
have a higher fuel economy requirement (lower CO2 
requirement) than a manufacturer whose fleet is dominated by large 
footprint vehicles. A footprint-based CO2 or CAFE standard 
can be relatively neutral with respect to vehicle size and consumer 
choice. All vehicles, whether smaller or larger, must make improvements 
to reduce CO2 emissions or improve fuel economy, and 
therefore all vehicles will be relatively more expensive. With the 
footprint-based standard approach, EPA and NHTSA believe there should 
be no significant effect on the relative distribution of different 
vehicle sizes in the fleet, which means that consumers will still be 
able to purchase the size of vehicle that meets their needs. While 
targets are manufacturer specific, rather than vehicle specific, Table 
I.B.3-1 illustrates the fact that different vehicle sizes will have 
varying CO2 emissions and fuel economy targets under the 
final standards.

          Table I.B.3--1 Model Year 2016 CO2 and Fuel Economy Targets for Various MY 2008 Vehicle Types
----------------------------------------------------------------------------------------------------------------
                                                              Example model
            Vehicle type                 Example models      footprint  (sq.    CO2 emissions     Fuel economy
                                                                  ft.)         target  (g/mi)     target  (mpg)
----------------------------------------------------------------------------------------------------------------
                                             Example Passenger Cars
----------------------------------------------------------------------------------------------------------------
Compact car........................  Honda Fit............                40               206              41.1
Midsize car........................  Ford Fusion..........                46               230              37.1
Fullsize car.......................  Chrysler 300.........                53               263              32.6
----------------------------------------------------------------------------------------------------------------
                                            Example Light-duty Trucks
----------------------------------------------------------------------------------------------------------------
Small SUV..........................  4WD Ford Escape......                44               259              32.9
Midsize crossover..................  Nissan Murano........                49               279              30.6
Minivan............................  Toyota Sienna........                55               303              28.2
Large pickup truck.................  Chevy Silverado......                67               348              24.7
----------------------------------------------------------------------------------------------------------------

4. Program Flexibilities
    EPA's and NHTSA's programs as established in this rule provide 
compliance flexibility to manufacturers, especially in the early years 
of the National Program. This flexibility is expected to provide 
sufficient lead time for manufacturers to make necessary technological 
improvements and reduce the overall cost of the program, without 
compromising overall environmental and fuel economy objectives. The 
broad goal of harmonizing the two agencies' standards includes 
preserving manufacturers' flexibilities in meeting the standards, to 
the extent appropriate and required by law. The following section 
provides an overview of this final rule's flexibility provisions. Many 
auto manufacturers commented in support of these provisions as critical 
to meeting the standards in the lead time provided. Environmental 
groups, some States, and others raised concerns about the possibility 
for windfall credits and loss of program benefits. The provisions in 
the final rule are in most cases the same as those proposed. However 
consideration of the issues raised by commenters has led to 
modifications in certain provisions. These comments and the agencies' 
response are discussed in Sections III and IV below and in the Response 
to Comments document.
a. CO2/CAFE Credits Generated Based on Fleet Average 
Performance
    Under this NHTSA and EPA final rule, the fleet average standards 
that apply to a manufacturer's car and truck fleets are based on the 
applicable footprint-based curves. At the end of each model year, when 
production of the model year is complete, a production-weighted fleet 
average will be calculated for each averaging set (cars and trucks). 
Under this approach, a manufacturer's car and/or truck fleet that 
achieves a fleet average CO2/CAFE level better than the 
standard can generate credits. Conversely, if the fleet average 
CO2/CAFE level does not meet the standard, the fleet would 
incur debits (also referred to as a shortfall).
    Under the final program, a manufacturer whose fleet generates 
credits in a given model year would have several options for using 
those credits, including credit carry-back, credit carry-forward, 
credit transfers, and credit trading. These provisions exist in the MY 
2011 CAFE program under EPCA and EISA, and similar provisions are part 
of EPA's Tier 2 program for light-duty vehicle criteria pollutant 
emissions, as well as many

[[Page 25339]]

other mobile source standards issued by EPA under the CAA. The 
manufacturer will be able to carry back credits to offset a deficit 
that had accrued in a prior model year and was subsequently carried 
over to the current model year. EPCA also provides for this. EPCA 
restricts the carry-back of CAFE credits to three years, and as 
proposed EPA is establishing the same limitation, in keeping with the 
goal of harmonizing both sets of standards.
    After satisfying any need to offset pre-existing deficits, 
remaining credits can be saved (banked) for use in future years. Under 
the CAFE program, EISA allows manufacturers to apply credits earned in 
a model year to compliance in any of the five subsequent model 
years.\34\ As proposed, under the GHG program, EPA is also allowing 
manufacturers to use these banked credits in the five years after the 
year in which they were generated (i.e., five years carry-forward).
---------------------------------------------------------------------------

    \34\ 49 U.S.C. 32903(a)(2).
---------------------------------------------------------------------------

    EISA required NHTSA to establish by regulation a CAFE credits 
transferring program, which NHTSA established in a March 2009 final 
rule codified at 49 CFR Part 536, to allow a manufacturer to transfer 
credits between its vehicle fleets to achieve compliance with the 
standards. For example, credits earned by over-compliance with a 
manufacturer's car fleet average standard could be used to offset 
debits incurred due to that manufacturer's not meeting the truck fleet 
average standard in a given year. EPA's Tier 2 program also provides 
for this type of credit transfer. As proposed for purposes of this 
rule, EPA allows unlimited credit transfers across a manufacturer's 
car-truck fleet to meet the GHG standard. This is based on the 
expectation that this flexibility will facilitate manufacturers' 
ability to comply with the GHG standards in the lead time provided, and 
will allow the required GHG emissions reductions to be achieved in the 
most cost effective way. Under the CAA, unlike under EISA, there is no 
statutory limitation on car-truck credit transfers. Therefore, EPA is 
not constraining car-truck credit transfers, as doing so would reduce 
the flexibility for lead time, and would increase costs with no 
corresponding environmental benefit. For the CAFE program, however, 
EISA limits the amount of credits that may be transferred, which has 
the effects of limiting the extent to which a manufacturer can rely 
upon credits in lieu of making fuel economy improvements to a 
particular portion of its vehicle fleet, but also of potentially 
increasing the costs of improving the manufacturer's overall fleet. 
EISA also prohibits the use of transferred credits to meet the 
statutory minimum level for the domestic car fleet standard.\35\ These 
and other statutory limits will continue to apply to the determination 
of compliance with the CAFE standards.
---------------------------------------------------------------------------

    \35\ 49 U.S.C. 32903(g)(4).
---------------------------------------------------------------------------

    EISA also allowed NHTSA to establish by regulation a CAFE credit 
trading program, which NHTSA established in the March 2009 final rule 
at 40 CFR part 536, to allow credits to be traded (sold) to other 
vehicle manufacturers. As proposed, EPA allows credit trading in the 
GHG program. These sorts of exchanges are typically allowed under EPA's 
current mobile source emission credit programs, although manufacturers 
have seldom made such exchanges. Under the NHTSA CAFE program, EPCA 
also allows these types of credit trades, although, as with transferred 
credits, traded credits may not be used to meet the minimum domestic 
car standards specified by statute.\36\ Comments discussing these 
provisions supported the proposed approach. These final provisions are 
the same as proposed.
---------------------------------------------------------------------------

    \36\ 49 U.S.C. 32903(f)(2).
---------------------------------------------------------------------------

    As further discussed in Section IV of this preamble, NHTSA sought 
to find a way to provide credits for improving the efficiency of light 
truck air conditioners (A/Cs) and solicited public comments to that 
end. The agency did so because the power necessary to operate an A/C 
compressor places a significant additional load on the engine, thus 
reducing fuel economy and increasing CO2 tailpipe emissions. 
See Section III.C.1 below. The agency would have made a similar effort 
regarding cars, but a 1975 statutory provision made it unfruitful even 
to explore the possibility of administratively proving such credits for 
cars. The agency did not identify a workable way of providing such 
credits for light trucks in the context of this rulemaking.
b. Air Conditioning Credits Under the EPA Final Rule
    Air conditioning (A/C) systems contribute to GHG emissions in two 
ways. Hydrofluorocarbon (HFC) refrigerants, which are powerful GHGs, 
can leak from the A/C system (direct A/C emissions). As just noted, 
operation of the A/C system also places an additional load on the 
engine, which results in additional CO2 tailpipe emissions 
(indirect A/C related emissions). EPA is allowing manufacturers to 
generate credits by reducing either or both types of GHG emissions 
related to A/C systems. Specifically, EPA is establishing a method to 
calculate CO2 equivalent reductions for the vehicle's full 
useful life on a grams/mile basis that can be used as credits in 
meeting the fleet average CO2 standards. EPA's analysis 
indicates that this approach provides manufacturers with a highly cost-
effective way to achieve a portion of GHG emissions reductions under 
the EPA program. EPA is estimating that manufacturers will on average 
generate 11 g/mi GHG credit toward meeting the 250 g/mi by 2016 (though 
some companies may generate more). EPA will also allow manufacturers to 
earn early A/C credits starting in MY 2009 through 2011, as discussed 
further in a later section. There were many comments on the proposed A/
C provisions. Nearly every one of these was supportive of EPA including 
A/C control as part of this rule, though there was some disagreement on 
some of the details of the program. The HFC crediting scheme was widely 
supported. The comments mainly were concentrated on indirect A/C 
related credits. The auto manufacturers and suppliers had some 
technical comments on A/C technologies, and there were many concerns 
with the proposed idle test. EPA has made some minor adjustments in 
both of these areas that we believe are responsive to these concerns. 
EPA addresses A/C issues in greater detail in Section III of this 
preamble and in Chapter 2 of EPA's RIA.
c. Flexible-Fuel and Alternative Fuel Vehicle Credits
    EPCA authorizes a compliance flexibility incentive under the CAFE 
program for production of dual-fueled or flexible-fuel vehicles (FFV) 
and dedicated alternative fuel vehicles. FFVs are vehicles that can run 
both on an alternative fuel and conventional fuel. Most FFVs are E85 
capable vehicles, which can run on either gasoline or a mixture of up 
to 85 percent ethanol and 15 percent gasoline (E85). Dedicated 
alternative fuel vehicles are vehicles that run exclusively on an 
alternative fuel. EPCA was amended by EISA to extend the period of 
availability of the FFV incentive, but to begin phasing it out by 
annually reducing the amount of FFV incentive that can be used toward 
compliance with the CAFE standards.\37\ Although NHTSA

[[Page 25340]]

expressed concern about the non-use of alternative fuel by FFVs in a 
2002 report to Congress (Effects of the Alternative Motor Fuels Act 
CAFE Incentives Policy), EISA does not premise the availability of the 
FFV credits on actual use of alternative fuel by an FFV vehicle. Under 
NHTSA's CAFE program, pursuant to EISA, no FFV credits will be 
available for CAFE compliance after MY 2019.\38\ For dedicated 
alternative fuel vehicles, there are no limits or phase-out of the 
credits. As required by the statute, NHTSA will continue to allow the 
use of FFV credits for purposes of compliance with the CAFE standards 
until the end of the EISA phase-out period.
---------------------------------------------------------------------------

    \37\ EPCA provides a statutory incentive for production of FFVs 
by specifying that their fuel economy is determined using a special 
calculation procedure that results in those vehicles being assigned 
a higher fuel economy level than would otherwise occur. This is 
typically referred to as an FFV credit.
    \38\ Id.
---------------------------------------------------------------------------

    For the GHG program, as proposed, EPA will allow FFV credits in 
line with EISA limits, but only during the period from MYs 2012 to 
2015. After MY 2015, EPA will only allow FFV credits based on a 
manufacturer's demonstration that the alternative fuel is actually 
being used in the vehicles and based on the vehicle's actual 
performance. EPA discusses this in more detail in Section III.C of the 
preamble, including a summary of key comments. These provisions are 
being finalized as proposed, with further discussion in Section III.C 
of how manufacturers can demonstrate that the alternative fuel is being 
used.
d. Temporary Lead-Time Allowance Alternative Standards Under the EPA 
Final Rule
    Manufacturers with limited product lines may be especially 
challenged in the early years of the National Program, and need 
additional lead time. Manufacturers with narrow product offerings may 
not be able to take full advantage of averaging or other program 
flexibilities due to the limited scope of the types of vehicles they 
sell. For example, some smaller volume manufacturer fleets consist 
entirely of vehicles with very high baseline CO2 emissions. 
Their vehicles are above the CO2 emissions target for that 
vehicle footprint, but do not have other types of vehicles in their 
production mix with which to average. Often, these manufacturers pay 
fines under the CAFE program rather than meet the applicable CAFE 
standard. EPA believes that these technological circumstances call for 
more lead time in the form of a more gradual phase-in of standards.
    EPA is finalizing a temporary lead-time allowance for manufacturers 
that sell vehicles in the U.S. in MY 2009 and for which U.S. vehicle 
sales in that model year are below 400,000 vehicles. This allowance 
will be available only during the MY 2012-2015 phase-in years of the 
program. A manufacturer that satisfies the threshold criteria will be 
able to treat a limited number of vehicles as a separate averaging 
fleet, which will be subject to a less stringent GHG standard.\39\ 
Specifically, a standard of 25 percent above the vehicle's otherwise 
applicable foot-print target level will apply to up to 100,000 vehicles 
total, spread over the four year period of MY 2012 through 2015. Thus, 
the number of vehicles to which the flexibility could apply is limited. 
EPA also is setting appropriate restrictions on credit use for these 
vehicles, as discussed further in Section III. By MY 2016, these 
allowance vehicles must be averaged into the manufacturer's full fleet 
(i.e., they will no longer be eligible for a different standard). EPA 
discusses this in more detail in Section III.B of the preamble.
---------------------------------------------------------------------------

    \39\ EPCA does not permit such an allowance. Consequently, 
manufacturers who may be able to take advantage of a lead-time 
allowance under the GHG standards would be required to comply with 
the applicable CAFE standard or be subject to penalties for non-
compliance.
---------------------------------------------------------------------------

    EPA received comments from several smaller manufacturers that the 
TLAAS program was insufficient to allow manufacturers with very limited 
product lines to comply. These manufacturers commented that they need 
additional lead time to meet the standards, because their 
CO2 baselines are significantly higher and their vehicle 
product lines are even more limited, reducing their ability to average 
across their fleets compared even to other TLAAS manufacturers. EPA 
fully summarizes the public comments on the TLAAS program, including 
comments not supporting the program, in Section III.B. In summary, in 
response to the lead time issues raised by manufacturers, EPA is 
modifying the TLAAS program that applies to manufacturers with between 
5,000 and 50,000 U.S. vehicle sales in MY 2009. EPA believes these 
provisions are necessary given that, compared with other TLAAS 
manufacturers, these manufacturers have even more limited product 
offerings across which to average and higher baseline CO2 
emissions, and thus need additional lead-time to meet the standards. 
These manufacturers would have an increased allotment of vehicles, a 
total of 250,000, compared to 100,000 vehicles (for other TLAAS-
eligible manufacturers). In addition, the TLAAS program for these 
manufacturers would be extended by one year, through MY 2016 for these 
vehicles, for a total of five years of eligibility. The other 
provisions of the TLAAS program would continue to apply, such as the 
restrictions on credit trading and the level of the standard. 
Additional restrictions would also apply to these vehicles, as 
discussed in Section III. In addition, for the smallest volume 
manufacturers, those with below 5,000 U.S. vehicle sales, EPA is not 
setting standards at this time but is instead deferring standards until 
a future rulemaking. This is essentially the same approach we are using 
for small businesses, which are exempted from this rule. The unique 
issues involved with these manufacturers will be addressed in that 
future rulemaking. Further discussion of the public comment on these 
issues and details on these changes from the proposed program are 
included in Section III.
e. Additional Credit Opportunities Under the Clean Air Act (CAA)
    EPA is establishing additional opportunities for early credits in 
MYs 2009-2011 through over-compliance with a baseline standard. The 
baseline standard is set to be equivalent, on a national level, to the 
California standards. Credits can be generated by over-compliance with 
this baseline in one of two ways--over-compliance by the fleet of 
vehicles sold in California and the CAA section 177 States (i.e., those 
States adopting the California program), or over-compliance with the 
fleet of vehicles sold in the 50 States. EPA is also providing for 
early credits based on over-compliance with CAFE, but only for vehicles 
sold in States outside of California and the CAA section 177 states. 
Under the early credit provisions, no early FFV credits would be 
allowed, except those achieved by over-compliance with the California 
program based on California's provisions that manufacturers demonstrate 
actual use of the alternative fuel. EPA's early credits provisions are 
designed to ensure that there would be no double counting of early 
credits. NHTSA notes, however, that credits for overcompliance with 
CAFE standards during MYs 2009-2011 will still be available for 
manufacturers to use toward compliance in future model years, just as 
before.
    EPA received comments from some environmental organizations and 
States expressing concern that these early credits were inappropriate 
windfall credits because they provided credits for actions that were 
not surplus, that is above what would otherwise be required for 
compliance with either State or Federal motor vehicle standards. This 
focused on the credits

[[Page 25341]]

for over-compliance with the California standards generated during 
model years 2009 and perhaps 2010, where according to commenters the 
CAFE requirements were in effect more stringent than the California 
standards. EPA believes that early credits provide a valuable incentive 
for manufacturers that have implemented fuel efficient technologies in 
excess of their CAFE compliance obligations prior to MY 2012. With 
appropriate restrictions, these credits, reflecting over-compliance 
over a three model year time frame (MY 2009-2011) and not just over one 
or two model years, will be surplus reductions and not otherwise 
required by law. Therefore, EPA is finalizing these provisions largely 
as proposed, but in response to comments, with an additional 
restriction on the trading of MY 2009 credits. The overall structure of 
this early credit program addresses concerns about the potential for 
windfall credits in the first one or two model years. This issue is 
fully discussed in Section III.C.
    EPA is providing an additional temporary incentive to encourage the 
commercialization of advanced GHG/fuel economy control technologies--
including electric vehicles (EVs), plug-in hybrid electric vehicles 
(PHEVs), and fuel cell vehicles (FCVs)--for model years 2012-2016. 
EPA's proposal included an emissions compliance value of zero grams/
mile for EVs and FCVs, and the electric portion of PHEVs, and a 
multiplier in the range of 1.2 to 2.0, so that each advanced technology 
vehicle would count as greater than one vehicle in a manufacturer's 
fleetwide compliance calculation. EPA received many comments on the 
proposed incentives. Many State and environmental organization 
commenters believed that the combination of these incentives could 
undermine the GHG benefits of the rule, and believed the emissions 
compliance values should take into account the net upstream GHG 
emissions associated with electrified vehicles compared to vehicles 
powered by petroleum based fuel. Auto manufacturers generally supported 
the incentives, some believing the incentives to be a critical part of 
the National Program. Most auto makers supported both the zero grams/
mile emissions compliance value and the higher multipliers.
    Upon considering the public comments on this issue, EPA is 
finalizing an advanced technology vehicle incentive program that 
includes a zero gram/mile emissions compliance value for EVs and FCVs, 
and the electric portion of PHEVs, for up to the first 200,000 EV/PHEV/
FCV vehicles produced by a given manufacturer during MY 2012-2016 (for 
a manufacturer that produces less than 25,000 EVs, PHEVs, and FCVs in 
MY 2012), or for up to the first 300,000 EV/PHEV/FCV vehicles produced 
during MY 2012-2016 (for a manufacturer that produces 25,000 or more 
EVs, PHEVs, and FCVs in MY 2012). For any production greater than this 
amount, the compliance value for the vehicle will be greater than zero 
gram/mile, set at a level that reflects the vehicle's net increase in 
upstream GHG emissions in comparison to the gasoline vehicle it 
replaces. In addition, EPA is not finalizing a multiplier. EPA will 
also allow this early advanced technology incentive program beginning 
in MYs 2009-2011. The purpose of these provisions is to provide a 
temporary incentive to promote technologies which have the potential to 
produce very large GHG reductions in the future. The tailpipe GHG 
emissions from EVs, FCVs, and PHEVs operated on grid electricity are 
zero, and traditionally the emissions of the vehicle itself are all 
that EPA takes into account for purposes of compliance with standards 
set under section 202(a). This has not raised any issues for criteria 
pollutants, as upstream emissions associated with production and 
distribution of the fuel are addressed by comprehensive regulatory 
programs focused on the upstream sources of those emissions. At this 
time, however, there is no such comprehensive program addressing 
upstream emissions of GHGs, and the upstream GHG emissions associated 
with production and distribution of electricity are higher than the 
corresponding upstream GHG emissions of gasoline or other petroleum 
based fuels. In the future, vehicle fleet electrification combined with 
advances in low-carbon technology in the electricity sector have the 
potential to transform the transportation sector's contribution to the 
country's GHG emissions. EPA will reassess the issue of how to address 
EVs, PHEVs, and FCVs in rulemakings for model years 2017 and beyond, 
based on the status of advanced vehicle technology commercialization, 
the status of upstream GHG control programs, and other relevant 
factors. Further discussion of the temporary advanced technology 
vehicle incentives, including more detail on the public comments and 
EPA's response, is found in Section III.C.
    EPA is also providing an option for manufacturers to generate 
credits for employing new and innovative technologies that achieve GHG 
reductions that are not reflected on current test procedures, as 
proposed. Examples of such ``off-cycle'' technologies might include 
solar panels on hybrids, adaptive cruise control, and active 
aerodynamics, among other technologies. These three credit provisions 
are discussed in more detail in Section III.
5. Coordinated Compliance
    Previous NHTSA and EPA regulations and statutory provisions 
establish ample examples on which to develop an effective compliance 
program that achieves the energy and environmental benefits from CAFE 
and motor vehicle GHG standards. NHTSA and EPA have developed a program 
that recognizes, and replicates as closely as possible, the compliance 
protocols associated with the existing CAA Tier 2 vehicle emission 
standards, and with CAFE standards. The certification, testing, 
reporting, and associated compliance activities closely track current 
practices and are thus familiar to manufacturers. EPA already oversees 
testing, collects and processes test data, and performs calculations to 
determine compliance with both CAFE and CAA standards. Under this 
coordinated approach, the compliance mechanisms for both programs are 
consistent and non-duplicative. EPA will also apply the CAA authorities 
applicable to its separate in-use requirements in this program.
    The compliance approach allows manufacturers to satisfy the new 
program requirements in the same general way they comply with existing 
applicable CAA and CAFE requirements. Manufacturers would demonstrate 
compliance on a fleet-average basis at the end of each model year, 
allowing model-level testing to continue throughout the year as is the 
current practice for CAFE determinations. The compliance program design 
establishes a single set of manufacturer reporting requirements and 
relies on a single set of underlying data. This approach still allows 
each agency to assess compliance with its respective program under its 
respective statutory authority.
    NHTSA and EPA do not anticipate any significant noncompliance under 
the National Program. However, failure to meet the fleet average 
standards (after credit opportunities are exhausted) would ultimately 
result in the potential for penalties under both EPCA and the CAA. The 
CAA allows EPA considerable discretion in assessment of penalties. 
Penalties under the CAA are typically determined on a vehicle-specific 
basis by determining the

[[Page 25342]]

number of a manufacturer's highest emitting vehicles that caused the 
fleet average standard violation. This is the same mechanism used for 
EPA's National Low Emission Vehicle and Tier 2 corporate average 
standards, and to date there have been no instances of noncompliance. 
CAFE penalties are specified by EPCA and would be assessed for the 
entire noncomplying fleet at a rate of $5.50 times the number of 
vehicles in the fleet, times the number of tenths of mpg by which the 
fleet average falls below the standard. In the event of a compliance 
action arising out of the same facts and circumstances, EPA could 
consider CAFE penalties when determining appropriate remedies for the 
EPA case.
    Several stakeholders commented on the proposed coordinated 
compliance approach. The comments indicated broad support for the 
overall approach EPA proposed. In particular, both regulated industry 
and the public interest community appreciated the attempt to streamline 
compliance by adopting current practice where possible and by 
coordinating EPA and NHTSA compliance requirements. Thus the final 
compliance program design is largely unchanged from the proposal. Some 
commenters requested additional detail or clarification in certain 
areas and others suggested some relatively narrow technical changes, 
and EPA has responded to these suggestions. EPA and NHTSA summarize 
these comments and the agencies' responses in Sections III and IV, 
respectively, below. The Response to Comments document associated with 
this document includes all of the comments and responses received 
during the comment period.

C. Summary of Costs and Benefits of the National Program

    This section summarizes the projected costs and benefits of the 
CAFE and GHG emissions standards. These projections helped inform the 
agencies' choices among the alternatives considered and provide further 
confirmation that the final standards are an appropriate choice within 
the spectrum of choices allowable under their respective statutory 
criteria. The costs and benefits projected by NHTSA to result from 
these CAFE standards are presented first, followed by those from EPA's 
analysis of the GHG emissions standards.
    For several reasons, the estimates for costs and benefits presented 
by NHTSA and EPA, while consistent, are not directly comparable, and 
thus should not be expected to be identical. Most important, NHTSA and 
EPA's standards would require slightly different fuel efficiency 
improvements. EPA's GHG standard is more stringent in part due to its 
assumptions about manufacturers' use of air conditioning credits, which 
result from reductions in air conditioning-related emissions of HFCs 
and CO2. NHTSA was unable to make assumptions about 
manufacturers' improving the efficiency of air conditioners due to 
statutory limitations. In addition, the CAFE and GHG standards offer 
different program flexibilities, and the agencies' analyses differ in 
their accounting for these flexibilities (for example, FFVs), primarily 
because NHTSA is statutorily prohibited from considering some 
flexibilities when establishing CAFE standards, while EPA is not. These 
differences contribute to differences in the agencies' respective 
estimates of costs and benefits resulting from the new standards.
    NHTSA performed two analyses: a primary analysis that shows the 
estimates of costs, fuel savings, and related benefits that the agency 
considered for purposes of establishing new CAFE standards, and a 
supplemental analysis that reflects the agency's best estimate of the 
potential real-world effects of the CAFE standards, including 
manufacturers' potential use of FFV credits in accordance with the 
provisions of EISA concerning their availability. Because EPCA 
prohibits NHTSA from considering the ability of manufacturers to use of 
FFV credits to increase their fleet average fuel economy when 
establishing CAFE standards, the agency's primary analysis does not 
include them. However, EPCA does not prohibit NHTSA from considering 
the fact that manufacturers may pay civil penalties rather than 
complying with CAFE standards, and NHTSA's primary analysis accounts 
for some manufacturers' tendency to do so. In addition, NHTSA's 
supplemental analysis of the effect of FFV credits on benefits and 
costs from its CAFE standards, demonstrates the real-world impacts of 
FFVs, and the summary estimates presented in Section IV include these 
effects. Including the use of FFV credits reduces estimated per-vehicle 
compliance costs of the program. However, as shown below, including FFV 
credits does not significantly change the projected fuel savings and 
CO2 reductions, because FFV credits reduce the fuel economy 
levels that manufacturers achieve not only under the standards, but 
also under the baseline MY 2011 CAFE standards.
    Also, EPCA, as amended by EISA, allows manufacturers to transfer 
credits between their passenger car and light truck fleets. However, 
EPCA also prohibits NHTSA from considering manufacturers' ability to 
increase their average fuel economy through the use of CAFE credits 
when determining the stringency of the CAFE standards. Because of this 
prohibition, NHTSA's primary analysis does not account for the extent 
to which credit transfers might actually occur. For purposes of its 
supplemental analysis, NHTSA considered accounting for the possibility 
that some manufacturers might utilize the opportunity under EPCA to 
transfer some CAFE credits between the passenger car and light truck 
fleets, but determined that in NHTSA's year-by-year analysis, 
manufacturers' credit transfers cannot be reasonably estimated at this 
time.\40\
---------------------------------------------------------------------------

    \40\ NHTSA's analysis estimates multi-year planning effects 
within a context in which each model year is represented explicitly, 
and technologies applied in one model year carry forward to future 
model years. NHTSA does not currently have a reasonable basis to 
estimate how a manufacturer might, for example, weigh the transfer 
of credits from the passenger car to the light truck fleet in MY 
2013 against the potential to carry light truck technologies forward 
from MY 2013 through MY 2016.
---------------------------------------------------------------------------

    EPA made explicit assumptions about manufacturers' use of FFV 
credits under both the baseline and control alternatives, and its 
estimates of costs and benefits from the GHG standards reflect these 
assumptions. However, under the GHG standards, FFV credits would be 
available through MY 2015; starting in MY 2016, EPA will only allow FFV 
credits based on a manufacturer's demonstration that the alternative 
fuel is actually being used in the vehicles and the actual GHG 
performance for the vehicle run on that alternative fuel.
    EPA's analysis also assumes that manufacturers would transfer 
credits between their car and truck fleets in the MY 2011 baseline 
subject to the maximum value allowed by EPCA, and that unlimited car-
truck credit transfers would occur under the GHG standards. Including 
these assumptions in EPA's analysis increases the resulting estimates 
of fuel savings and reductions in GHG emissions, while reducing EPA's 
estimates of program compliance costs.
    Finally, under the EPA GHG program, there is no ability for a 
manufacturer to intentionally pay fines in lieu of meeting the 
standard. Under EPCA, however, vehicle manufacturers are allowed to pay 
fines as an alternative to compliance with applicable CAFE standards. 
NHTSA's analysis explicitly estimates the level of voluntary fine 
payment by individual manufacturers, which reduces NHTSA's estimates of

[[Page 25343]]

both the costs and benefits of its CAFE standards. In contrast, the CAA 
does not allow for fine payment (civil penalties) in lieu of compliance 
with emission standards, and EPA's analysis of benefits from its 
standard thus assumes full compliance. This assumption results in 
higher estimates of fuel savings, of reductions in GHG emissions, and 
of manufacturers' compliance costs to sell fleets that comply with both 
NHTSA's CAFE program and EPA's GHG program.
    In summary, the projected costs and benefits presented by NHTSA and 
EPA are not directly comparable, because the GHG emission levels 
established by EPA include air conditioning-related improvements in 
equivalent fuel efficiency and HFC reductions, because of the 
assumptions incorporated in EPA's analysis regarding car-truck credit 
transfers, and because of EPA's projection of complete compliance with 
the GHG standards. It should also be expected that overall, EPA's 
estimates of GHG reductions and fuel savings achieved by the GHG 
standards will be slightly higher than those projected by NHTSA only 
for the CAFE standards because of the reasons described above. For the 
same reasons, EPA's estimates of manufacturers' costs for complying 
with the passenger car and light trucks GHG standards are slightly 
higher than NHTSA's estimates for complying with the CAFE standards.
    A number of stakeholders commented on NHTSA's and EPA's analytical 
assumptions in estimating costs and benefits of the program. These 
comments and any changes from the proposed values are summarized in 
Section II.F, and further in Sections III (for EPA) and IV (for NHTSA); 
the Response to Comments document presents the detailed responses to 
each of the comments.
1. Summary of Costs and Benefits of NHTSA's CAFE Standards
    NHTSA has analyzed in detail the costs and benefits of the final 
CAFE standards. Table I.C.1-1 presents the total costs, benefits, and 
net benefits for NHTSA's final CAFE standards. The values in Table 
I.C.1-1 display the total costs for all MY 2012-2016 vehicles and the 
benefits and net benefits represent the impacts of the standards over 
the full lifetime of the vehicles projected to be sold during model 
years 2012-2016. It is important to note that there is significant 
overlap in costs and benefits for NHTSA's CAFE program and EPA's GHG 
program and therefore combined program costs and benefits, which 
together comprise the National Program, are not a sum of the two 
individual programs.

 Table I.C.1-1--NHTSA's Estimated 2012-2016 Model Year Costs, Benefits,
      and Net Benefits Under the CAFE Standards Before FFV Credits
                             [2007 dollars]
------------------------------------------------------------------------
                      3% Discount Rate:                        $billions
------------------------------------------------------------------------

  Costs.....................................................        51.8
  Benefits..................................................       182.5
  Net Benefits..............................................       130.7
7% Discount Rate:
  Costs.....................................................        51.8
  Benefits..................................................       146.3
  Net Benefits..............................................        94.5
------------------------------------------------------------------------

    NHTSA estimates that these new CAFE standards will lead to fuel 
savings totaling 61 billion gallons throughout the useful lives of 
vehicles sold in MYs 2012-2016. At a 3% discount rate, the present 
value of the economic benefits resulting from those fuel savings is 
$143 billion. At a 7% discount rate, the present value of the economic 
benefits resulting from those fuel savings is $112 billion.\41\
---------------------------------------------------------------------------

    \41\ These figures do not account for the compliance 
flexibilities that NHTSA is prohibited from considering when 
determining the level of new CAFE standards, because manufacturers' 
decisions to use those flexibilities are voluntary.
---------------------------------------------------------------------------

    The agency further estimates that these new CAFE standards will 
lead to corresponding reductions in CO2 emissions totaling 
655 million metric tons (mmt) during the useful lives of vehicles sold 
in MYs 2012-2016. The present value of the economic benefits from 
avoiding those emissions is $14.5 billion, based on a global social 
cost of carbon value of approximately $21 per metric ton (in 2010, and 
growing thereafter).\42\ It is important to note that NHTSA's CAFE 
standards and EPA's GHG standards will both be in effect, and each will 
lead to increases in average fuel economy and CO2 emissions 
reductions. The two agencies' standards together comprise the National 
Program, and this discussion of costs and benefits of NHTSA's CAFE 
standards does not change the fact that both the CAFE and GHG 
standards, jointly, are the source of the benefits and costs of the 
National Program.
---------------------------------------------------------------------------

    \42\ NHTSA also estimated the benefits associated with three 
more estimates of a one ton GHG reduction in 2010 ($5, $35, and 
$65), which will likewise grow thereafter. See Section II for a more 
detailed discussion of the social cost of carbon.

              Table I.C.1-2--NHTSA Fuel Saved (Billion Gallons) and CO2 Emissions Avoided (mmt) Under CAFE Standards (Without FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          2012             2013             2014             2015             2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fuel (b. gal.)....................................              4.2              8.9             12.5             16.0             19.5             61.0
CO2 (mmt).........................................             44               94              134              172              210              655
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Considering manufacturers' ability to earn credit toward compliance 
by selling FFVs, NHTSA estimates very little change in incremental fuel 
savings and avoided CO2 emissions, assuming FFV credits 
would be used toward both the baseline and final standards:

     Table I.C.1-3--NHTSA Fuel Saved (Billion gallons) and CO2 Emissions Avoided (Million Metric Tons, mmt) Under CAFE Standards (With FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fuel (b. gal.)..........................................             4.9             8.2            11.3            15.0            19.1            58.6

[[Page 25344]]

CO2 (mmt)...............................................              53              89             123             163             208             636
--------------------------------------------------------------------------------------------------------------------------------------------------------

    NHTSA estimates that these fuel economy increases would produce 
other benefits both to drivers (e.g., reduced time spent refueling) and 
to the U.S. (e.g., reductions in the costs of petroleum imports beyond 
the direct savings from reduced oil purchases, as well as some 
disbenefits (e.g., increase traffic congestion) caused by drivers' 
tendency to travel more when the cost of driving declines (as it does 
when fuel economy increases). NHTSA has estimated the total monetary 
value to society of these benefits and disbenefits, and estimates that 
the standards will produce significant net benefits to society. Using a 
3% discount rate, NHTSA estimates that the present value of these 
benefits would total more than $180 billion over the useful lives of 
vehicles sold during MYs 2012-2016. More discussion regarding monetized 
benefits can be found in Section IV of this notice and in NHTSA's 
Regulatory Impact Analysis. Note that the benefit calculation in Tables 
I.C.1-4 through 1-7 includes the benefits of reducing CO2 
emissions,\43\ but not the benefits of reducing other GHG emissions.
---------------------------------------------------------------------------

    \43\ CO2 benefits for purposes of these tables are 
calculated using the $21/ton SCC values. Note that net 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 (SCC at 5, 3, and 2.5 percent) is used 
to calculate net present value of SCC for internal consistency.

            Table I.C.1-4--NHTSA Discounted Benefits ($billion) Under the CAFE Standards (Before FFV Credits, Using 3 Percent Discount Rate)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             6.8            15.2            21.6            28.7            35.2           107.5
Light Trucks............................................             5.1            10.7            15.5            19.4            24.3            75.0
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................            11.9            25.8            37.1            48.0            59.5           182.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Using a 7% discount rate, NHTSA estimates that the present value of 
these benefits would total more than $145 billion over the same time 
period.

            Table I.C.1-5--NHTSA Discounted Benefits ($billion) Under the CAFE Standards (Before FFV Credits, Using 7 Percent Discount Rate)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             5.5            12.3            17.5            23.2            28.6            87.0
Light Trucks............................................             4.0             8.4            12.2            15.3            19.2            59.2
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             9.5            20.7            29.7            38.5            47.8           146.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    NHTSA estimates that FFV credits could reduce achieved benefits by 
about 3.8%:

            Table I.C.1-6a--NHTSA Discounted Benefits ($billion) Under the CAFE Standards (With FFV Credits, Using a 3 Percent Discount Rate)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             7.6            13.7            19.1            25.6            34.0           100.0
Light Trucks............................................             6.4            10.4            14.6            19.8            24.4            75.6
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................            14.0            24.1            33.7            45.4            58.4           175.6
--------------------------------------------------------------------------------------------------------------------------------------------------------

            Table I.C.1-6b--NHTSA Discounted Benefits ($billion) Under the CAFE Standards (With FFV Credits, Using a 7 Percent Discount Rate)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             6.1            11.1            15.5            20.7            27.6            80.9
Light Trucks............................................             5.0             8.2            11.5            15.6            19.3            59.7
                                                         -----------------------------------------------------------------------------------------------

[[Page 25345]]

    Combined............................................            11.2            19.3            27.0            36.4            46.9           140.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    NHTSA attributes most of these benefits--about $143 billion (at a 
3% discount rate and excluding consideration of FFV credits), as noted 
above--to reductions in fuel consumption, valuing fuel (for societal 
purposes) at the future pre-tax prices projected in the Energy 
Information Administration's (AEO's) reference case forecast from the 
Annual Energy Outlook (AEO) 2010 Early Release. NHTSA's Final 
Regulatory Impact Analysis (FRIA) accompanying this rule presents a 
detailed analysis of specific benefits of the rule.

Table I.C.1-7--Summary of Benefits Fuel Savings and CO2 Emissions Reduction Due to the Rule (Before FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                                        Monetized value (discounted)
                                            Amount        ------------------------------------------------------
                                                             3% discount rate            7% discount rate
----------------------------------------------------------------------------------------------------------------
Fuel savings......................  61.0 billion gallons.  $143.0 billion......  $112.0 billion.
CO2 emissions reductions..........  655 mmt..............  $14.5 billion.......  $14.5 billion.
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that the increases in technology application 
necessary to achieve the projected improvements in fuel economy will 
entail considerable monetary outlays. The agency estimates that 
incremental costs for achieving its standards--that is, outlays by 
vehicle manufacturers over and above those required to comply with the 
MY 2011 CAFE standards--will total about $52 billion (i.e., during MYs 
2012-2016).

                      Table I.C.1-8--NHTSA Incremental Technology Outlays ($billion) Under the CAFE Standards (Before FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             4.1             5.4             6.9             8.2             9.5            34.2
Light Trucks............................................             1.8             2.5             3.7             4.3             5.4            17.6
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             5.9             7.9            10.5            12.5            14.9            51.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    NHTSA estimates that use of FFV credits could significantly reduce 
these outlays:

                         Table I.C.1-9--NHTSA Incremental Technology Outlays ($billion) under CAFE Standards (With FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             2.6             3.6             4.8             6.1             7.5            24.6
Light Trucks............................................             1.1             1.5             2.5             3.4             4.4            12.9
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             3.7             5.1             7.3             9.5            11.9            37.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The agency projects that manufacturers will recover most or all of 
these additional costs through higher selling prices for new cars and 
light trucks. To allow manufacturers to recover these increased outlays 
(and, to a much lesser extent, the civil penalties that some companies 
are expected to pay for noncompliance), the agency estimates that the 
standards would lead to increases in average new vehicle prices ranging 
from $457 per vehicle in MY 2012 to $985 per vehicle in MY 2016:

  Table I.C.1-10--NHTSA Incremental Increases in Average New Vehicle Costs ($) Under CAFE Standards (Before FFV
                                                    Credits)
----------------------------------------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................             505             573             690             799             907
Light Trucks....................             322             416             621             752             961
                                 -------------------------------------------------------------------------------

[[Page 25346]]

    Combined....................             434             513             665             782             926
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that use of FFV credits could significantly reduce 
these costs, especially in earlier model years:

   Table I.C.1-11--NHTSA Incremental Increases in Average New Vehicle Costs ($) Under CAFE Standards (With FFV
                                                    Credits)
----------------------------------------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................             303             378             481             593             713
Light Trucks....................             194             260             419             581             784
                                 -------------------------------------------------------------------------------
    Combined....................             261             333             458             589             737
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates, therefore, that the total benefits of these CAFE 
standards will be more than three times the magnitude of the 
corresponding costs. As a consequence, its standards would produce net 
benefits of $130.7 billion at a 3 percent discount rate (with FFV 
credits, $138.2 billion) or $94.5 billion at a 7 percent discount rate 
over the useful lives of vehicles sold during MYs 2012-2016.
2. Summary of Costs and Benefits of EPA's GHG Standards
    EPA has analyzed in detail the costs and benefits of the final GHG 
standards. Table I.C.2-1 shows EPA's estimated lifetime discounted 
cost, benefits and net benefits for all vehicles projected to be sold 
in model years 2012-2016. It is important to note that there is 
significant overlap in costs and benefits for NHTSA's CAFE program and 
EPA's GHG program and therefore combined program costs and benefits are 
not a sum of the individual programs.

 Table I.C.2-1--EPA's Estimated 2012-2016 Model Year Lifetime Discounted
Costs, Benefits, and Net Benefits Assuming the $21/Ton SCC Value a b c d
                             [2007 dollars]
------------------------------------------------------------------------
                     3% Discount rate                         $Billions
------------------------------------------------------------------------
Costs.....................................................          51.5
Benefits..................................................         240
Net Benefits..............................................         189
------------------------------------------------------------------------
                     7% Discount rate
------------------------------------------------------------------------
Costs.....................................................          51.5
Benefits..................................................         192
Net Benefits..............................................         140
------------------------------------------------------------------------
\a\ Although EPA estimated the benefits associated with four different
  values of a one ton GHG reduction ($5, $21, $35, $65), for the
  purposes of this overview presentation of estimated costs and benefits
  EPA is showing the benefits associated with the marginal value deemed
  to be central by the interagency working group on this topic: $21 per
  ton of CO2e, in 2007 dollars and 2010 emissions. The $21/ton value
  applies to 2010 CO2 emissions and grows over time.
\b\ As noted in Section III.H, SCC increases over time. The $21/ton
  value applies to 2010 CO2 emissions and grows larger over time.
\c\ Note that net 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 (SCC at 5, 3, and
  2.5 percent) is used to calculate net present value of SCC for
  internal consistency. Refer to Section III.H for more detail.
\d\ Monetized GHG benefits exclude the value of reductions in non-CO2
  GHG emissions (HFC, CH4 and N2O) expected under this final rule.
  Although EPA has not monetized the benefits of reductions in these non-
  CO2 emissions, the value of these reductions should not be interpreted
  as zero. Rather, the reductions in non-CO2 GHGs will contribute to
  this rule's climate benefits, as explained in Section III.F.2. The SCC
  TSD notes the difference between the social cost of non-CO2 emissions
  and CO2 emissions, and specifies a goal to develop methods to value
  non-CO2 emissions in future analyses.

    Table I.C.2-2 shows EPA's estimated lifetime fuel savings and 
CO2 equivalent emission reductions for all vehicles sold in 
the model years 2012-2016. The values in Table I.C.2-2 are projected 
lifetime totals for each model year and are not discounted. As 
documented in EPA's Final RIA, the potential credit transfer between 
cars and trucks may change the distribution of the fuel savings and GHG 
emission impacts between cars and trucks. As discussed above with 
respect to NHTSA's CAFE standards, it is important to note that NHTSA's 
CAFE standards and EPA's GHG standards will both be in effect, and each 
will lead to increases in average fuel economy and reductions in 
CO2 emissions. The two agencies' standards together comprise 
the National Program, and this discussion of costs and benefits of 
EPA's GHG standards does not change the fact that both the CAFE and GHG 
standards, jointly, are the source of the benefits and costs of the 
National Program.

        Table I.C.2-2--EPA's Estimated 2012-2016 Model Year Lifetime Fuel Saved and GHG Emissions Avoided
----------------------------------------------------------------------------------------------------------------
                                             2012        2013        2014        2015        2016        Total
----------------------------------------------------------------------------------------------------------------
Cars..................  Fuel (billion           4.0         5.5         7.3        10.5        14.3        41.6
                         gallons).
                        Fuel (billion           0.10        0.13        0.17        0.25        0.34        0.99
                         barrels).
                        CO2 EQ (mmt)....       49.3        68.5        92.7       134         177         521

[[Page 25347]]

Light Trucks..........  Fuel (billion           3.3         5.0         6.6         9.0        12.2        36.1
                         gallons).
                        Fuel (billion           0.08        0.12        0.16        0.21        0.29        0.86
                         barrels).
                        CO2 EQ (mmt)....       39.6        61.7        81.6       111         147         441
                       -----------------------------------------------------------------------------------------
    Combined..........  Fuel (billion           7.3        10.5        13.9        19.5        26.5        77.7
                         gallons).
                        Fuel (billion           0.17        0.25        0.33        0.46        0.63        1.85
                         barrels).
                        CO2 EQ (mmt)....       88.8       130         174         244         325         962
----------------------------------------------------------------------------------------------------------------

    Table I.C.2-3 shows EPA's estimated lifetime discounted benefits 
for all vehicles sold in model years 2012-2016. Although EPA estimated 
the benefits associated with four different values of a one ton GHG 
reduction ($5, $21, $35, $65), for the purposes of this overview 
presentation of estimated benefits EPA is showing the benefits 
associated with one of these marginal values, $21 per ton of 
CO2, in 2007 dollars and 2010 emissions. Table I.C.2-3 
presents benefits based on the $21 value. Section III.H presents the 
four marginal values used to estimate monetized benefits of GHG 
reductions and Section III.H presents the program benefits using each 
of the four marginal values, which represent only a partial accounting 
of total benefits due to omitted climate change impacts and other 
factors that are not readily monetized. The values in the table are 
discounted values for each model year of vehicles throughout their 
projected lifetimes. The benefits include all benefits considered by 
EPA such as fuel savings, GHG reductions, PM benefits, energy security 
and other externalities such as reduced refueling and accidents, 
congestion and noise. The lifetime discounted benefits are shown for 
one of four different social cost of carbon (SCC) values considered by 
EPA. The values in Table I.C.2-3 do not include costs associated with 
new technology required to meet the GHG standard.

                  Table I.C.2-3--EPA's Estimated 2012-2016 Model Year Lifetime Discounted Benefits Assuming the $21/Ton SCC Value a b c
                                                               [Billions of 2007 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Model year
                      Discount rate                      -----------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
3%......................................................           $21.8           $32.0           $42.8           $60.8           $83.3            $240
7%......................................................            17.4            25.7            34.2            48.6            66.4             192
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ The benefits include all benefits considered by EPA such as the economic value of reduced fuel consumption and accompanying savings in refueling
  time, climate-related economic benefits from reducing emissions of CO2 (but not other GHGs), economic benefits from reducing emissions of PM and other
  air pollutants that contribute to its formation, and reductions in energy security externalities caused by U.S. petroleum consumption and imports. The
  analysis also includes disbenefits stemming from additional vehicle use, such as the economic damages caused by accidents, congestion and noise.
\b\ Note that net 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 (SCC at 5, 3, and 2.5 percent) is used to calculate net present value of SCC for internal consistency. Refer to
  Section III.H for more detail.
\c\ Monetized GHG benefits exclude the value of reductions in non-CO2 GHG emissions (HFC, CH4 and N2O) expected under this final rule. Although EPA has
  not monetized the benefits of reductions in these non-CO2 emissions, the value of these reductions should not be interpreted as zero. Rather, the
  reductions in non-CO2 GHGs will contribute to this rule's climate benefits, as explained in Section III.F.2. The SCC TSD notes the difference between
  the social cost of non-CO2 emissions and CO2 emissions, and specifies a goal to develop methods to value non-CO2 emissions in future analyses. Also,
  as noted in Section III.H, SCC increases over time. The $21/ton value applies to 2010 emissions and grows larger over time.

    Table I.C.2-4 shows EPA's estimated lifetime fuel savings, lifetime 
CO2 emission reductions, and the monetized net present 
values of those fuel savings and CO2 emission reductions. 
The gallons of fuel and CO2 emission reductions are 
projected lifetime values for all vehicles sold in the model years 
2012-2016. The estimated fuel savings in billions of barrels and the 
GHG reductions in million metric tons of CO2 shown in Table 
I.C.2-4 are totals for the five model years throughout their projected 
lifetime and are not discounted. The monetized values shown in Table 
I.C.2-4 are the summed values of the discounted monetized-fuel savings 
and monetized-CO2 reductions for the five model years 2012-
2016 throughout their lifetimes. The monetized values in Table I.C.2-4 
reflect both a 3 percent and a 7 percent discount rate as noted.

     Table I.C.2-4--EPA's Estimated 2012-2016 Model Year Lifetime Fuel Savings, CO2 Emission Reductions, and
                               Discounted Monetized Benefits at a 3% Discount Rate
                                       [Monetized values in 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                     Amount                        $ value (billions)
----------------------------------------------------------------------------------------------------------------
Fuel savings............................  1.8 billion barrels........  $182, 3% discount rate.
                                                                       $142, 7% discount rate.

[[Page 25348]]

CO2e emission reductions (CO2 portion     962 MMT CO2e...............  $17 a b.
 valued assuming $21/ton CO2 in 2010).
----------------------------------------------------------------------------------------------------------------
\a\ $17 billion for 858 MMT of reduced CO2 emissions. As noted in Section III.H, the $21/ton value applies to
  2010 emissions and grows larger over time. Monetized GHG benefits exclude the value of reductions in non-CO2
  GHG emissions (HFC, CH4 and N2O) expected under this final rule. Although EPA has not monetized the benefits
  of reductions in these non-CO2 emissions, the value of these reductions should not be interpreted as zero.
  Rather, the reductions in non-CO2 GHGs will contribute to this rule's climate benefits, as explained in
  Section III.F.2. The SCC TSD notes the difference between the social cost of non-CO2 emissions and CO2
  emissions, and specifies a goal to develop methods to value non-CO2 emissions in future analyses.
\b\ Note that net present value of reduced CO2 emissions is calculated differently than other benefits. The same
  discount rate used to discount the value of damages from future emissions (SCC at 5, 3, and 2.5 percent) is
  used to calculate net present value of SCC for internal consistency. Refer to Section III.H for more detail.

    Table I.C.2-5 shows EPA's estimated incremental and total 
technology outlays for cars and trucks for each of the model years 
2012-2016. The technology outlays shown in Table I.C.2-5 are for the 
industry as a whole and do not account for fuel savings associated with 
the program.

                                              Table I.C.2-5--EPA's Estimated Incremental Technology Outlays
                                                               [Billions of 2007 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cars....................................................            $3.1            $5.0            $6.5            $8.0            $9.4           $31.9
Trucks..................................................             1.8             3.0             3.9             4.8             6.2            19.7
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             4.9             8.0            10.3            12.7            15.6            51.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table I.C.2-6 shows EPA's estimated incremental cost increase of 
the average new vehicle for each model year 2012-2016. The values shown 
are incremental to a baseline vehicle and are not cumulative. In other 
words, the estimated increase for 2012 model year cars is $342 relative 
to a 2012 model year car absent the National Program. The estimated 
increase for a 2013 model year car is $507 relative to a 2013 model 
year car absent the National Program (not $342 plus $507).

                 Table I.C.2-6--EPA's Estimated Incremental Increase in Average New Vehicle Cost
                                             [2007 dollars per unit]
----------------------------------------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Cars............................            $342            $507            $631            $749            $869
Trucks..........................             314             496             652             820           1,098
                                 -------------------------------------------------------------------------------
    Combined....................             331             503             639             774             948
----------------------------------------------------------------------------------------------------------------

D. Background and Comparison of NHTSA and EPA Statutory Authority

    Section I.C of the proposal contained a detailed overview 
discussion of the NHTSA and EPA statutory authorities. In addition to 
the discussion in the proposal, each agency discusses comments 
pertaining to its statutory authority and the agency's responses in 
Sections III and IV of this notice, respectively.

II. Joint Technical Work Completed for This Final Rule

A. Introduction

    In this section NHTSA and EPA discuss several aspects of the joint 
technical analyses on which the two agencies collaborated. These 
analyses are common to the development of each agency's final 
standards. Specifically we discuss: the development of the vehicle 
market forecast used by each agency for assessing costs, benefits, and 
effects, the development of the attribute-based standard curve shapes, 
the determination of the relative stringency between the car and truck 
fleet standards, the technologies the agencies evaluated and their 
costs and effectiveness, and the economic assumptions the agencies 
included in their analyses. The Joint Technical Support Document (TSD) 
discusses the agencies' joint technical work in more detail.

B. Developing the Future Fleet for Assessing Costs, Benefits, and 
Effects

1. Why did the agencies establish a baseline and reference vehicle 
fleet?
    In order to calculate the impacts of the EPA and NHTSA regulations, 
it is necessary to estimate the composition of the future vehicle fleet 
absent these regulations, to provide a reference point relative to 
which costs, benefits, and effects of the regulations are assessed. As 
in the proposal, EPA and NHTSA have developed this comparison fleet in 
two parts. The first step was to develop a baseline fleet based on 
model year 2008 data. The second step was to project that fleet into 
model years 2011-2016. This is called the reference fleet.

[[Page 25349]]

The third step was to modify that MY 2011-2016 reference fleet such 
that it had sufficient technology to meet the MY 2011 CAFE standards. 
This final version of the reference fleet is the light-duty fleet 
estimated to exist in MY 2012-2016 in the absence of today's standards, 
based on the assumption that manufacturers would continue to meet the 
MY 2011 CAFE standards (or pay civil penalties allowed under EPCA \44\) 
in the absence of further increases in the stringency of CAFE 
standards. Each agency used this approach to develop a final reference 
fleet to use in its modeling. All of the agencies' estimates of 
emission reductions, fuel economy improvements, costs, and societal 
impacts are developed in relation to the respective reference fleets.
---------------------------------------------------------------------------

    \44\ That is, the manufacturers who have traditionally paid 
fines under EPCA instead of complying with the CAFE standards were 
``allowed,'' for purposes of the reference fleet, to reach only the 
CAFE level at which paying fines became more cost-effective than 
adding technology, even if that fell short of the MY 2011 standards.
---------------------------------------------------------------------------

    EPA and NHTSA proposed a transparent approach to developing the 
baseline and reference fleets, largely working from publicly available 
data. This proposed approach differed from previous CAFE rules, which 
relied on confidential manufacturers' product plan information to 
develop the baseline. Most of the public comments to the NPRM 
addressing this issue supported this methodology for developing the 
inputs to the rule's analysis. Because the input sheets can be made 
public, stakeholders can verify and check EPA's and NHTSA's modeling, 
and perform their own analyses with these datasets. In this final 
rulemaking, EPA and NHTSA are using an approach very similar to that 
proposed, continuing to rely on publicly available data as the basis 
for the baseline and reference fleets.
2. How did the agencies develop the baseline vehicle fleet?
    At proposal, EPA and NHTSA developed a baseline fleet comprised of 
model year 2008 data gathered from EPA's emission certification and 
fuel economy database. MY 2008 was used as the basis for the baseline 
vehicle fleet because it was the most recent model year for which a 
complete set of data is publicly available. This remains the case. 
Manufacturers are not required to submit final sales and mpg figures 
for MY 2009 until April 2010,\45\ after the CAFE standard's mandated 
promulgation date. Consequently, in this final rule, EPA and NHTSA made 
no changes to the method or the results of the MY 2008 baseline fleet 
used at proposal, except for some specific corrections to engineering 
inputs for some vehicle models reflected in the market forecast input 
to NHTSA's CAFE model. More details about how the agencies constructed 
this baseline fleet can be found in Chapter 1.2 of the Joint TSD. 
Corrections to engineering inputs for some vehicle models in the market 
forecast input to NHTSA's CAFE model are discussed in Chapter 2 of the 
Joint TSD.
---------------------------------------------------------------------------

    \45\ 40 CFR 600.512-08, Model Year Report.
---------------------------------------------------------------------------

3. How did the agencies develop the projected MY 2011-2016 vehicle 
fleet?
    EPA and NHTSA have based the projection of total car and total 
light truck sales for MYs 2011-2016 on projections made by the 
Department of Energy's Energy Information Administration (EIA). EIA 
publishes a mid-term projection of national energy use called the 
Annual Energy Outlook (AEO). This projection utilizes a number of 
technical and econometric models which are designed to reflect both 
economic and regulatory conditions expected to exist in the future. In 
support of its projection of fuel use by light-duty vehicles, EIA 
projects sales of new cars and light trucks. In the proposal, the 
agencies used the three reports published by EIA as part of the AEO 
2009. We also stated that updated versions of these reports could be 
used in the final rules should AEO timely issue a new version. EIA 
published an early version of its AEO 2010 in December 2009, and the 
agencies are making use of it in this final rulemaking. The differences 
in projected sales in the 2009 report (used in the NPRM) and the early 
2010 report are very small, so NHTSA and EPA have decided to simply 
scale the NPRM volumes for cars and trucks (in the aggregate) to match 
those in the 2010 report. We thus employ the sales projections from the 
scaled updated 2009 Annual Energy Outlook, which is equivalent to AEO 
2010 Early Release, for the final rule. The scaling factors for each 
model year are presented in Chapter 1 of the Joint TSD for this final 
rule.
    The agencies recognize that AEO 2010 Early Release does include 
some impacts of future projected increases in CAFE stringency. We have 
closely examined the difference between AEO 2009 and AEO 2010 Early 
Release and we believe the differences in total sales and the car/truck 
split attributed to considerations of the standard in the final rule 
are small.\46\
---------------------------------------------------------------------------

    \46\ The agencies have also looked at the impact of the rule in 
EIA's projection, and concluded that the impact was small. EPA and 
NHTSA have evaluated the differences between the AEO 2010 (early 
draft) and AEO 2009 and found little difference in the fleet 
projections (or fuel prices). This analysis can be found in the memo 
to the docket: Kahan, A. and Pickrell, D. Memo to Docket EPA-HQ-OAR-
2009-0472 and Docket NHTSA-2009-0059. ``Energy Information 
Administration's Annual Energy Outlook 2009 and 2010.'' March 24, 
2010.
---------------------------------------------------------------------------

    In the AEO 2010 Early Release, EIA projects that total light-duty 
vehicle sales will gradually recover from their currently depressed 
levels by around 2013. In 2016, car sales are projected to be 9.4 
million (57 percent) and truck sales are projected to be 7.1 million 
(43 percent). Although the total level of sales of 16.5 million units 
is similar to pre-2008 levels, the fraction of car sales is projected 
to be higher than that existing in the 2000-2007 timeframe. This 
projection reflects the impact of higher fuel prices, as well as EISA's 
requirement that the new vehicle fleet average at least 35 mpg by MY 
2020. The agencies note that AEO does not represent the fleet at a 
level of detail sufficient to explicitly account for the 
reclassification--promulgated as part of NHTSA's final rule for MY 2011 
CAFE standards--of a number of 2-wheel drive sport utility vehicles 
from the truck fleet to the car fleet for MYs 2011 and after. Sales 
projections of cars and trucks for future model years can be found in 
the Joint TSD for these final rules.
    In addition to a shift towards more car sales, sales of segments 
within both the car and truck markets have been changing and are 
expected to continue to change. Manufacturers are introducing more 
crossover models which offer much of the utility of SUVs but use more 
car-like designs. The AEO 2010 report does not, however, distinguish 
such changes within the car and truck classes. In order to reflect 
these changes in fleet makeup, EPA and NHTSA considered several other 
available forecasts. EPA purchased and shared with NHTSA forecasts from 
two well-known industry analysts, CSM Worldwide (CSM), and J.D. Powers. 
NHTSA and EPA decided to use the forecast from CSM, modified as 
described below, for several reasons presented in the NPRM preamble 
\47\ and draft Joint TSD. The changes between company market share and 
industry market segments were most significant from 2011-2014, while 
for 2014-2015 the changes were relatively small. Noting this, and 
lacking a credible forecast of company and segment shares after 2015, 
the agencies assumed 2016 market share and market segments to be the 
same as for 2015.
---------------------------------------------------------------------------

    \47\ See, e.g., 74 FR 49484.

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

[[Page 25350]]

    CSM Worldwide provides quarterly sales forecasts for the automotive 
industry. In the NPRM, the agencies identified a concern with the 2nd 
quarter CSM forecast that was used as a basis for the projection. CSM 
projections at that time were based on an industry that was going 
through a significant financial transition, and as a result the market 
share forecasts for some companies were impacted in surprising ways. As 
the industry's situation has settled somewhat over the past year, the 
4th quarter projection appears to address this issue--for example, it 
shows nearly a two-fold increase in sales for Chrysler compared to 
significant loss of market share shown for Chrysler in the 2nd quarter 
projection. Additionally, some commenters, such as GM, recognized that 
the fleet appeared to include an unusually high number of large pickup 
trucks.\48\ In fact, the agencies discovered (independently of the 
comments) that CSM's standard forecast included all vehicles below 
14,000 GVWR, including class 2b and 3 heavy duty vehicles, which are 
not regulated by this final rule.\49\ The commenters were thus correct 
that light duty reference fleet projections at proposal had more full 
size trucks and vans due to the mistaken inclusion of the heavy duty 
versions of those vehicles. The agencies requested a separate data 
forecast from CSM that filtered their 4th quarter projection to exclude 
these heavy duty vehicles. The agencies then used this filtered 4th 
quarter forecast for the final rule. A detailed comparison of the 
market by manufacturer can be found in the final TSD. For the public's 
reference, copies of the 2nd, 3rd, and 4th quarter CSM forecasts have 
been placed in the docket for this rulemaking.\50\
---------------------------------------------------------------------------

    \48\ GM argued that the unusually large volume of large pickups 
led to higher overall requirements for those vehicles. As discussed 
below, the agencies' analysis for the final rule corrects the number 
of large pickups. With this correction and other updates to the 
agencies' market forecast and other analytical inputs, the target 
functions defining the final standards (and achieving the average 
required performance levels defining the national program) are very 
similar to those from the NPRM, especially for light trucks, as 
illustrated below in Figures II.C-7 and II.C-8.
    \49\ These include the Ford F-250 & F-350, Econoline E-250, & E-
350; Chevy Express, Silverado 2500, & 3500; GMC Savana, Dodge 2500, 
& 3500; among others.
    \50\ The CSM Sales Forecast Excel file (``CSM North America 
Sales Forecasts 2Q09 3Q09 4Q09 for the Docket'') is available in the 
docket (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    We then projected the CSM forecasts for relative sales of cars and 
trucks by manufacturer and by market segment onto the total sales 
estimates of AEO 2010. Tables II.B.3-1 and II.B.3-2 show the resulting 
projections for the reference 2016 model year and compare these to 
actual sales that occurred in baseline 2008 model year. Both tables 
show sales using the traditional definition of cars and light trucks.

       Table II.B.3-1--Annual Sales of Light-Duty Vehicles by Manufacturer in 2008 and Estimated for 2016
----------------------------------------------------------------------------------------------------------------
                                              Cars                  Light trucks                  Total
                                   -----------------------------------------------------------------------------
                                      2008 MY      2016 MY      2008 MY      2016 MY      2008 MY      2016 MY
----------------------------------------------------------------------------------------------------------------
BMW...............................      291,796      424,923       61,324      171,560      353,120      596,482
Chrysler..........................      537,808      340,908    1,119,397      525,128    1,657,205      866,037
Daimler...........................      208,052      272,252       79,135      126,880      287,187      399,133
Ford..............................      709,583    1,118,727    1,158,805    1,363,256    1,868,388    2,481,983
General Motors....................    1,370,280    1,283,937    1,749,227    1,585,828    3,119,507    2,869,766
Honda.............................      899,498      811,214      612,281      671,437    1,511,779    1,482,651
Hyundai...........................      270,293      401,372      120,734      211,996      391,027      613,368
Kia...............................      145,863      455,643      135,589      210,717      281,452      666,360
Mazda.............................      191,326      350,055      111,220      144,992      302,546      495,047
Mitsubishi........................       76,701       49,914       24,028       88,754      100,729      138,668
Porsche...........................       18,909       33,471       18,797       16,749       37,706       50,220
Nissan............................      653,121      876,677      370,294      457,114    1,023,415    1,333,790
Subaru............................      149,370      230,705       49,211       95,054      198,581      325,760
Suzuki............................       68,720       97,466       45,938       26,108      114,658      123,574
Tata..............................        9,596       65,806       55,584       42,695       65,180      108,501
Toyota............................    1,143,696    2,069,283    1,067,804    1,249,719    2,211,500    3,319,002
Volkswagen........................      290,385      586,011       26,999      124,703      317,384      710,011
                                   -----------------------------------------------------------------------------
    Total.........................    7,034,997    9,468,365    6,806,367    7,112,689   13,841,364   16,580,353
----------------------------------------------------------------------------------------------------------------

      Table II.B.3-2--Annual Sales of Light-Duty Vehicles by Market Segment in 2008 and Estimated for 2016
----------------------------------------------------------------------------------------------------------------
                             Cars                                                 Light trucks
----------------------------------------------------------------------------------------------------------------
                                    2008 MY         2016 MY                           2008 MY         2016 MY
----------------------------------------------------------------------------------------------------------------
Full-Size Car.................         829,896         530,945  Full-Size Pickup       1,331,989       1,379,036
Luxury Car....................       1,048,341       1,548,242  Mid-Size Pickup.         452,013         332,082
Mid-Size Car..................       2,166,849       2,550,561  Full-Size Van...          33,384          65,650
Mini Car......................         617,902       1,565,373  Mid-Size Van....         719,529         839,194
Small Car.....................       1,912,736       2,503,566  Mid-Size MAV *..         110,353         116,077
Specialty Car.................         459,273         769,679  Small MAV.......         231,265          62,514
                                                                Full-Size SUV *.         559,160         232,619
                                                                Mid-Size SUV....         436,080         162,502
                                                                Small SUV.......         196,424         108,858
                                                                Full-Size CUV *.         264,717         260,662
                                                                Mid-Size CUV....         923,165       1,372,200
                                                                Small CUV.......       1,548,288       2,181,296
                               ---------------------------------------------------------------------------------

[[Page 25351]]

    Total Sales **............       7,034,997       9,468,365  ................       6,806,367       7,079,323
----------------------------------------------------------------------------------------------------------------
* MAV--Multi-Activity Vehicle, SUV--Sport Utility Vehicle, CUV--Crossover Utility Vehicle.
** Total Sales are based on the classic Car/Truck definition.

    Determining which traditionally-defined trucks will be defined as 
cars for purposes of this final rule using the revised definition 
established by NHTSA for MYs 2011 and beyond requires more detailed 
information about each vehicle model. This is described in greater 
detail in Chapter 1 of the final TSD.
    The forecasts obtained from CSM provided estimates of car and truck 
sales by segment and by manufacturer, but not by manufacturer for each 
market segment. Therefore, NHTSA and EPA needed other information on 
which to base these more detailed projected market splits. For this 
task, the agencies used as a starting point each manufacturer's sales 
by market segment from model year 2008, which is the baseline fleet. 
Because of the larger number of segments in the truck market, the 
agencies used slightly different methodologies for cars and trucks.
    The first step for both cars and trucks was to break down each 
manufacturer's 2008 sales according to the market segment definitions 
used by CSM. For example, the agencies found that Ford's \51\ cars 
sales in 2008 were broken down as shown in Table II.B.3-3:
---------------------------------------------------------------------------

    \51\ Note: In the NPRM, Ford's 2008 sales per segment, and the 
total number of cars was different than shown here. The change in 
values is due to a correction of vehicle segments for some of Ford's 
vehicles.

           Table II.B.3-3--Breakdown of Ford's 2008 Car Sales
------------------------------------------------------------------------

------------------------------------------------------------------------
Full-size cars..........................  160,857 units.
Mid-size Cars...........................  170,399 units.
Small/Compact Cars......................  180,249 units.
Subcompact/Mini Cars....................  None.
Luxury cars.............................  87,272 units.
Specialty cars..........................  110,805 units.
------------------------------------------------------------------------

    EPA and NHTSA then adjusted each manufacturer's sales of each of 
its car segments (and truck segments, separately) so that the 
manufacturer's total sales of cars (and trucks) matched the total 
estimated for each future model year based on AEO and CSM forecasts. 
For example, as indicated in Table II.B.3-1, Ford's total car sales in 
2008 were 709,583 units, while the agencies project that they will 
increase to 1,113,333 units by 2016. This represents an increase of 
56.9 percent. Thus, the agencies increased the 2008 sales of each Ford 
car segment by 56.9 percent. This produced estimates of future sales 
which matched total car and truck sales per AEO and the manufacturer 
breakdowns per CSM. However, the sales splits by market segment would 
not necessarily match those of CSM (shown for 2016 in Table II.B.3-2).
    In order to adjust the market segment mix for cars, the agencies 
first adjusted sales of luxury, specialty and other cars. Since the 
total sales of cars for each manufacturer were already set, any changes 
in the sales of one car segment had to be compensated by the opposite 
change in another segment. For the luxury, specialty and other car 
segments, it is not clear how changes in sales would be compensated. 
For example, if luxury car sales decreased, would sales of full-size 
cars increase, mid-size cars, and so on? The agencies have assumed that 
any changes in the sales of cars within these three segments were 
compensated for by proportional changes in the sales of the other four 
car segments. For example, for 2016, the figures in Table II.B.3-2 
indicate that luxury car sales in 2016 are 1,548,242 units. Luxury car 
sales are 1,048,341 units in 2008. However, after adjusting 2008 car 
sales by the change in total car sales for 2016 projected by EIA and a 
change in manufacturer market share per CSM, luxury car sales decreased 
to 1,523,171 units. Thus, overall for 2016, luxury car sales had to 
increase by 25,071 units or 6 percent. The agencies accordingly 
increased the luxury car sales by each manufacturer by this percentage. 
The absolute decrease in luxury car sales was spread across sales of 
full-size, mid-size, compact and subcompact cars in proportion to each 
manufacturer's sales in these segments in 2008. The same adjustment 
process was used for specialty cars and the ``other cars'' segment 
defined by CSM.
    The agencies used a slightly different approach to adjust for 
changing sales of the remaining four car segments. Starting with full-
size cars, the agencies again determined the overall percentage change 
that needed to occur in future year full-size car sales after 1) 
adjusting for total sales per AEO 2010, 2) adjusting for manufacturer 
sales mix per CSM and 3) adjusting the luxury, specialty and other car 
segments, in order to meet the segment sales mix per CSM. Sales of each 
manufacturer's large cars were adjusted by this percentage. However, 
instead of spreading this change over the remaining three segments, the 
agencies assigned the entire change to mid-size vehicles. The agencies 
did so because the CSM data followed the trend of increasing volumes of 
smaller cars while reducing volumes of larger cars. If a consumer had 
previously purchased a full-size car, we thought it unlikely that their 
next purchase would decrease by two size categories, down to a 
subcompact. It seemed more reasonable to project that they would drop 
one vehicle size category smaller. Thus, the change in each 
manufacturer's sales of full-size cars was matched by an opposite 
change (in absolute units sold) in mid-size cars.
    The same process was then applied to mid-size cars, with the change 
in mid-size car sales being matched by an opposite change in compact 
car sales. This process was repeated one more time for compact car 
sales, with changes in sales in this segment being matched by the 
opposite change in the sales of subcompacts. The overall result was a 
projection of car sales for model years 2012-2016--the reference 
fleet--which matched the total sales projections of the AEO forecast 
and the manufacturer and segment splits of the CSM forecast. These 
sales splits can be found in Chapter 1 of the Joint TSD for this final 
rule.
    As mentioned above, the agencies applied a slightly different 
process to truck sales, because the agencies could not confidently 
project how the change in sales from one segment preferentially went to 
or came from another particular segment. Some trend from larger 
vehicles to smaller vehicles would have been possible. However, the CSM 
forecasts indicated large changes in total sport utility vehicle, 
multi-activity vehicle and cross-over sales which could not be 
connected. Thus, the

[[Page 25352]]

agencies applied an iterative, but straightforward process for 
adjusting 2008 truck sales to match the AEO and CSM forecasts.
    The first three steps were exactly the same as for cars. EPA and 
NHTSA broke down each manufacturer's truck sales into the truck 
segments as defined by CSM. The agencies then adjusted all 
manufacturers' truck segment sales by the same factor so that total 
truck sales in each model year matched AEO projections for truck sales 
by model year. The agencies then adjusted each manufacturer's truck 
sales by segment proportionally so that each manufacturer's percentage 
of total truck sales matched that forecast by CSM. This again left the 
need to adjust truck sales by segment to match the CSM forecast for 
each model year.
    In the fourth step, the agencies adjusted the sales of each truck 
segment by a common factor so that total sales for that segment matched 
the combination of the AEO and CSM forecasts. For example, projected 
sales of large pickups across all manufacturers were 1,286,184 units in 
2016 after adjusting total sales to match AEO's forecast and adjusting 
each manufacturer's truck sales to match CSM's forecast for the 
breakdown of sales by manufacturer. Applying CSM's forecast of the 
large pickup segment of truck sales to AEO's total sales forecast 
indicated total large pickup sales of 1,379,036 units. Thus, we 
increased each manufacturer's sales of large pickups by 7 percent.\52\ 
The agencies applied the same type of adjustment to all the other truck 
segments at the same time. The result was a set of sales projections 
which matched AEO's total truck sales projection and CSM's market 
segment forecast. However, after this step, sales by manufacturer no 
longer met CSM's forecast. Thus, we repeated step three and adjusted 
each manufacturer's truck sales so that they met CSM's forecast. The 
sales of each truck segment (by manufacturer) were adjusted by the same 
factor. The resulting sales projection matched AEO's total truck sales 
projection and CSM's manufacturer forecast, but sales by market segment 
no longer met CSM's forecast. However, the difference between the sales 
projections after this fifth step was closer to CSM's market segment 
forecast than it was after step three. In other words, the sales 
projection was converging to the desired result. The agencies repeated 
these adjustments, matching manufacturer sales mix in one step and then 
market segment in the next a total of 19 times. At this point, we were 
able to match the market segment splits exactly and the manufacturer 
splits were within 0.1 percent of our goal, which is well within the 
needs of this analysis.
---------------------------------------------------------------------------

    \52\ Note: In the NPRM this example showed 29 percent instead of 
7 percent. The significant decrease was due to using the filtered 
4th quarter CSM forecast. Commenters, such as GM, had commented that 
we had too many full-size trucks and vans, and this change addresses 
their comment.
---------------------------------------------------------------------------

    The next step in developing the reference fleets was to 
characterize the vehicles within each manufacturer-segment combination. 
In large part, this was based on the characterization of the specific 
vehicle models sold in 2008--i.e., the vehicles comprising the baseline 
fleet. EPA and NHTSA chose to base our estimates of detailed vehicle 
characteristics on 2008 sales for several reasons. One, these vehicle 
characteristics are not confidential and can thus be published here for 
careful review by interested parties. Two, because it is constructed 
beginning with actual sales data, this vehicle fleet is limited to 
vehicle models known to satisfy consumer demands in light of price, 
utility, performance, safety, and other vehicle attributes.
    As noted above, the agencies gathered most of the information about 
the 2008 baseline vehicle fleet from EPA's emission certification and 
fuel economy database. The data obtained from this source included 
vehicle production volume, fuel economy, engine size, number of engine 
cylinders, transmission type, fuel type, etc. EPA's certification 
database does not include a detailed description of the types of fuel 
economy-improving/CO2-reducing technologies considered in 
this final rule. Thus, the agencies augmented this description with 
publicly available data which includes more complete technology 
descriptions from Ward's Automotive Group.\53\ In a few instances when 
required vehicle information (such as vehicle footprint) was not 
available from these two sources, the agencies obtained this 
information from publicly accessible Internet sites such as 
Motortrend.com and Edmunds.com.\54\
---------------------------------------------------------------------------

    \53\ Note that WardsAuto.com is a fee-based service, but all 
information is public to subscribers.
    \54\ Motortrend.com and Edmunds.com are free, no-fee Internet 
sites.
---------------------------------------------------------------------------

    The projections of future car and truck sales described above apply 
to each manufacturer's sales by market segment. The EPA emissions 
certification sales data are available at a much finer level of detail, 
essentially vehicle configuration. As mentioned above, the agencies 
placed each vehicle in the EPA certification database into one of the 
CSM market segments. The agencies then totaled the sales by each 
manufacturer for each market segment. If the combination of AEO and CSM 
forecasts indicated an increase in a given manufacturer's sales of a 
particular market segment, then the sales of all the individual vehicle 
configurations were adjusted by the same factor. For example, if the 
Prius represented 30 percent of Toyota's sales of compact cars in 2008 
and Toyota's sales of compact cars in 2016 was projected to double by 
2016, then the sales of the Prius were doubled, and the Prius sales in 
2016 remained 30 percent of Toyota's compact car sales.
    The projection of average footprint for both cars and trucks 
remained virtually constant over the years covered by the final 
rulemaking. This occurrence is strictly a result of the CSM 
projections. There are a number of trends that occur in the CSM 
projections that caused the average footprint to remain constant. 
First, as the number of subcompacts increases, so do the number of 2-
wheel drive crossover vehicles (that are regulated as cars). Second, 
truck volumes have many segment changes during the rulemaking time 
frame. There is no specific footprint related trend in any segment that 
can be linked to the unchanging footprint, but there is a trend that 
non-pickups' volumes will move from truck segments that are ladder 
frame to those that are unibody-type vehicles. A table of the footprint 
projections is available in the TSD as well as further discussion on 
this topic.
4. How was the development of the baseline and reference fleets for 
this Final Rule different from NHTSA's historical approach?
    NHTSA has historically based its analysis of potential new CAFE 
standards on detailed product plans the agency has requested from 
manufacturers planning to produce light vehicles for sale in the United 
States. Although the agency has not attempted to compel manufacturers 
to submit such information, most major manufacturers and some smaller 
manufacturers have voluntarily provided it when requested.
    The proposal discusses many of the advantages and disadvantages of 
the market forecast approach used by the agencies, including the 
agencies' interest in examining product plans as a check on the 
reference fleet developed by the agencies for this rulemaking. One of 
the primary reasons for the request for data in 2009 was to obtain 
permission from the manufacturers to make public their product plan 
information for model years 2010 and 2011. There are a number of 
reasons that this could be advantageous in the development of a 
reference fleet. First,

[[Page 25353]]

some known changes to the fleet may not be captured by the approach of 
solely using publicly available information. For example, the agencies' 
current market forecast includes some vehicles for which manufacturers 
have announced plans for elimination or drastic production cuts such as 
the Chevrolet Trailblazer, the Chrysler PT Cruiser, the Chrysler 
Pacifica, the Dodge Magnum, the Ford Crown Victoria, the Mercury Sable, 
the Pontiac Grand Prix, the Pontiac G5 and the Saturn Vue. These 
vehicle models appear explicitly in market inputs to NHTSA's analysis, 
and are among those vehicle models included in the aggregated vehicle 
types appearing in market inputs to EPA's analysis. However, although 
the agencies recognize that these specific vehicles will be 
discontinued, we continue to include them in the market forecast 
because they are useful as a surrogate for successor vehicles that may 
appear in the rulemaking time frame to replace the discontinued 
vehicles in that market segment.\55\
---------------------------------------------------------------------------

    \55\ An example of this is in the GM Pontiac line, which is in 
the process of being phased out during the course of this 
rulemaking. GM has similar vehicles within their other brands (like 
Chevy) that will ``presumably'' pick up the loss in Pontiac share. 
We model this simply by leaving the Pontiac brand in.
---------------------------------------------------------------------------

    Second, the agencies' market forecast does not include some 
forthcoming vehicle models, such as the Chevrolet Volt, the Ford Fiesta 
and several publicly announced electric vehicles, including the 
announcements from Nissan regarding the Leaf. Nor does it include 
several MY 2009 or 2010 vehicles, such as the Honda Insight, the 
Hyundai Genesis and the Toyota Venza, as our starting point for 
defining specific vehicle models in the reference fleet was Model Year 
2008. Additionally, the market forecast does not account for publicly 
announced technology introductions, such as Ford's EcoBoost system, 
whose product plans specify which vehicles and how many are planned to 
have this technology. Chrysler Group LLC has announced plans to offer 
small- and medium-sized cars using Fiat powertrains. Were the agencies 
to rely on manufacturers' product plans (that were submitted), the 
market forecast would account for not only these specific examples, but 
also for similar examples that have not yet been announced publicly.
    Some commenters, such as CBD and NESCAUM, suggested that the 
agencies' omission of known future vehicles and technologies in the 
reference fleet causes inaccuracies, which CBD further suggested could 
lead the agencies to set lower standards. On the other hand, CARB 
commented that ``the likely impact of this omission is minor.'' Because 
the agencies' analysis examines the costs and benefits of progressively 
adding technology to manufacturers' fleets, the omission of future 
vehicles and technologies primarily affects how much additional 
technology (and, therefore, how much incremental cost and benefit) is 
available relative to the point at which the agencies' examination of 
potential new standards begins. Thus, in fact, the omission only 
reflects the reference fleet, rather than the agencies' conclusions 
regarding how stringent the standards should be. This is discussed 
further below. The agencies believe the above-mentioned comments by 
CBD, NESCAUM, and others are based on a misunderstanding of the 
agencies' approach to analyzing potential increases in regulatory 
stringency. The agencies also note that manufacturers do not always use 
technology solely to increase fuel economy, and that use of technology 
to increase vehicles' acceleration performance or utility would 
probably make that technology unavailable toward more stringent 
standards. Considering the incremental nature of the agencies' 
analysis, and the counterbalancing aspects of potentially omitted 
technology in the reference fleet, the agencies believe their 
determination of the stringency of new standards has not been impacted 
by any such omissions.
    Moreover, EPA and NHTSA believe that not including such vehicles 
after MY 2008 does not significantly impact our estimates of the 
technology required to comply with the standards. If included, these 
vehicles could increase the extent to which manufacturers are, in the 
reference case, expected to over-comply with the MY 2011 CAFE 
standards, and could thereby make the new standards appear to cost less 
and yield less benefit relative to the reference case. However, in the 
agencies' judgment, production of the most advanced technology 
vehicles, such as the Chevy Volt or the Nissan Leaf (for example), will 
most likely be too limited during MY 2011 through MY 2016 to 
significantly impact manufacturers' compliance positions. While we are 
projecting the characteristics of the future fleet by extrapolating 
from the MY 2008 fleet, the primary difference between the future fleet 
and the 2008 fleet in the same vehicle segment is the use of additional 
CO2-reducing and fuel-saving technologies. Both the NHTSA 
and EPA models add such technologies to evaluate means of complying 
with the standards, and the costs of doing so. Thus, our future 
projections of the vehicle fleet generally shift vehicle designs 
towards those more likely to be typical of newer vehicles. Compared to 
using product plans that show continued fuel economy increases planned 
based on expectations that CAFE standards will continue to increase, 
this approach helps to clarify the costs and benefits of the new 
standards, as the costs and benefits of all fuel economy improvements 
beyond those required by the MY 2011 CAFE standards are being assigned 
to the final rules. In some cases, the ``actual'' (vs. projected or 
``modeled'') new vehicles being introduced into the market by 
manufacturers are done so in anticipation of this rulemaking. On the 
other hand, manufacturers may plan to continue using technologies to 
improve vehicle performance and/or utility, not just fuel economy. Our 
approach prevents some of these actual technological improvements and 
their associated cost and fuel economy improvements from being assumed 
in the reference fleet. Thus, the added technology will not be 
considered to be free (or having no benefits) for the purposes of this 
rule.
    In this regard, the agencies further note that manufacturer 
announcements regarding forward models (or future vehicle models) need 
not be accepted automatically. Manufacturers tend to limit accurate 
production intent information in these releases for reasons such as: 
(a) Competitors will closely examine their information for data in 
their product planning decisions; (b) the press coverage of forward 
model announcements is not uniform, meaning highly anticipated models 
have more coverage and materials than models that may be less exciting 
to the public and consistency and uniformity cannot be ensured with the 
usage of press information; and (c) these market projections are 
subject to change (sometimes significant), and manufacturers may not 
want to give the appearance of being indecisive, or under/over-
confident to their shareholders and the public with premature release 
of information.
    NHTSA has evaluated the use of public manufacturer forward model 
press information to update the vehicle fleet inputs to the baseline 
and reference fleet. The challenges in this approach are evidenced by 
the continuous stream of manufacturer press releases throughout a 
defined rulemaking period. Manufacturers' press releases suffer from 
the same types of inaccuracies that many commenters believe can affect 
product plans.

[[Page 25354]]

Manufacturers can often be overly optimistic in their press releases, 
both on projected date of release of new models and on sales volumes.
    More generally and more critically, as discussed in the proposal 
and as endorsed by many of the public comments, there are several 
advantages to the approach used by the agencies in this final rule. 
Most importantly, today's market forecast is much more transparent. The 
information sources used to develop today's market forecast are all 
either in the public domain or available commercially. Another 
significant advantage of today's market forecast is the agencies' 
ability to assess more fully the incremental costs and benefits of the 
proposed standards. In addition, by developing baseline and reference 
fleets from common sources, the agencies have been able to avoid some 
errors--perhaps related to interpretation of requests--that have been 
observed in past responses to NHTSA's requests. An additional advantage 
of the approach used for this rule is a consistent projection of the 
change in fuel economy and CO2 emissions across the various 
vehicles from the application of new technology. With the approach used 
for this final rule, the baseline market data comes from actual 
vehicles (on the road today) which have actual fuel economy test data 
(in contrast to manufacturer estimates of future product fuel 
economy)--so there is no question what is the basis for the fuel 
economy or CO2 performance of the baseline market data as it 
is.
5. How does manufacturer product plan data factor into the baseline 
used in this Final Rule?
    In the spring and fall of 2009, many manufacturers submitted 
product plans in response to NHTSA's recent requests that they do so. 
NHTSA and EPA both have access to these plans, and both agencies have 
reviewed them in detail. A small amount of product plan data was used 
in the development of the baseline. The specific pieces of data are:
     Wheelbase.
     Track Width Front.
     Track Width Rear.
     EPS (Electric Power Steering).
     ROLL (Reduced Rolling Resistance).
     LUB (Advance Lubrication i.e. low weight oil).
     IACC (Improved Electrical Accessories).
     Curb Weight.
     GVWR (Gross Vehicle Weight Rating).
    The track widths, wheelbase, curb weight, and GVWR for vehicles 
could have been looked up on the Internet (159 were), but were taken 
from the product plans when available for convenience. To ensure 
accuracy, a sample from each product plan was used as a check against 
the numbers available from Motortrend.com. These numbers will be 
published in the baseline file since they can be easily looked up on 
the internet. On the other hand, EPS, ROLL, LUB, and IACC are difficult 
to determine without using manufacturer's product plans. These items 
will not be published in the baseline file, but the data has been 
aggregated into the agencies' baseline in the technology effectiveness 
and cost effectiveness for each vehicle in a way that allows the 
baseline for the model to be published without revealing the 
manufacturer's data.
    Also, some technical information that manufacturers have provided 
in product plans regarding specific vehicle models is, at least insofar 
as NHTSA and EPA have been able to determine, not available from public 
or commercial sources. While such gaps do not bear significantly on the 
agencies' analysis, the diversity of pickup configurations necessitated 
utilizing a sales-weighted average footprint value \56\ for many 
manufacturers' pickups. Since our modeling only utilizes footprint in 
order to estimate each manufacturer's CO2 or fuel economy 
standard and all the other vehicle characteristics are available for 
each pickup configuration, this approximation has no practical impact 
on the projected technology or cost associated with compliance with the 
various standards evaluated. The only impact which could arise would be 
if the relative sales of the various pickup configurations changed, or 
if the agencies were to explore standards with a different shape. This 
would necessitate recalculating the average footprint value in order to 
maintain accuracy.
---------------------------------------------------------------------------

    \56\ A full-size pickup might be offered with various 
combinations of cab style (e.g., regular, extended, crew) and box 
length (e.g., 5\1/2\', 6\1/2\', 8') and, therefore, multiple 
footprint sizes. CAFE compliance data for MY 2008 data does not 
contain footprint information, and does not contain information that 
can be used to reliably identify which pickup entries correspond to 
footprint values estimable from public or commercial sources. 
Therefore, the agencies have used the known production levels of 
average values to represent all variants of a given pickup line 
(e.g., all variants of the F-150 and the Sierra/Silverado) in order 
to calculate the sales-weighted average footprint value for each 
pickup family. Again, this has no impact on the results of our 
modeling effort, although it would require re-estimation if we were 
to examine light truck standards of a different shape. In the 
extreme, one single footprint value could be used for every vehicle 
sold by a single manufacturer as long as the fuel economy standard 
associated with this footprint value represented the sales-weighted, 
harmonic average of the fuel economy standards associated with each 
vehicle's footprint values.
---------------------------------------------------------------------------

    Additionally, as discussed in the NPRM, in an effort to update the 
2008 baseline to account for the expected changes in the fleet in the 
near-term model years 2009-2011 described above, NHTSA requested 
permission from the manufacturers to make this limited product plan 
information public. Unfortunately, virtually no manufacturers agreed to 
allow the use of their data after 2009 model year. A few manufacturers, 
such as GM and Ford, stated we could use their 2009 product plan data 
after the end of production (December 31), but this would not have 
afforded us sufficient time to do the analysis for the final rule. 
Since the agencies were unable to obtain consistent updates, the 
baseline and reference fleets were not updated beyond 2008 model year 
for the final rule. The 2008 baseline fleet and projections were 
instead updated using the latest AEO and CSM data as discussed earlier.
    NHTSA and EPA recognize that the approach applied for the current 
rule gives transparency and openness of the vehicle market forecast 
high priority, and accommodates minor inaccuracies that may be 
introduced by not accounting for future product mix changes anticipated 
in manufacturers' confidential product plans. For any future fleet 
analysis that the agencies are required to perform, NHTSA and EPA plan 
to request that manufacturers submit product plans and allow some 
public release of information. In performing this analysis, the 
agencies plan to reexamine potential tradeoffs between transparency and 
technical reasonableness, and to explain resultant choices.

C. Development of Attribute-Based Curve Shapes

    In the NPRM, NHTSA and EPA proposed to set attribute-based CAFE and 
CO2 standards that are defined by a mathematical function 
for MYs 2012-2016 passenger cars and light trucks. EPCA, as amended by 
EISA, expressly requires that CAFE standards for passenger cars and 
light trucks be based on one or more vehicle attributes related to fuel 
economy, and be expressed in the form of a mathematical function.\57\ 
The CAA has no such requirement, though in past rules, EPA has relied 
on both universal and attribute-based standards (e.g., for nonroad 
engines, EPA uses the attribute of horsepower). However, given the 
advantages of using attribute-based standards and given the

[[Page 25355]]

goal of coordinating and harmonizing CO2 standards 
promulgated under the CAA and CAFE standards promulgated under EPCA, 
EPA also proposed to issue standards that are attribute-based and 
defined by mathematical functions. There was consensus in the public 
comments that EPA should develop attribute-based CO2 
standards.
---------------------------------------------------------------------------

    \57\ 49 U.S.C. 32902(a)(3)(A).
---------------------------------------------------------------------------

    Comments received in response to the agencies' decision to base 
standards on vehicle footprint were largely supportive. Several 
commenters (BMW, NADA, NESCAUM) expressed support for attribute-based 
(as opposed to flat or universal) standards generally, and agreed with 
EPA's decision to harmonize with NHTSA in this respect. Many commenters 
(Aluminum Association, BMW, ICCT, NESCAUM, NY DEC, Schade, Toyota) also 
supported the agencies' decision to continue setting CAFE standards, 
and begin setting GHG standards, on the basis of vehicle footprint, 
although one commenter (NJ DEP) opposed the use of footprint due to 
concern that it encourages manufacturers to upsize vehicles and 
undercut the gains of the standard. Of the commenters supporting the 
use of footprint, several focused on the benefits of harmonization--
both between EPA and NHTSA, and between the U.S. and the rest of the 
world. BMW commented, for example, that many other countries use 
weight-based standards rather than footprint-based. While BMW did not 
object to NHTSA's and EPA's use of footprint-based standards, it 
emphasized the impact of this non-harmonization on manufacturers who 
sell vehicles globally, and asked the agencies to consider these 
effects. NADA supported the use of footprint, but cautioned that the 
agencies must be careful in setting the footprint curve for light 
trucks to ensure that manufacturers can continue to provide 
functionality like 4WD and towing/hauling capacity.
    Some commenters requested that the agencies consider other or more 
attributes in addition to footprint, largely reiterating comments 
submitted to the MYs 2011-2015 CAFE NPRM. Cummins supported the 
agencies using a secondary attribute to account for towing and hauling 
capacity in large trucks, for example, while Ferrari asked the agencies 
to consider a multi-attribute approach incorporating curb weight, 
maximum engine power or torque, and/or engine displacement, as it had 
requested in the previous round of CAFE rulemaking. An individual, Mr. 
Kenneth Johnson, commented that weight-based standards would be 
preferable to footprint-based ones, because weight correlates better 
with fuel economy than footprint, because the use of footprint does not 
necessarily guarantee safety the way the agencies say it does, and 
because weight-based standards would be fairer to manufacturers.
    In response, EPA and NHTSA continue to believe that the benefits of 
footprint-attribute-based standards outweigh any potential drawbacks 
raised by commenters, and that harmonization between the two agencies 
should be the overriding goal on this issue. As discussed by NHTSA in 
the MY 2011 CAFE final rule,\58\ the agencies believe that the 
possibility of gaming is lowest with footprint-based standards, as 
opposed to weight-based or multi-attribute-based standards. 
Specifically, standards that incorporate weight, torque, power, towing 
capability, and/or off-road capability in addition to footprint would 
not only be significantly more complex, but by providing degrees of 
freedom with respect to more easily-adjusted attributes, they would 
make it less certain that the future fleet would actually achieve the 
average fuel economy and CO2 levels projected by the 
agencies. The agencies recognize that based on economic and consumer 
demand factors that are external to this rule, the distribution of 
footprints in the future may be different (either smaller or larger) 
than what is projected in this rule. However, the agencies continue to 
believe that there will not be significant shifts in this distribution 
as a direct consequence of this rule. The agencies are therefore 
finalizing MYs 2012-2016 CAFE and GHG standards based on footprint.
---------------------------------------------------------------------------

    \58\ See 74 FR 14359 (Mar. 30, 2009).
---------------------------------------------------------------------------

    The agencies also recognize that there could be benefits for a 
number of manufacturers if there was greater international 
harmonization of fuel economy and GHG standards, but this is largely a 
question of how stringent standards are and how they are enforced. It 
is entirely possible that footprint-based and weight-based systems can 
coexist internationally and not present an undue burden for 
manufacturers if they are carefully crafted. Different countries or 
regions may find different attributes appropriate for basing standards, 
depending on the particular challenges they face--from fuel prices, to 
family size and land use, to safety concerns, to fleet composition and 
consumer preference, to other environmental challenges besides climate 
change. The agencies anticipate working more closely with other 
countries and regions in the future to consider how to mitigate these 
issues in a way that least burdens manufacturers while respecting each 
country's need to meet its own particular challenges.
    Under an attribute-based standard, every vehicle model has a 
performance target (fuel economy and CO2 emissions for CAFE 
and CO2 emissions standards, respectively), the level of 
which depends on the vehicle's attribute (for the proposal, footprint). 
The manufacturers' fleet average performance is determined by the 
production-weighted \59\ average (for CAFE, harmonic average) of those 
targets. NHTSA and EPA are promulgating CAFE and CO2 
emissions standards defined by constrained linear functions and, 
equivalently, piecewise linear functions.\60\ As a possible option for 
future rulemakings, the constrained linear form was introduced by NHTSA 
in the 2007 NPRM proposing CAFE standards for MY 2011-2015. Described 
mathematically, the proposed constrained linear function was defined 
according to the following formula: \61\
---------------------------------------------------------------------------

    \59\ Production for sale in the United States.
    \60\ The equations are equivalent but are specified differently 
due to differences in the agencies' respective models.
    \61\ This function is linear in fuel consumption but not in fuel 
economy.
[GRAPHIC] [TIFF OMITTED] TR07MY10.004

---------------------------------------------------------------------------
Where

TARGET = the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet),
a = the function's upper limit (in mpg),
b = the function's lower limit (in mpg),

[[Page 25356]]

c = the slope (in gpm per square foot) of the sloped portion of the 
function,
d = the intercept (in gpm) of the sloped portion of the function 
(that is, the value the sloped portion would take if extended to a 
footprint of 0 square feet, and the MIN and MAX functions take the 
minimum and maximum, respectively, of the included values; for 
example, MIN(1,2) = 1, MAX(1,2) = 2, and
MIN[MAX(1,2),3)]=2.

    Because the format is linear on a gallons-per-mile basis, not on a 
miles-per-gallon basis, it is plotted as fuel consumption below. 
Graphically, the constrained linear form appears as shown in Figure 
II.C-1.
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[GRAPHIC] [TIFF OMITTED] TR07MY10.005

[[Page 25357]]

    The specific form and stringency for each fleet (passenger car and 
light trucks) and model year are defined through specific values for 
the four coefficients shown above.
    EPA proposed the equivalent equation below for assigning 
CO2 targets to an individual vehicle's footprint value. 
Although the general model of the equation is the same for each vehicle 
category and each year, the parameters of the equation differ for cars 
and trucks and for each model year. Described mathematically, EPA's 
proposed piecewise linear function was as follows:

Target = a, if x <= l
Target = cx + d, if l < x <= h
Target = b, if x > h

In the constrained linear form similar in form to the fuel economy 
equation above, this equation takes the simplified form:

Target = MIN [ MAX (c * x + d, a), b]

Where

Target = the CO2 target value for a given footprint (in 
g/mi)
a = the minimum target value (in g/mi CO2) \62\
---------------------------------------------------------------------------

    \62\ These a, b, d coefficients differ from the a, b, d 
coefficients in the constrained linear fuel economy equation 
primarily by a factor of 8887 (plus an additive factor for air 
conditioning).
---------------------------------------------------------------------------

b = the maximum target value (in g/mi CO2)
c = the slope of the linear function (in g/mi per sq ft 
CO2)
d = is the intercept or zero-offset for the line (in g/mi 
CO2)
x = footprint of the vehicle model (in square feet, rounded to the 
nearest tenth)
l & h are the lower and higher footprint limits or constraints or 
(``kinks'') or the boundary between the flat regions and the 
intermediate sloped line (in sq ft)

    Graphically, piecewise linear form, like the constrained linear 
form, appears as shown in Figure II.C-2.

[[Page 25358]]

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[[Page 25359]]

    As for the constrained linear form, the specific form and 
stringency of the piecewise linear function for each fleet (passenger 
car and light trucks) and model year are defined through specific 
values for the four coefficients shown above.
    For purposes of the proposed rules, NHTSA and EPA developed the 
basic curve shapes using methods similar to those applied by NHTSA in 
fitting the curves defining the MY 2011 standards. The first step 
involved defining the relevant vehicle characteristics in the form used 
by NHTSA's CAFE model (e.g., fuel economy, footprint, vehicle class, 
technology) described in Section II.B of this preamble and in Chapter 1 
of the Joint TSD. However, because the baseline fleet utilizes a wide 
range of available fuel saving technologies, NHTSA used the CAFE model 
to develop a fleet to which all of the technologies discussed in 
Chapter 3 of the Joint TSD \63\ were applied, except dieselization and 
strong hybridization. This was accomplished by taking the following 
steps: (1) Treating all manufacturers as unwilling to pay civil 
penalties rather than applying technology, (2) applying any technology 
at any time, irrespective of scheduled vehicle redesigns or freshening, 
and (3) ignoring ``phase-in caps'' that constrain the overall amount of 
technology that can be applied by the model to a given manufacturer's 
fleet. These steps helped to increase technological parity among 
vehicle models, thereby providing a better basis (than the baseline or 
reference fleets) for estimating the statistical relationship between 
vehicle size and fuel economy.
---------------------------------------------------------------------------

    \63\ The agencies excluded diesel engines and strong hybrid 
vehicle technologies from this exercise (and only this exercise) 
because the agencies expect that manufacturers would not need to 
rely heavily on these technologies in order to comply with the 
proposed standards. NHTSA and EPA did include diesel engines and 
strong hybrid vehicle technologies in all other portions of their 
analyses.
---------------------------------------------------------------------------

    In fitting the curves, NHTSA and EPA also continued to fit the 
sloped portion of the function to vehicle models between the footprint 
values at which the agencies continued to apply constraints to limit 
the function's value for both the smallest and largest vehicles. 
Without a limit at the smallest footprints, the function--whether 
logistic or linear--can reach values that would be unfairly burdensome 
for a manufacturer that elects to focus on the market for small 
vehicles; depending on the underlying data, an unconstrained form, 
could result in stringency levels that are technologically infeasible 
and/or economically impracticable for those manufacturers that may 
elect to focus on the smallest vehicles. On the other side of the 
function, without a limit at the largest footprints, the function may 
provide no floor on required fuel economy. Also, the safety 
considerations that support the provision of a disincentive for 
downsizing as a compliance strategy apply weakly, if at all, to the 
very largest vehicles. Limiting the function's value for the largest 
vehicles leads to a function with an inherent absolute minimum level of 
performance, while remaining consistent with safety considerations.
    Before fitting the sloped portion of the constrained linear form, 
NHTSA and EPA selected footprints above and below which to apply 
constraints (i.e., minimum and maximum values) on the function. The 
agencies believe that the linear form performs well in describing the 
observed relationship between footprint and fuel consumption or 
CO2 emissions for vehicle models within the footprint ranges 
covering most vehicle models, but that the single (as opposed to 
piecewise) linear form does not perform well in describing this 
relationship for the smallest and largest vehicle models. For passenger 
cars, the agency noted that several manufacturers offer small, sporty 
coupes below 41 square feet, such as the BMW Z4 and Mini, Honda S2000, 
Mazda MX-5 Miata, Porsche Carrera and 911, and Volkswagen New Beetle. 
Because such vehicles represent a small portion (less than 10 percent) 
of the passenger car market, yet often have performance, utility, and/
or structural characteristics that could make it technologically 
infeasible and/or economically impracticable for manufacturers focusing 
on such vehicles to achieve the very challenging average requirements 
that could apply in the absence of a constraint, EPA and NHTSA proposed 
to ``cut off'' the linear portion of the passenger car function at 41 
square feet. The agencies recognize that for manufacturers who make 
small vehicles in this size range, this cut off creates some incentive 
to downsize (i.e., further reduce the size, and/or increase the 
production of models currently smaller than 41 square feet) to make it 
easier to meet the target. The cut off may also create the incentive 
for manufacturers who do not currently offer such models to do so in 
the future. However, at the same time, the agencies believe that there 
is a limit to the market for cars smaller than 41 square feet--most 
consumers likely have some minimum expectation about interior volume, 
among other things. The agencies thus believe that the number of 
consumers who will want vehicles smaller than 41 square feet 
(regardless of how they are priced) is small, and that the incentive to 
downsize in response to this final rule, if present, will be minimal. 
For consistency, the agency proposed to ``cut off'' the light truck 
function at the same footprint, although no light trucks are currently 
offered below 41 square feet. The agencies further noted that above 56 
square feet, the only passenger car model present in the MY 2008 fleet 
were four luxury vehicles with extremely low sales volumes--the Bentley 
Arnage and three versions of the Rolls Royce Phantom. NHTSA and EPA 
therefore also proposed to ``cut off'' the linear portion of the 
passenger car function at 56 square feet. Finally, the agencies noted 
that although public information is limited regarding the sales volumes 
of the many different configurations (cab designs and bed sizes) of 
pickup trucks, most of the largest pickups (e.g., the Ford F-150, GM 
Sierra/Silverado, Nissan Titan, and Toyota Tundra) appear to fall just 
above 66 square feet in footprint. EPA and NHTSA therefore proposed to 
``cut off'' the linear portion of the light truck function at 66 square 
feet.
    Having developed a set of vehicle emissions and footprint data 
which represent the benefit of all non-diesel, non-hybrid technologies, 
we determined the initial values for parameters c and d were determined 
for cars and trucks separately. c and d were initially set at the 
values for which the average (equivalently, sum) of the absolute values 
of the differences was minimized between the ``maximum technology'' 
fleet fuel consumption (within the footprints between the upper and 
lower limits) and the straight line of the function defined above at 
the same corresponding vehicle footprints. That is, c and d were 
determined by minimizing the average absolute residual, commonly known 
as the MAD (Mean Absolute Deviation) approach, of the corresponding 
straight line.
    Finally, NHTSA calculated the values of the upper and lower 
parameters (a and b) based on the corresponding footprints discussed 
above (41 and 56 square feet for passenger cars, and 41 and 66 square 
feet for light trucks).
    The result of this methodology is shown below in Figures II.C-3 and 
II.C-4 for passenger cars and light trucks, respectively. The fitted 
curves are shown with the underlying ``maximum technology'' passenger 
car and light truck fleets. For passenger cars, the mean absolute 
deviation of the sloped portion of the function was 14 percent.

[[Page 25360]]

For trucks, the corresponding MAD was 10 percent.
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[[Page 25361]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.008

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[[Page 25362]]

    The agencies used these functional forms as a starting point to 
develop mathematical functions defining the actual proposed standards 
as discussed above. The agencies then transposed these functions 
vertically (i.e., on a gpm or CO2 basis, uniformly downward) 
to produce the same fleetwide fuel economy (and CO2 emission 
levels) for cars and light trucks described in the NPRM.
    A number of public comments generally supported the agencies' 
choice of attribute-based mathematical functions, as well as the 
methods applied to fit the function. Ferrari indicated support for the 
use of a constrained linear form rather than a constrained logistic 
form, support for the application of limits on the functions' values, 
support for a generally less steep passenger car curve compared to MY 
2011, and support for the inclusion of all manufacturers in the 
analysis used to fit the curves. ICCT also supported the use of a 
constrained linear form. Toyota expressed general support for the 
methods and outcome, including a less-steep passenger car curve, and 
the application of limits on fuel economy targets applicable to the 
smallest vehicles. The UAW commented that the shapes and levels of the 
curves are reasonable.
    Other commenters suggested that changes to the agencies' methods 
and results would yield better outcomes. GM suggested that steeper 
curves would provide a greater incentive for limited-line manufacturers 
to apply technology to smaller vehicles. GM argued that steeper and, in 
their view, fairer curves could be obtained by using sales-weighted 
least-squares regression rather than minimization of the unweighted 
mean absolute deviation. Conversely, students from UC Santa Barbara 
commented that the passenger car and light truck curves should be 
flatter and should converge over time in order to encourage the market 
to turn, as the agencies' analysis assumes it will, away from light 
trucks and toward passenger cars.
    NADA commented that there should be no ``cut-off'' points (i.e., 
lower limits or floors), because these de facto ``backstops'' might 
limit consumer choice, especially for light trucks--a possibility also 
suggested by the Alliance. The Alliance and several individual 
manufacturers also commented that the cut-off point for light trucks 
should be shifted to 72 square feet (from the proposed 66 square feet), 
arguing that the preponderance of high-volume light truck models with 
footprints greater than 66 square feet is such that a 72 square foot 
cut-off point makes it unduly challenging for manufacturers serving the 
large pickup market and thereby constitutes a de facto backstop. Also, 
with respect to the smallest light truck models, Honda commented that 
the cut-off point should be set at the point defining the smallest 10 
percent of the fleet, both for consistency with the passenger car cut-
off point, and to provide a greater incentive for manufacturers to 
downsize the smallest light truck models (which provide greater 
functionality than passenger cars).
    Other commenters focused on whether the agencies should have 
separate curves for different fleets or whether they should have a 
single curve that applied to both passenger cars and light trucks. This 
issue is related, to some extent, to commenters who discussed whether 
car and truck definitions should change. CARB, Ford, and Toyota 
supported separate curves for cars and trucks, generally stating that 
different fleets have different functional characteristics and these 
characteristics are appropriately addressed by separate curves. 
Likewise, AIAM, Chrysler, and NADA supported leaving the current 
definitions of car and truck the same. CBD, ICCT, and NESCAUM supported 
a single curve, based on concerns about manufacturers gaming the system 
and reclassifying passenger cars as light trucks in order to obtain the 
often-less stringent light truck standard, which could lead to lower 
benefits than anticipated by the agencies.
    In addition, the students from UC Santa Barbara reported being 
unable to reproduce the agencies' analysis to fit curves to the 
passenger car and light truck fleets, even when using the model, 
inputs, and external analysis files posted to NHTSA's Web site when the 
NPRM was issued.
    Having considered public comments, NHTSA and EPA have re-examined 
the development of curves underlying the standards proposed in the 
NPRM, and are promulgating standards based on the same underlying 
curves. The agencies have made this decision considering that, while 
EISA mandates that CAFE standards be defined by a mathematical function 
in terms of one or more attributes related to fuel economy, neither 
EISA nor the CAA require that the mathematical function be limited to 
the observed or theoretical dependence of fuel economy on the selected 
attribute or attributes. As a means by which CAFE and GHG standards are 
specified, the mathematical function can and does properly play a 
normative role. Therefore, NHTSA and EPA have concluded that, as 
supported by comments, the mathematical function can reasonably be 
based on a blend of analytical and policy considerations, as discussed 
below and in the Joint Technical Support Document.
    With respect to GM's recommendation that NHTSA and EPA use weighted 
least-squares analysis, the agencies find that the market forecast used 
for analysis supporting both the NPRM and the final rule exhibits the 
two key characteristics that previously led NHTSA to use minimization 
of the unweighted Mean Absolute Deviation (MAD) rather than weighted 
least-squares analysis. First, projected model-specific sales volumes 
in the agencies' market forecast cover an extremely wide range, such 
that, as discussed in NHTSA's rulemaking for MY 2011, while unweighted 
regression gives low-selling vehicle models and high-selling vehicle 
models equal emphasis, sales-weighted regression would give some 
vehicle models considerably more emphasis than other vehicle 
models.\64\ The agencies' intention is to fit a curve that describes a 
technical relationship between fuel economy and footprint, given 
comparable levels of technology, and this supports weighting discrete 
vehicle models equally. On the other hand, sales weighted regression 
would allow the difference between other vehicle attributes to be 
reflected in the analysis, and also would reflect consumer demand.
---------------------------------------------------------------------------

    \64\ For example, the agencies' market forecast shows MY 2016 
sales of 187,000 units for Toyota's 2WD Sienna, and shows 27 model 
configurations with MY 2016 sales of fewer than 100 units. 
Similarly, the agencies' market forecast shows MY 2016 sales of 
268,000 for the Toyota Prius, and shows 29 model configurations with 
MY 2016 sales of fewer than 100 units. Sales-weighted analysis would 
give the Toyota Sienna and Prius more than a thousand times the 
consideration of many vehicle model configurations. Sales-weighted 
analysis would, therefore, cause a large number of vehicle model 
configurations to be virtually ignored. See discussion in NHTSA's 
final rule for MY 2011 passenger car and light truck CAFE standards, 
74 FR 14368 (Mar. 30, 2009), and in NHTSA's NPRM for that 
rulemaking, 73 FR 24423-24429 (May 2, 2008).
---------------------------------------------------------------------------

    Second, even after NHTSA's ``maximum technology'' analysis to 
increase technological parity of vehicle models before fitting curves, 
the agencies' market forecast contains many significant outliers. As 
discussed in NHTSA's rulemaking for MY 2011, MAD is a statistical 
procedure that has been demonstrated to produce more efficient 
parameter estimates than least-squares analysis in the presence of 
significant outliers.\65\ In addition, the

[[Page 25363]]

agencies remain concerned that the steeper curves resulting from 
weighted least-squares analysis would increase the risk that energy 
savings and environmental benefits would be lower than projected, 
because the steeper curves would provide a greater incentive to 
increase sales of larger vehicles with lower fuel economy levels. Based 
on these technical considerations and these concerns regarding 
potential outcomes, the agencies have decided not to re-fit curves 
using weighted least-squares analysis, but note that they may 
reconsider using least-squares regression in future analysis.
---------------------------------------------------------------------------

    \65\ Id. In the case of a dataset not drawn from a sample with a 
Gaussian, or normal, distribution, there is often a need to employ 
robust estimation methods rather than rely on least-squares approach 
to curve fitting. The least-squares approach has as an underlying 
assumption that the data are drawn from a normal distribution, and 
hence fits a curve using a sum-of-squares method to minimize errors. 
This approach will, in a sample drawn from a non-normal 
distribution, give excessive weight to outliers by making their 
presence felt in proportion to the square of their distance from the 
fitted curve, and, hence, distort the resulting fit. With outliers 
in the sample, the typical solution is to use a robust method such 
as a minimum absolute deviation, rather than a squared term, to 
estimate the fit (see, e.g., ``AI Access: Your Access to Data 
Modeling,'' at http://www.aiaccess.net/English/Glossaries/GlosMod/
e_gm_O_Pa.htm#Outlier). The effect on the estimation is to let 
the presence of each observation be felt more uniformly, resulting 
in a curve more representative of the data (see, e.g., Peter 
Kennedy, A Guide to Econometrics, 3rd edition, 1992, MIT Press, 
Cambridge, MA).
---------------------------------------------------------------------------

    NHTSA and EPA have considered GM's comment that steeper curves 
would provide a greater incentive for limited-line manufacturers to 
apply technology to smaller vehicles. While the agencies agree that a 
steeper curve would, absent any changes in fleet mix, tend to shift 
average compliance burdens away from GM and toward companies that make 
smaller vehicles, the agencies are concerned, as stated above, that 
steeper curves would increase the risk that induced increases in 
vehicle size could erode projected energy and environmental benefits.
    NHTSA and EPA have also considered the comments by the students 
from UC Santa Barbara indicating that the passenger car and light truck 
curves should be flatter and should converge over time. The agencies 
conclude that flatter curves would reduce the incentives intended in 
shifting from ``flat'' CAFE standards to attribute-based CAFE and GHG 
standards--those being the incentive to respond to attribute-based 
standards in ways that minimize compromises in vehicle safety, and the 
incentive for more manufacturers (than primarily those selling a wider 
range of vehicles) across the range of the attribute to have to 
increase the application of fuel-saving technologies. With regard to 
whether the agencies should set separate curves or a single one, NHTSA 
also notes that EPCA requires NHTSA to establish standards separately 
for passenger cars and light trucks, and thus concludes that the 
standards for each fleet should be based on the characteristics of 
vehicles in each fleet. In other words, the passenger car curve should 
be based on the characteristics of passenger cars, and the light truck 
curve should be based on the characteristics of light trucks--thus to 
the extent that those characteristics are different, an artificially-
forced convergence would not accurately reflect those differences. 
However, such convergence could be appropriate depending on future 
trends in the light vehicle market, specifically further reduction in 
the differences between passenger car and light truck characteristics. 
While that trend was more apparent when car-like 2WD SUVs were 
classified as light trucks, it seems likely to diminish for the model 
year vehicles subject to these rules as the truck fleet will be more 
purely ``truck-like'' than has been the case in recent years.
    NHTSA and EPA have also considered comments on the maxima and 
minima that the agencies have applied to ``cut off'' the linear 
function underlying the proposed curves for passenger cars and light 
trucks. Contrary to NADA's suggestion that there should be no such cut-
off points, the agencies conclude that curves lacking maximum fuel 
economy targets (i.e., minimum CO2 targets) would result in 
average fuel economy and GHG requirements that would not be 
technologically feasible or economically practicable for manufacturers 
concentrating on those market segments. In addition, minimum fuel 
economy targets (i.e., maximum CO2 targets) are important to 
mitigate the risk to energy and environmental benefits of potential 
market shifts toward large vehicles. The agencies also disagree with 
comments by the Alliance and several individual manufacturers that the 
cut-off point for light trucks should be shifted to 72 square feet 
(from the proposed 66 square feet) to ease compliance burdens facing 
manufacturers serving the large pickup market. Such a shift would 
increase the risk that energy and environmental benefits of the 
standards would be compromised by induced increases in the sales of 
large pickups, in situations where the increased compliance burden is 
feasible and appropriate. Also, the agencies' market forecast suggests 
that most of the light trucks models with footprints larger than 66 
square feet have curb weights near or above 5,000 pounds. This 
suggests, in turn, that in terms of highway safety, there is little or 
no need to discourage downsizing of light trucks with footprints larger 
than 66 square feet. Based on these energy, environmental, 
technological feasibility, economic practicability, and safety 
considerations, the agencies conclude that the light truck curve should 
be cut off at 66 square feet, as proposed, rather than at 72 square 
feet. The agencies also disagree with Honda's suggestion that the cut-
off point for the smallest trucks be shifted to a larger footprint 
value, because doing so could potentially increase the incentive to 
reclassify vehicles in that size range as light trucks, and could 
thereby increase the possibility that energy and environmental benefits 
of the rule would be less than projected.
    Finally, considering comments by the UC Santa Barbara students 
regarding difficulties reproducing NHTSA's analysis, NHTSA reexamined 
its analysis, and discovered some erroneous entries in model inputs 
underlying the analysis used to develop the curves proposed in the 
NPRM. These errors are discussed in NHTSA's final Regulatory Impact 
Analysis (FRIA) and have since been corrected. They include the 
following: Incorrect valvetrain phasing and lift inputs for many BMW 
engines, incorrect indexing for some Daimler models, incorrectly 
enabled valvetrain technologies for rotary engines and Atkinson cycle 
engines, omitted baseline applications of cylinder deactivation in some 
Honda and GM engines, incorrect valve phasing codes for some 4-cylinder 
Chrysler engines, omitted baseline applications of advanced 
transmissions in some VW models, incorrectly enabled advanced 
electrification technologies for several hybrid vehicle models, and 
incorrect DCT effectiveness estimates for subcompact passenger cars. 
These errors, while not significant enough to impact the overall 
analysis of stringency, did affect the fitted slope for the passenger 
car curve and would have prevented precise replication of NHTSA's NPRM 
analysis by outside parties.
    After correcting these errors and repeating the curve development 
analysis presented in the NPRM, NHTSA obtained the curves shown below 
in Figures II.C-5 and II.C-6 for passenger cars and light trucks, 
respectively. The fitted curves are shown with the underlying ``maximum 
technology'' passenger car and light truck fleets. For passenger cars, 
the mean absolute deviation of the sloped portion of the function was 
14 percent. For trucks, the corresponding MAD was 10 percent.
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    This refitted passenger car curve is similar to that presented in 
the NPRM, and the refitted light truck curve is nearly identical to the 
corresponding curve in the NPRM. However, the slope of the refitted 
passenger car curve is about 27 percent steeper (on a gpm per sf basis) 
than the curve presented in the NPRM. For passenger cars and light 
trucks, respectively, Figures II.C-7 and II.C-8 show the results of 
adjustment--discussed in the next section--of the above curves to yield 
the average required fuel economy levels corresponding to the final 
standards.
[GRAPHIC] [TIFF OMITTED] TR07MY10.011

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[GRAPHIC] [TIFF OMITTED] TR07MY10.012

BILLING CODE 6560-50-C
    While the resultant light truck curves are visually 
indistinguishable from one another, the refitted curve for passenger 
cars would increase stringency for the smallest cars, decrease 
stringency for the largest cars, and provide a greater incentive to 
increase vehicle size throughout the range of footprints within which 
NHTSA and EPA project most passenger car models will be sold through MY 
2016. The agencies are concerned that these changes would make it 
unduly difficult for manufacturers to introduce new small passenger 
cars in the United States, and unduly risk losses in energy and 
environmental benefits by increasing incentives for the passenger car 
market to shift toward larger vehicles.
    Also, the agencies note that the refitted passenger car curve 
produces only a slightly closer fit to the corrected fleet than would 
the curve estimated in

[[Page 25368]]

the NPRM; with respect to the corrected fleet (between the ``cut off'' 
footprint values, and after the ``maximum technology'' analysis 
discussed above), the mean absolute deviation for the refitted curve is 
13.887 percent, and that of a refitted curve held to the original slope 
is 13.933 percent. In other words, the data support the original slope 
very nearly as well as they support the refitted slope.
    Considering NHTSA's and EPA's concerns regarding the change in 
incentives that would result from a refitted curve for passenger cars, 
and considering that the data support the original curves about as well 
as they would support refitted curves, the agencies are finalizing CAFE 
and GHG standards based on the curves presented in the NPRM.
    Finally, regarding some commenters' inability to reproduce the 
agencies' NPRM analysis, NHTSA believes that its correction of the 
errors discussed above and its release (on NHTSA's Web site) of the 
updated Volpe model and all accompanying inputs and external analysis 
files should enable outside parties to independently reproduce the 
agencies' analysis. If outside parties continue to experience 
difficulty in doing so, we encourage them to contact NHTSA, and the 
agency will do its best to provide assistance.
    Thus, in summary, the agencies' approach to developing the 
attribute-based mathematical functions for MY 2012-2016 CAFE and 
CO2 standards represents the agencies' best technical 
judgment and consideration of potential outcomes at this time, and we 
are confident that the conclusions have resulted in appropriate and 
reasonable standards. The agencies recognize, however, that aspects of 
these decisions may merit updating or revision in future analysis to 
support CAFE and CO2 standards or for other purposes. 
Consistent with best rulemaking practices, the agencies will take a 
fresh look at all assumptions and approaches to curve fitting, 
appropriate attributes, and mathematical functions in the context of 
future rulemakings.
    The agencies also recognized in the NPRM the possibility that lower 
fuel prices could lead to lower fleetwide fuel economy (and higher 
CO2 emissions) than projected in this rule. One way of 
addressing that concern is through the use of a universal standard--
that is, an average standard set at a (single) absolute level. This is 
often described as a ``backstop standard.'' The agencies explained that 
under the CAFE program, EISA requires such a minimum average fuel 
economy standard for domestic passenger cars, but is silent with regard 
to similar backstops for imported passenger cars and light trucks, 
while under the CAA, a backstop could be adopted under section 202(a) 
assuming it could be justified under the relevant statutory criteria. 
NHTSA and EPA also noted that the flattened portions of the curves at 
the largest footprints directionally address the issue of a backstop 
(i.e., the mpg ``floor'' or gpm ``ceiling'' applied to the curves 
provides a universal and absolute value for that range of footprints). 
The agencies sought comment on whether backstop standards, or any other 
method within the agencies' statutory authority, should and can be 
implemented in order to guarantee a level of CO2 emissions 
reductions and fuel savings under the attribute-based standards.
    The agencies received a number of comments regarding the need for a 
backstop beyond NHTSA's alternative minimum standard. Comments were 
divided fairly evenly between support for and opposition to additional 
backstop standards. The following organizations supported the need for 
EPA and NHTSA to have explicit backstop standards: American Council for 
an Energy Efficient Economy (ACEEE), American Lung Association, 
California Air Resources Board (CARB), Environment America, Environment 
Defense Fund, Massachusetts Department of Environmental Protection, 
Natural Resources Defense Council (NRDC), Northeast States for 
Coordinated Air Use Management (NESCAUM), Public Citizen and Safe 
Climate Campaign, Sierra Club, State of Washington Department of 
Ecology, Union of Concerned Scientists, and a number of private 
citizens. Commenters in favor of additional backstop standards for all 
fleets for both NHTSA and EPA \66\ generally stated that the emissions 
reductions and fuel savings expected to be achieved by MY 2016 depended 
on assumptions about fleet mix that might not come to pass, and that 
various kinds of backstop standards or ``ratchet mechanisms'' \67\ were 
necessary to ensure that those reductions were achieved in fact. In 
addition, some commenters \68\ stated that manufacturers might build 
larger vehicles or more trucks during MYs 2012-2016 than the agencies 
project, for example, because (1) any amount of slope in target curves 
encourages manufacturers to upsize, and (2) lower targets for light 
trucks than for passenger cars encourage manufacturers to find ways to 
reclassify vehicles as light trucks, such as by dropping 2WD versions 
of SUVs and offering only 4WD versions, perhaps spurred by NHTSA's 
reclassification of 2WD SUVs as passenger cars. Both of these 
mechanisms will be addressed further below. Some commenters also 
discussed EPA authority under the CAA to set backstops,\69\ agreeing 
with EPA's analysis that section 202(a) allows such standards since EPA 
has wide discretion under that section to craft standards.
---------------------------------------------------------------------------

    \66\ ACEEE, American Lung Association, CARB, Christopher Lish, 
Environment America, EDF, MA DEP, NRDC, NESCAUM, Public Citizen, 
Sierra Club et al., SCAQMD, UCS, WA DE.
    \67\ Commenters generally defined a ``ratchet mechanism'' as an 
automatic re-calculation of stringency to ensure cumulative goals 
are reached by 2016, even if emissions reductions and fuel savings 
fall short in the earlier years covered by the rulemaking.
    \68\ CBD, MA DEP, NJ DEP, Public Citizen, Sierra Club et al., 
UCS.
    \69\ CARB, Public Citizen, Sierra Club et al.
---------------------------------------------------------------------------

    The following organizations opposed a backstop: Alliance of 
Automobile Manufacturers (AAM), Association of International Automobile 
Manufacturers (AIAM), Ford Motor Company, National Automobile Dealers 
Association (NADA), Toyota Motor Company, and the United Auto Workers 
Union. Commenters stating that additional backstops would not be 
necessary disagreed that upsizing was likely,\70\ and emphasized the 
anti-backsliding characteristics of the target curves. Others argued 
that universal absolute standards as backstops could restrict consumer 
choice of vehicles. Commenters making legal arguments under EPCA/
EISA\71\ stated that Congress' silence regarding backstops for imported 
passenger cars and light trucks should be construed as a lack of 
authority for NHTSA to create further backstops. Commenters making 
legal arguments under the CAA\72\ focused on the lack of clear 
authority under the CAA to create multiple GHG emissions standards for 
the same fleets of vehicles based on the same statutory criteria, and 
opposed EPA taking steps that would reduce harmonization with NHTSA in 
standard setting. Furthermore, AIAM indicated that EISA's requirement 
that the combined (car and truck) fuel economy level reach at least 35 
mpg by

[[Page 25369]]

2020 itself constitutes a backstop.\73\ One individual \74\ commented 
that while additional backstop standards might be necessary given 
optimism of fleet mix assumptions, both agencies' authorities would 
probably need to be revised by Congress to clarify that backstop 
standards (whether for individual fleets or for the national fleet as a 
whole) were permissible.
---------------------------------------------------------------------------

    \70\ For example, the Alliance and Toyota said that upsizing 
would not be likely because (1) it would not necessarily make 
compliance with applicable standards easier, since larger vehicles 
tend to be heavier and heavier vehicles tend to achieve worse fuel 
economy/emissions levels; (2) it may require expensive platform 
changes; (3) target curves become increasingly more stringent from 
year to year, which reduces the benefits of upsizing; and (4) the 
mpg floor and gpm ceiling for the largest vehicles (the point at 
which the curve is ``cut off'') discourages manufacturers from 
continuing to upsize beyond a point because doing so makes it 
increasingly difficult to meet the flat standard at that part of the 
curve.
    \71\ AIAM, Alliance, Ford, NADA, Toyota.
    \72\ Alliance, Ford, NADA, UAW.
    \73\ NHTSA and EPA agree with AIAM that the EISA 35 mpg 
requirement in MY 2020 has a backstop-like function, in that it 
requires a certain level of achieved fleetwide fuel economy by a 
certain date, although it is not literally a backstop standard. 
Considering that NHTSA's MY 2011 CAFE standards increased projected 
average fuel economy requirements (relative to the MY 2010 
standards) at a significantly faster rate than would be required to 
achieve the 35-in-2020 requirement, and considering that the 
standards being finalized today would increase projected average 
combined fuel economy requirements to 34.1 mpg in MY 2016, four 
years before MY 2020, the agencies believe that the U.S. vehicle 
market would have to shift in highly unexpected ways in order to put 
the 35-in-2020 requirement at risk, even despite the fact that due 
to the attribute-based standards, average fuel economy requirements 
will vary depending on the mix of vehicles produced for sale in the 
U.S. in each model year. The agencies further emphasize that both 
NHTSA and EPA plan to conduct and document retrospective analyses to 
evaluate how the market's evolution during the rulemaking timeframe 
compares with the agencies' forecasts employed for this rulemaking. 
Additionally, we emphasize that both agencies have the authority, 
given sufficient lead time, to revise their standards upwards if 
necessary to avoid missing the 35-in-2020 requirement.
    \74\ Schade.
---------------------------------------------------------------------------

    In response, EPA and NHTSA remain confident that their projections 
of the future fleet mix are reliable, and that future changes in the 
fleet mix of footprints and sales are not likely to lead to more than 
modest changes in projected emissions reductions or fuel savings.\75\ 
Both agencies thus remain confident in these fleet projections and the 
resulting emissions reductions and fuel savings from the standards. As 
explained in Section II.B above, the agencies' projections of the 
future fleet are based on the most transparent information currently 
available to the agencies. In addition, there are only a relatively few 
model years at issue. Moreover, market trends today are consistent with 
the agencies' estimates, showing shifts from light trucks to passenger 
cars and increased emphasis on fuel economy from all vehicles.
---------------------------------------------------------------------------

    \75\ For reference, NHTSA's March 2009 final rule establishing 
MY 2011 CAFE standards was based on a forecast that passenger cars 
would represent 57.6 percent of the MY 2011 fleet, and that MY 2011 
passenger cars and light trucks would average 45.6 square feet (sf) 
and 55.1 sf, respectively, such that average required CAFE levels 
would be 30.2 mpg, 24.1 mpg, and 27.3 mpg, respectively, for 
passenger cars, light trucks, and the overall light-duty fleet. 
Based on the agencies' current market forecast, even as soon as MY 
2011, passenger cars will comprise a larger share (59.2 percent) of 
the light vehicle market; passenger cars and light trucks will, on 
average, be smaller by 0.5 sf and 1.3 sf, respectively; and average 
required CAFE levels will be higher by 0.2 mpg, 0.3 mpg, and 0.3 
mpg, respectively, for passenger cars, light trucks, and the overall 
light-duty fleet.
---------------------------------------------------------------------------

    Finally, the shapes of the curves, including the ``flattening'' at 
the largest footprint values, tend to avoid or minimize regulatory 
incentives for manufacturers to upsize their fleet to change their 
compliance burden. Given the way the curves are fit to the data points 
(which represent vehicle models' fuel economy mapped against their 
footprint), the agencies believe that there is little real benefit to 
be gained by a manufacturer upsizing their vehicles. As discussed 
above, the agencies' analysis indicates that, for passenger car models 
with footprints falling between the two flattened portions of the 
corresponding curve, the actual slope of fuel economy with respect to 
footprint, if fit to that data by itself, is about 27 percent steeper 
than the curve the agencies are promulgating today. This difference 
suggests that manufacturers would, if anything, have more to gain by 
reducing vehicle footprint than by increasing vehicle footprint. For 
light trucks, the agencies' analysis indicates that, for models with 
footprints falling between the two flatted portions of the 
corresponding curve, the slope of fuel economy with respect to 
footprint is nearly identical to the curve the agencies are 
promulgating today. This suggests that, within this range, 
manufacturers would typically have little incentive to either 
incrementally increase or reduce vehicle footprint. The agencies 
recognize that based on economic and consumer demand factors that are 
external to this rule, the distribution of footprints in the future may 
be different (either smaller or larger) than what is projected in this 
rule. However, the agencies continue to believe that there will not be 
significant shifts in this distribution as a direct consequence of this 
rule.
    At the same time, adding another backstop standard would have 
virtually no effect if the standard was weak, but a more stringent 
backstop could compromise the objectives served by attribute-based 
standards--that they distribute compliance burdens more equally among 
manufacturers, and at the same time encourage manufacturers to apply 
fuel-saving technologies rather than simply downsizing their vehicles, 
as they did in past decades under flat standards. This is why Congress 
mandated attribute-based CAFE standards in EISA. This compromise in 
objectives could occur for any manufacturer whose fleet average was 
above the backstop, irrespective of why they were above the backstop 
and irrespective of whether the industry as a whole was achieving the 
emissions and fuel economy benefits projected for the final standards, 
the problem the backstop is supposed to address. For example, the 
projected industry wide level of 250 gm/mile for MY 2016 is based on a 
mix of manufacturer levels, ranging from approximately 205 to 315 gram/
mile \76\ but resulting in an industry wide basis in a fleet average of 
250 gm/mile. Unless the backstop was at a very weak level, above the 
high end of this range, then some percentage of manufacturers would be 
above the backstop even if the performance of the entire industry 
remains fully consistent with the emissions and fuel economy levels 
projected for the final standards. For these manufacturers and any 
other manufacturers who were above the backstop, the objectives of an 
attribute based standard would be compromised and unnecessary costs 
would be imposed. This could directionally impose increased costs for 
some manufacturers. It would be difficult if not impossible to 
establish the level of a backstop standard such that costs are likely 
to be imposed on manufacturers only when there is a failure to achieve 
the projected reductions across the industry as a whole. An example of 
this kind of industry wide situation could be when there is a 
significant shift to larger vehicles across the industry as a whole, or 
if there is a general market shift from cars to trucks. The problem the 
agencies are concerned about in those circumstances is not with respect 
to any single manufacturer, but rather is based on concerns over shifts 
across the fleet as a whole, as compared to shifts in one 
manufacturer's fleet that may be more than offset by shifts the other 
way in another manufacturer's fleet. However, in this respect, a 
traditional backstop acts as a manufacturer specific standard.
---------------------------------------------------------------------------

    \76\ Based on estimated standards presented in Tables III.B.1-1 
and III.B.1-2.
---------------------------------------------------------------------------

    The concept of a ratchet mechanism recognizes this problem, and 
would impose the new more stringent standard only when the problem 
arises across the industry as a whole. While the new more stringent 
standards would enter into force automatically, any such standards 
would still need to provide adequate lead time for the manufacturers. 
Given the limited number of model years covered by this rulemaking and 
the short lead-time already before the 2012 model year, a ratchet 
mechanism in this rulemaking that would automatically tighten the 
standards at some point after model year 2012 is finished and apply the 
new more stringent standards for model

[[Page 25370]]

years 2016 or earlier, would fail to provide adequate lead time for any 
new, more stringent standards
    Additionally, we do not believe that the risk of vehicle upsizing 
or changing vehicle offerings to ``game'' the passenger car and light 
truck definitions is as great as commenters imply for the model years 
in question.\77\ The changes that commenters suggest manufacturers 
might make are neither so simple nor so likely to be accepted by 
consumers. For example, 4WD versions of vehicles tend to be more 
expensive and, other things being equal, have inherently lower fuel 
economy than their 2WD equivalent models. Therefore, although there is 
a market for 4WD vehicles, and some consumers might shift from 2WD 
vehicles to 4WD vehicles if 4WD becomes available at little or no extra 
cost, many consumers still may not desire to purchase 4WD vehicles 
because of concerns about cost premium and additional maintenance 
requirements; conversely, many manufacturers often require the 2WD 
option to satisfy demand for base vehicle models. Additionally, 
increasing the footprint of vehicles requires platform changes, which 
usually requires a product redesign phase (the agencies estimate that 
this occurs on average once every 5 years for most models). 
Alternatively, turning many 2WD SUVs into 2WD light trucks would 
require manufacturers to squeeze a third row of seats in or 
significantly increase their GVWR, which also requires a significant 
change in the vehicle.\78\ The agencies are confident that the 
anticipated increases in average fuel economy and reductions in average 
CO2 emission rates can be achieved without backstops under 
EISA or the CAA. As noted above, the agencies plan to conduct 
retrospective analysis to monitor progress. Both agencies have the 
authority to revise standards if warranted, as long as sufficient lead 
time is provided.
---------------------------------------------------------------------------

    \77\ We note that NHTSA's recent clarification of the light 
truck definitions has significantly reduced the potential for 
gaming, and resulted in the reclassification of over a million 
vehicles from the light truck to the passenger car fleet.
    \78\ Increasing the GVWR of a light truck (assuming this was the 
only goal) can be accomplished in a number of ways, and must include 
consideration of: (1) Redesign of wheel axles; (2) improving the 
vehicle suspension; (3) changes in tire specification (which will 
likely affect ride quality); (4) vehicle dynamics development 
(especially with vehicles equipped with electronic stability 
control); and (5) brake redesign. Depending on the vehicle, some of 
these changes may be easier or more difficult than others.
---------------------------------------------------------------------------

    The agencies acknowledge that the MY 2016 fleet emissions and fuel 
economy goals of 250 g/mi and 34.1 mpg for EPA and NHTSA respectively 
are estimates and not standards (the MY 2012-2016 curves are the 
standards). Changes in fuel prices, consumer preferences, and/or 
vehicle survival and mileage accumulation rates could result in either 
smaller or larger oil and GHG savings. As explained above and elsewhere 
in the rule, the agencies believe that the possibility of not meeting 
(or, alternatively, exceeding) fuel economy and emissions goals exists, 
but is not likely. Given this, and given the potential complexities in 
designing an appropriate backstop, the agencies believe the balance 
here points to not adopting additional backstops at this time for the 
MYs 2012-2016 standards other than NHTSA's finalizing of the ones 
required by EPCA/EISA for domestic passenger cars. Nevertheless, the 
agencies recognize there are many factors that are inherently uncertain 
which can affect projections in the future, including fuel price and 
other factors which are unrelated to the standards contained in this 
final rule. Such factors can affect consumer preferences and are 
difficult to predict. At this time and based on the available 
information, the agencies have not included a backstop for model years 
2012-2016. However, if circumstances change in the future in 
unanticipated ways, the agencies may revisit the issue of a backstop in 
the context of a future rulemaking either for model years 2012-2016 or 
as needed for standards for model years beyond 2016. This issue will be 
discussed further in Sections III and IV.

D. Relative Car-Truck Stringency

    The agencies proposed fleetwide standards with the projected levels 
of stringency of 34.1 mpg or 250 g/mi in MY 2016 (as well as the 
corresponding intermediate year fleetwide standards) for NHTSA and EPA 
respectively. To determine the relative stringency of passenger car and 
light truck standards for those model years, the agencies were 
concerned that increasing the difference between the car and truck 
standards (either by raising the car standards or lowering the truck 
standards) could encourage manufacturers to build fewer cars and more 
trucks, likely to the detriment of fuel economy and CO2 
reductions.\79\ In order to maintain consistent car/truck standards, 
the agencies applied a constant ratio between the estimated average 
required performance under the passenger car and light truck standards, 
in order to maintain a stable set of incentives regarding vehicle 
classification.
---------------------------------------------------------------------------

    \79\ For example, since many 2WD SUVs are classified as 
passenger cars, manufacturers have already warned that high car 
standards relative to truck standards could create an incentive for 
them to drop the 2WD version and sell only the 4WD version.
---------------------------------------------------------------------------

    To calculate relative car-truck stringency for the proposal, the 
agencies explored a number of possible alternatives, and for the 
reasons described in the proposal used the Volpe model in order to 
estimate stringencies at which net benefits would be maximized. The 
agencies have followed the same approach in calculating the relative 
car-truck stringency for the final standards promulgated today. Further 
details of the development of this approach can be found in Section IV 
of this preamble as well as in NHTSA's RIA and EIS. NHTSA examined 
passenger car and light truck standards that would produce the proposed 
combined average fuel economy levels from Table I.B.2-2 above. NHTSA 
did so by shifting downward the curves that maximize net benefits, 
holding the relative stringency of passenger car and light truck 
standards constant at the level determined by maximizing net benefits, 
such that the average fuel economy required of passenger cars remained 
31 percent higher than the average fuel economy required of light 
trucks. This methodology resulted in the average fuel economy levels 
for passenger cars and light trucks during MYs 2012-2016 as shown in 
Table I.B.1-1. The following chart illustrates this methodology of 
shifting the standards from the levels maximizing net benefits to the 
levels consistent with the combined fuel economy standards in this 
final rule.
BILLING CODE 6560-50-P

[[Page 25371]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.013

BILLING CODE 6560-50-C
    The final car and truck standards for EPA (Table I.B.1-4 above) 
were subsequently determined by first converting the average required 
fuel economy levels to average required CO2 emission rates, 
and then applying the expected air conditioning credits for 2012-2016. 
These A/C credits are shown in the following table. Further details of 
the derivation of these factors can be found in Section III of this 
preamble or in the EPA RIA.
---------------------------------------------------------------------------

    \80\ We assume slightly higher A/C penetration in 2012 than was 
assumed in the proposal only to correct for rounding that occurred 
in the curve setting process.

[[Page 25372]]

                 Table II.D-1 Expected Fleet A/C Credits (in CO2 Equivalent g/mi) From 2012-2016
----------------------------------------------------------------------------------------------------------------
                                                      Average
                                                    technology    Average credit  Average credit  Average credit
                                                    penetration      for cars       for trucks     for combined
                                                        (%)                                            fleet
----------------------------------------------------------------------------------------------------------------
2012............................................         \80\ 28             3.4             3.8             3.5
2013............................................              40             4.8             5.4             5.0
2014............................................              60             7.2             8.1             7.5
2015............................................              80             9.6            10.8            10.0
2016............................................              85            10.2            11.5            10.6
----------------------------------------------------------------------------------------------------------------

    The agencies sought comment on the use of this methodology for 
apportioning the fleet stringencies to relative car and truck standards 
for 2012-2016. General Motors commented that, compared to the passenger 
car standard, the light truck standard is too stringent because ``the 
most fuel efficient cars and small trucks already meet the 2016 MY 
requirements'' but ``the most fuel efficient large trucks must increase 
fuel economy by 20 percent to meet the 2016 MY requirements.'' GM 
recommended that the agencies relax stringency specifically for large 
pickups, such as the Silverado.
    The agencies disagree with the premise of the comment that the 
standard is too stringent under the applicable statutory provisions 
because some existing large trucks are not already meeting a later 
model year standard. Our analysis shows that the standards are not too 
stringent for manufacturers selling these vehicles. The agencies' 
analyses demonstrate a means by which manufacturers could apply cost-
effective technologies in order to achieve the standards, and we have 
provided adequate lead time for the technology to be applied. More 
important, the agencies' analysis demonstrate that the fleetwide 
emission standards for MY 2016 are technically feasible, for example by 
implementing technologies such as engine downsizing, turbocharging, 
direct injection, improving accessories and tire rolling resistance, 
etc.
    GM did not comment on the use of the methodology applied by the 
agencies to develop the gap between the passenger car and light truck 
standards--only on the outcome of the methodology. For the reasons 
discussed below, the agencies maintain that the methodology applied 
above provides an appropriate basis to determine the gap between the 
passenger car and light truck standards, and disagree with GM's 
arguments that the outcome is unfair.
    First, GM's argument incorrectly suggests that every individual 
vehicle model must achieve its fuel economy and emissions targets. CAFE 
standards and new GHG emissions standards apply to fleetwide average 
performance, not model-specific performance, even though average 
required levels are based on average model-specific targets, and the 
agencies' analysis demonstrates that GM and other manufacturers of 
large trucks can cost-effectively comply with the new standards.
    Second, GM implies that every manufacturer must be challenged 
equally with respect to fuel economy and emissions. Although NHTSA and 
EPA maintain that attribute-based CAFE and GHG emissions standards can 
more evenly balance compliance challenges, attribute-based standards 
are not intended to and cannot make these challenges equal, and while 
the agencies are mindful of the potential impacts of the standards on 
the relative competitiveness of different vehicle manufacturers, there 
is nothing in EPCA or the CAA \81\ requiring that these challenges be 
equal.
---------------------------------------------------------------------------

    \81\ As NHTSA explained in the NPRM, the Conference Report for 
EPCA, as enacted in 1975, makes clear, and the case law affirms, ``a 
determination of maximum feasible average fuel economy should not be 
keyed to the single manufacturer which might have the most 
difficulty achieving a given level of average fuel economy.'' CEI-I, 
793 F.2d 1322, 1352 (D.C. Cir. 1986). Instead, NHTSA is compelled 
``to weigh the benefits to the nation of a higher fuel economy 
standard against the difficulties of individual automobile 
manufacturers.'' Id. The law permits CAFE standards exceeding the 
projected capability of any particular manufacturer as long as the 
standard is economically practicable for the industry as a whole. 
Similarly, EPA is afforded great discretion under section 202(a) of 
the CAA to balance issues of technical feasibility, cost, adequacy 
of lead time, and safety, and certainly is not required to do so in 
a manner that imposes regulatory obligations uniformly on each 
manufacturer. See NRDC v. EPA, 655 F. 2d 318, 322, 328 (D.C. Cir. 
1981) (wide discretion afforded by the statutory factors, and EPA 
predictions of technical feasibility afforded considerable 
discretion subject to constraints of reasonableness EPA predictions 
of technical feasibility afforded considerable discretion subject to 
constraints of reasonableness); and cf. International Harvester Co. 
v. Ruckelshaus, 479 F. 2d 615, 640 (D.C. Cir. 1973) (``as long as 
feasible technology permits the demand for new passenger automobiles 
to be generally met, the basic requirements of the Act would be 
satisfied, even though this might occasion fewer models and a more 
limited choice of engine types'').
---------------------------------------------------------------------------

    We have also already addressed and rejected GM's suggestion of 
shifting the ``cut off'' point for light trucks from 66 square feet to 
72 square feet, thereby ``dropping the floor'' of the target function 
for light trucks. As discussed in the preceding section, this is so as 
not to forego the rules' energy and environmental benefits, and because 
there is little or no safety basis to discourage downsizing of the 
largest light trucks.
    Finally, NHTSA and EPA disagree with GM's claim that the outcome of 
the agencies' approach is unfairly burdensome for light trucks as 
compared to passenger cars. Based on the agencies' market forecast, 
NHTSA's analysis indicates that incremental technology outlays could, 
on average, be comparable for passenger cars and light trucks under the 
final CAFE standards, and further indicates that the ratio of total 
benefits to total costs could be greater under the final light truck 
standards than under the final passenger car standards.

E. Joint Vehicle Technology Assumptions

    Vehicle technology assumptions, i.e., assumptions about 
technologies' cost, effectiveness, and the rate at which they can be 
incorporated into new vehicles, are often controversial as they have a 
significant impact on the levels of the standards. The agencies must, 
therefore, take great care in developing and justifying these 
estimates. In developing technology inputs for the analysis of the MY 
2012-2016 standards, the agencies reviewed the technology assumptions 
that NHTSA used in setting the MY 2011 standards, the comments that 
NHTSA received in response to its May 2008 Notice of Proposed 
Rulemaking (NPRM), and the comments received in response to the NPRM 
for this rule. This review is consistent with the request by President 
Obama in his January 26 memorandum to DOT. In addition, the agencies 
reviewed the technology input

[[Page 25373]]

estimates identified in EPA's July 2008 Advance Notice of Proposed 
Rulemaking. The review of these documents was supplemented with updated 
information from more current literature, new product plans from 
manufacturers, and from EPA certification testing.
    As a general matter, EPA and NHTSA believe that the best way to 
derive technology cost estimates is to conduct real-world tear down 
studies. Most of the commenters on this issue agreed. The advantages 
not only lie in the rigor of the approach, but also in its 
transparency. These studies break down each technology into its 
respective components, evaluate the costs of each component, and build 
up the costs of the entire technology based on the contribution of each 
component and the processes required to integrate them. As such, tear 
down studies require a significant amount of time and are very costly. 
EPA has been conducting tear down studies to assess the costs of 
vehicle technologies under a contract with FEV. Further details for 
this methodology is described below and in the TSD.
    Due to the complexity and time incurred in a tear down study, only 
a few technologies evaluated in this rulemaking have been costed in 
this manner thus far. The agencies prioritized the technologies to be 
costed first based on how prevalent the agencies believed they might be 
likely to be during the rulemaking time frame, and based on their 
anticipated cost-effectiveness. The agencies believe that the focus on 
these important technologies (listed below) is sufficient for the 
analysis in this rule, but EPA is continuing to analyze more 
technologies beyond this rule as part of studies both already underway 
and in the future. For most of the other technologies, because tear 
down studies were not yet available, the agencies decided to pursue, to 
the extent possible, the Bill of Materials (BOM) approach as outlined 
in NHTSA's MY 2011 final rule. A similar approach was used by EPA in 
the EPA 2008 Staff Technical Report. This approach was recommended to 
NHTSA by Ricardo, an international engineering consulting firm retained 
by NHTSA to aid in the analysis of public comments on its proposed 
standards for MYs 2011-2015 because of its expertise in the area of 
fuel economy technologies. A BOM approach is one element of the process 
used in tear down studies. The difference is that under a BOM approach, 
the build up of cost estimates is conducted based on a review of cost 
and effectiveness estimates for each component from available 
literature, while under a tear down study, the cost estimates which go 
into the BOM come from the tear down study itself. To the extent that 
the agencies departed from the MY 2011 CAFE final rule estimates, the 
agencies explained the reasons and provided supporting analyses in the 
Technical Support Document.
    Similarly, the agencies followed a BOM approach for developing the 
technology effectiveness estimates, insofar as the BOM developed for 
the cost estimates helped to inform the appropriate effectiveness 
values derived from the literature review. The agencies supplemented 
the information with results from available simulation work and real 
world EPA certification testing.
    The agencies would also like to note that per the Energy 
Independence and Security Act (EISA), the National Academies of 
Sciences has been conducting a study for NHTSA to update Chapter 3 of 
their 2002 NAS Report, which presents technology effectiveness 
estimates for light-duty vehicles. The update takes a fresh look at 
that list of technologies and their associated cost and effectiveness 
values. The updated NAS report was expected to be available on 
September 30, 2009, but has not been completed and released to the 
public. The results from this study thus are unavailable for this 
rulemaking. The agencies look forward to considering the results from 
this study as part of the next round of rulemaking for CAFE/GHG 
standards.
1. What technologies did the agencies consider?
    The agencies considered over 35 vehicle technologies that 
manufacturers could use to improve the fuel economy and reduce 
CO2 emissions of their vehicles during MYs 2012-2016. The 
majority of the technologies described in this section are readily 
available, well known, and could be incorporated into vehicles once 
production decisions are made. Other technologies considered may not 
currently be in production, but are beyond the research phase and under 
development, and are expected to be in production in the next few 
years. These are technologies which can, for the most part, be applied 
both to cars and trucks, and which are capable of achieving significant 
improvements in fuel economy and reductions in CO2 
emissions, at reasonable costs. The agencies did not consider 
technologies in the research stage because the lead time available for 
this rule is not sufficient to move most of these technologies from 
research to production.
    The technologies considered in the agencies' analysis are briefly 
described below. They fall into five broad categories: Engine 
technologies, transmission technologies, vehicle technologies, 
electrification/accessory technologies, and hybrid technologies. For a 
more detailed description of each technology and their costs and 
effectiveness, we refer the reader to Chapter 3 of the Joint TSD, 
Chapter III of NHTSA's FRIA, and Chapter 1 of EPA's final RIA. 
Technologies to reduce CO2 and HFC emissions from air 
conditioning systems are discussed in Section III of this preamble and 
in EPA's final RIA.
    Types of engine technologies that improve fuel economy and reduce 
CO2 emissions include the following:
     Low-friction lubricants--low viscosity and advanced low 
friction lubricants oils are now available with improved performance 
and better lubrication. If manufacturers choose to make use of these 
lubricants, they would need to make engine changes and possibly conduct 
durability testing to accommodate the low-friction lubricants.
     Reduction of engine friction losses--can be achieved 
through low-tension piston rings, roller cam followers, improved 
material coatings, more optimal thermal management, piston surface 
treatments, and other improvements in the design of engine components 
and subsystems that improve engine operation.
     Conversion to dual overhead cam with dual cam phasing--as 
applied to overhead valves designed to increase the air flow with more 
than two valves per cylinder and reduce pumping losses.
     Cylinder deactivation--deactivates the intake and exhaust 
valves and prevents fuel injection into some cylinders during light-
load operation. The engine runs temporarily as though it were a smaller 
engine which substantially reduces pumping losses.
     Variable valve timing--alters the timing of the intake 
valve, exhaust valve, or both, primarily to reduce pumping losses, 
increase specific power, and control residual gases.
     Discrete variable valve lift--increases efficiency by 
optimizing air flow over a broader range of engine operation which 
reduces pumping losses. Accomplished by controlled switching between 
two or more cam profile lobe heights.
     Continuous variable valve lift--is an electromechanically 
controlled system in which valve timing is changed as lift height is 
controlled. This yields a wide range of performance

[[Page 25374]]

optimization and volumetric efficiency, including enabling the engine 
to be valve throttled.
     Stoichiometric gasoline direct-injection technology--
injects fuel at high pressure directly into the combustion chamber to 
improve cooling of the air/fuel charge within the cylinder, which 
allows for higher compression ratios and increased thermodynamic 
efficiency.
     Combustion restart--can be used in conjunction with 
gasoline direct-injection systems to enable idle-off or start-stop 
functionality. Similar to other start-stop technologies, additional 
enablers, such as electric power steering, accessory drive components, 
and auxiliary oil pump, might be required.
     Turbocharging and downsizing--increases the available 
airflow and specific power level, allowing a reduced engine size while 
maintaining performance. This reduces pumping losses at lighter loads 
in comparison to a larger engine.
     Exhaust-gas recirculation boost--increases the exhaust-gas 
recirculation used in the combustion process to increase thermal 
efficiency and reduce pumping losses.
     Diesel engines--have several characteristics that give 
superior fuel efficiency, including reduced pumping losses due to lack 
of (or greatly reduced) throttling, and a combustion cycle that 
operates at a higher compression ratio, with a very lean air/fuel 
mixture, relative to an equivalent-performance gasoline engine. This 
technology requires additional enablers, such as NOX trap 
catalyst after-treatment or selective catalytic reduction 
NOX after-treatment. The cost and effectiveness estimates 
for the diesel engine and aftertreatment system utilized in this final 
rule have been revised from the NHTSA MY 2011 CAFE final rule. 
Additionally, the diesel technology option has been made available to 
small cars in the Volpe and OMEGA models. Though this is not expected 
to make a significant difference in the modeling results, the agencies 
agreed with the commenters that supported such a revision.
    Types of transmission technologies considered include:
     Improved automatic transmission controls-- optimizes shift 
schedule to maximize fuel efficiency under wide ranging conditions, and 
minimizes losses associated with torque converter slip through lock-up 
or modulation.
     Six-, seven-, and eight-speed automatic transmissions--the 
gear ratio spacing and transmission ratio are optimized to enable the 
engine to operate in a more efficient operating range over a broader 
range of vehicle operating conditions.
     Dual clutch or automated shift manual transmissions--are 
similar to manual transmissions, but the vehicle controls shifting and 
launch functions. A dual-clutch automated shift manual transmission 
uses separate clutches for even-numbered and odd-numbered gears, so the 
next expected gear is pre-selected, which allows for faster and 
smoother shifting.
     Continuously variable transmission--commonly uses V-shaped 
pulleys connected by a metal belt rather than gears to provide ratios 
for operation. Unlike manual and automatic transmissions with fixed 
transmission ratios, continuously variable transmissions can provide 
fully variable and an infinite number of transmission ratios that 
enable the engine to operate in a more efficient operating range over a 
broader range of vehicle operating conditions.
     Manual 6-speed transmission--offers an additional gear 
ratio, often with a higher overdrive gear ratio, than a 5-speed manual 
transmission.
    Types of vehicle technologies considered include:
     Low-rolling-resistance tires--have characteristics that 
reduce frictional losses associated with the energy dissipated in the 
deformation of the tires under load, thereby improving fuel economy and 
reducing CO2 emissions.
     Low-drag brakes--reduce the sliding friction of disc brake 
pads on rotors when the brakes are not engaged because the brake pads 
are pulled away from the rotors.
     Front or secondary axle disconnect for four-wheel drive 
systems--provides a torque distribution disconnect between front and 
rear axles when torque is not required for the non-driving axle. This 
results in the reduction of associated parasitic energy losses.
     Aerodynamic drag reduction--is achieved by changing 
vehicle shape or reducing frontal area, including skirts, air dams, 
underbody covers, and more aerodynamic side view mirrors.
     Mass reduction and material substitution--Mass reduction 
encompasses a variety of techniques ranging from improved design and 
better component integration to application of lighter and higher-
strength materials. Mass reduction is further compounded by reductions 
in engine power and ancillary systems (transmission, steering, brakes, 
suspension, etc.). The agencies recognize there is a range of diversity 
and complexity for mass reduction and material substitution 
technologies and there are many techniques that automotive suppliers 
and manufacturers are using to achieve the levels of this technology 
that the agencies have modeled in our analysis for the final standards.
    Types of electrification/accessory and hybrid technologies 
considered include:
     Electric power steering (EPS)--is an electrically-assisted 
steering system that has advantages over traditional hydraulic power 
steering because it replaces a continuously operated hydraulic pump, 
thereby reducing parasitic losses from the accessory drive.
     Improved accessories (IACC)--may include high efficiency 
alternators, electrically driven (i.e., on-demand) water pumps and 
cooling fans. This excludes other electrical accessories such as 
electric oil pumps and electrically driven air conditioner compressors. 
The latter is covered explicitly within the A/C credit program.
     Air Conditioner Systems--These technologies include 
improved hoses, connectors and seals for leakage control. They also 
include improved compressors, expansion valves, heat exchangers and the 
control of these components for the purposes of improving tailpipe 
CO2 emissions as a result of A/C use. These technologies are 
discussed later in this preamble and covered separately in the EPA RIA.
     12-volt micro-hybrid (MHEV)--also known as idle-stop or 
start-stop and commonly implemented as a 12-volt belt-driven integrated 
starter-generator, this is the most basic hybrid system that 
facilitates idle-stop capability. Along with other enablers, this 
system replaces a common alternator with a belt-driven enhanced power 
starter-alternator, and a revised accessory drive system.
     Higher Voltage Stop-Start/Belt Integrated Starter 
Generator (BISG)--provides idle-stop capability and uses a higher 
voltage battery with increased energy capacity over typical automotive 
batteries. The higher system voltage allows the use of a smaller, more 
powerful electric motor. This system replaces a standard alternator 
with an enhanced power, higher voltage, higher efficiency starter-
alternator, that is belt driven and that can recover braking energy 
while the vehicle slows down (regenerative braking).
     Integrated Motor Assist (IMA)/Crank integrated starter 
generator (CISG)--provides idle-stop capability and uses a high voltage 
battery with increased energy capacity over typical automotive 
batteries. The higher system voltage allows the use of a smaller, more

[[Page 25375]]

powerful electric motor and reduces the weight of the wiring harness. 
This system replaces a standard alternator with an enhanced power, 
higher voltage, higher efficiency starter-alternator that is crankshaft 
mounted and can recover braking energy while the vehicle slows down 
(regenerative braking).
     2-mode hybrid (2MHEV)--is a hybrid electric drive system 
that uses an adaptation of a conventional stepped-ratio automatic 
transmission by replacing some of the transmission clutches with two 
electric motors that control the ratio of engine speed to vehicle 
speed, while clutches allow the motors to be bypassed. This improves 
both the transmission torque capacity for heavy-duty applications and 
reduces fuel consumption and CO2 emissions at highway speeds 
relative to other types of hybrid electric drive systems.
     Power-split hybrid (PSHEV)--a hybrid electric drive system 
that replaces the traditional transmission with a single planetary 
gearset and a motor/generator. This motor/generator uses the engine to 
either charge the battery or supply additional power to the drive 
motor. A second, more powerful motor/generator is permanently connected 
to the vehicle's final drive and always turns with the wheels. The 
planetary gear splits engine power between the first motor/generator 
and the drive motor to either charge the battery or supply power to the 
wheels.
     Plug-in hybrid electric vehicles (PHEV)--are hybrid 
electric vehicles with the means to charge their battery packs from an 
outside source of electricity (usually the electric grid). These 
vehicles have larger battery packs with more energy storage and a 
greater capability to be discharged than other hybrids. They also use a 
control system that allows the battery pack to be substantially 
depleted under electric-only or blended mechanical/electric operation.
     Electric vehicles (EV)--are vehicles with all-electric 
drive and with vehicle systems powered by energy-optimized batteries 
charged primarily from grid electricity.
    The cost estimates for the various hybrid systems have been revised 
from the estimates used in the MY 2011 CAFE final rule, in particular 
with respect to estimated battery costs.
2. How did the agencies determine the costs and effectiveness of each 
of these technologies?
    As mentioned above, EPA and NHTSA believe that the best way to 
derive technology cost estimates is to conduct real-world tear down 
studies. To date, the costs of the following five technologies have 
been evaluated with respect to their baseline (or replaced) 
technologies. For these technologies noted below, the agencies relied 
on the tear down data available and scaling methodologies used in EPA's 
ongoing study with FEV. Only the cost estimate for the first technology 
on the list below was used in the NPRM. The others were completed 
subsequent to the publication of the NPRM.
    1. Stoichiometric gasoline direct injection and turbo charging with 
engine downsizing (T-DS) for a large DOHC 4 cylinder engine to a small 
DOHC (dual overhead cam) 4 cylinder engine.
    2. Stoichiometric gasoline direct injection and turbo charging with 
engine downsizing for a SOHC single overhead cam) 3 valve/cylinder V8 
engine to a SOHC V6 engine.
    3. Stoichiometric gasoline direct injection and turbo charging with 
engine downsizing for a DOHC V6 engine to a DOHC 4 cylinder engine.
    4. 6-speed automatic transmission replacing a 5-speed automatic 
transmission.
    5. 6-speed wet dual clutch transmission (DCT) replacing a 6-speed 
automatic transmission.
    This costing methodology has been published and gone through a peer 
review.\82\ Using this tear down costing methodology, FEV has developed 
costs for each of the above technologies. In addition, FEV and EPA 
extrapolated the engine downsizing costs for the following scenarios 
that were outside of the noted study cases:\83\
---------------------------------------------------------------------------

    \82\ EPA-420-R-09-020; EPA docket number EPA-HQ-OAR-2009-0472-
11282 and 11285.
    \83\ ``Binning of FEV Costs to GDI, Turbo-charging, and Engine 
Downsizing,'' memorandum to Docket EPA-HQ-OAR-2009-0472, from 
Michael Olechiw, U.S. EPA, dated March 25, 2010.
---------------------------------------------------------------------------

    1. Downsizing a SOHC 2 valve/cylinder V8 engine to a DOHC V6.
    2. Downsizing a DOHC V8 to a DOHC V6.
    3. Downsizing a SOHC V6 engine to a DOHC 4 cylinder engine.
    4. Downsizing a DOHC 4 cylinder engine to a DOHC 3 cylinder engine.
    The agencies relied on the findings of FEV in part for estimating 
the cost of these technologies in this rulemaking. However, for some of 
the technologies, NHTSA and EPA modified FEV's estimated costs. FEV 
made the assumption that these technologies would be mature when 
produced in large volumes (450,000 units or more). The agencies believe 
that there is some uncertainty regarding each manufacturer's near-term 
ability to employ the technology at the volumes assumed in the FEV 
analysis. There is also the potential for near term (earlier than 2016) 
supplier-level Engineering, Design and Testing (ED&T) costs to be in 
excess of those considered in the FEV analysis as existing equipment 
and facilities are converted to production of new technologies. The 
agencies have therefore decided to average the FEV results with the 
NPRM values in an effort to account for these near-term factors. This 
methodology was done for the following technologies:
    1. Converting a port-fuel injected (PFI) DOHC I4 to a turbocharged-
downsized-stoichiometric GDI DOHC I3.
    2. Converting a PFI DOHC V6 engine to a T-DS-stoichiometric GDI 
DOHC I4.
    3. Converting a PFI SOHC V6 engine to a T-DS-stoichiometric GDI 
DOHC I4.
    4. Converting a PFI DOHC V8 engine to a T-DS-stoichiometric GDI 
DOHC V6.
    5. Converting a PFI SOHC 3V V8 engine to a T-DS-stoichiometric GDI 
DOHC V6.
    6. Converting a PFI SOHC 2V V8 engine to a T-DS-stoichiometric GDI 
DOHC V6.
    7. Replacing a 4-speed automatic transmission with a 6-speed 
automatic transmission.
    8. Replacing a 5-speed automatic transmission with a 6-speed 
automatic transmission.
    9. Replacing a 6-speed automatic transmission with a 6-speed wet 
dual clutch transmission.
    For the I4 to Turbo GDI I4 study applied in the NPRM, the agencies 
requested from FEV an adjusted cost estimate which accounted for these 
uncertainties as an adjustment to the base technology burden rate.\84\ 
These new costs are used in the final rules. These details are also 
further described in the memo to the docket.\85\ The confidential 
information provided by manufacturers as part of their product plan 
submissions to the agencies or discussed in meetings between the 
agencies and the manufacturers and

[[Page 25376]]

suppliers served largely as a check on publicly-available data.
---------------------------------------------------------------------------

    \84\ Burden costs include the following fixed and variable 
costs: Rented and leased equipment; manufacturing equipment 
depreciation; plant office equipment depreciation; utilities 
expense; insurance (fire and general); municipal taxes; plant floor 
space (equipment and plant offices); maintenance of manufacturing 
equipment--non-labor; maintenance of manufacturing building--
general, internal and external, parts, and labor; operating 
supplies; perishable and supplier-owned tooling; all other plant 
wages (excluding direct, indirect and MRO labor); returnable dunnage 
maintenance; and intra-company shipping costs (see EPA-HQ-OAR-2009-
0472-0149).
    \85\ ``Binning of FEV Costs to GDI, Turbo-charging, and Engine 
Downsizing,'' memorandum to Docket EPA-HQ-OAR-2009-0472, from 
Michael Olechiw, U.S. EPA, dated March 25, 2010.
---------------------------------------------------------------------------

    For the other technologies, considering all sources of information 
(including public comments) and using the BOM approach, the agencies 
worked together intensively to determine component costs for each of 
the technologies and build up the costs accordingly. Where estimates 
differ between sources, we have used our engineering judgment to arrive 
at what we believe to be the best available cost estimate, and 
explained the basis for that exercise of judgment in the TSD. Building 
on NHTSA's estimates developed for the MY 2011 CAFE final rule and 
EPA's Advance Notice of Proposed Rulemaking, which relied on the EPA 
2008 Staff Technical Report,\86\ the agencies took a fresh look at 
technology cost and effectiveness values for purposes of the joint 
rulemaking under the National Program. For costs, the agencies 
reconsidered both the direct or ``piece'' costs and indirect costs of 
individual components of technologies. For the direct costs, the 
agencies followed a bill of materials (BOM) approach employed in 
NHTSA's MY 2011 final rule based on recommendation from Ricardo, Inc., 
as described above. EPA used a similar approach in the EPA 2008 Staff 
Technical Report. A bill of materials, in a general sense, is a list of 
components or sub-systems that make up a system--in this case, an item 
of fuel economy-improving technology. In order to determine what a 
system costs, one of the first steps is to determine its components and 
what they cost.
---------------------------------------------------------------------------

    \86\ EPA Staff Technical Report: Cost and Effectiveness 
Estimates of Technologies Used to Reduce Light-Duty Vehicle Carbon 
Dioxide Emissions. EPA420-R-08-008, March 2008.
---------------------------------------------------------------------------

    NHTSA and EPA estimated these components and their costs based on a 
number of sources for cost-related information. The objective was to 
use those sources of information considered to be most credible for 
projecting the costs of individual vehicle technologies. For example, 
while NHTSA and Ricardo engineers had relied considerably in the MY 
2011 final rule on the 2008 Martec Report for costing contents of some 
technologies, upon further joint review and for purposes of the MY 
2012-2016 standards, the agencies decided that some of the costing 
information in that report was no longer accurate due to downward 
trends in commodity prices since the publication of that report. The 
agencies reviewed, then revalidated or updated cost estimates for 
individual components based on new information. Thus, while NHTSA and 
EPA found that much of the cost information used in NHTSA's MY 2011 
final rule and EPA's staff report was consistent to a great extent, the 
agencies, in reconsidering information from many 
sources,87 88 89 90 91 92 93 revised several component costs 
of several major technologies: turbocharging with engine downsizing (as 
described above), mild and strong hybrids, diesels, stoichiometric 
gasoline direct injection fuel systems, and valve train lift 
technologies. These are discussed at length in the Joint TSD and in 
NHTSA's final RIA.
---------------------------------------------------------------------------

    \87\ National Research Council, ``Effectiveness and Impact of 
Corporate Average Fuel Economy (CAFE) Standards,'' National Academy 
Press, Washington, DC (2002) (the ``2002 NAS Report''), available at 
http://www.nap.edu/openbook.php?isbn=0309076013 (last accessed 
August 7, 2009--update).
    \88\ Northeast States Center for a Clean Air Future (NESCCAF), 
``Reducing Greenhouse Gas Emissions from Light-Duty Motor 
Vehicles,'' 2004 (the ``2004 NESCCAF Report''), available at http://
www.nesccaf.org/documents/rpt040923ghglightduty.pdf (last accessed 
August 7, 2009--update).
    \89\ ``Staff Report: Initial Statement of Reasons for Proposed 
Rulemaking, Public Hearing to Consider Adoption of Regulations to 
Control Greenhouse Gas Emissions from Motor Vehicles,'' California 
Environmental Protection Agency, Air Resources Board, August 6, 
2004.
    \90\ Energy and Environmental Analysis, Inc., ``Technology to 
Improve the Fuel Economy of Light Duty Trucks to 2015,'' 2006 (the 
``2006 EEA Report''), Docket EPA-HQ-OAR-2009-0472.
    \91\ Martec, ``Variable Costs of Fuel Economy Technologies,'' 
June 1, 2008, (the ``2008 Martec Report'') available at Docket No. 
NHTSA-2008-0089-0169.1.
    \92\ Vehicle fuel economy certification data.
    \93\ Confidential data submitted by manufacturers in response to 
the March 2009 and other requests for product plans.
---------------------------------------------------------------------------

    Once costs were determined, they were adjusted to ensure that they 
were all expressed in 2007 dollars using a ratio of GDP values for the 
associated calendar years,\94\ and indirect costs were accounted for 
using the ICM (indirect cost multiplier) approach explained in Chapter 
3 of the Joint TSD, rather than using the traditional Retail Price 
Equivalent (RPE) multiplier approach. A report explaining how EPA 
developed the ICM approach can be found in the docket for this rule. 
The comments addressing the ICM approach were generally positive and 
encouraging. However, one commenter suggested that we had 
mischaracterized the complexity of a few of our technologies, which 
would result in higher or lower markups than presented in the NPRM. 
That commenter also suggested that we had used the ICMs as a means of 
placing a higher level of manufacturer learning on the cost estimates. 
The latter comment is not true and the methodology behind the ICM 
approach is explained in detail in the reports that are available in 
the docket for this rule.\95\ The former is open to debate given the 
subjective nature of the engineering analysis behind it, but upon 
further thought both agencies believe that the complexities used in the 
NPRM were appropriate and have, therefore, carried those forward into 
the final rule. We discuss this in greater detail in the Response to 
Comments document.
---------------------------------------------------------------------------

    \94\ NHTSA examined the use of the CPI multiplier instead of GDP 
for adjusting these dollar values, but found the difference to be 
exceedingly small--only $0.14 over $100.
    \95\ Rogozhin, Alex, Michael Gallaher, and Walter McManus, 
``Automobile Industry Retail Price Equivalent and Indirect Cost 
Multipliers,'' EPA 420-R-09-003, Docket EPA Docket EPA-HQ-OAR-2009-
0472-0142, February 2009, http://epa.gov/otaq/ld-hwy/420r09003.pdf; 
A. Rogozhin et al., International Journal of Production Economics 
124 (2010) 360-368, Volume 124, Issue 2, April 2010.
---------------------------------------------------------------------------

    Regarding estimates for technology effectiveness, NHTSA and EPA 
also reexamined the estimates from NHTSA's MY 2011 final rule and EPA's 
ANPRM and 2008 Staff Technical Report, which were largely consistent 
with NHTSA's 2008 NPRM estimates. The agencies also reconsidered other 
sources such as the 2002 NAS Report, the 2004 NESCCAF report, recent 
CAFE compliance data (by comparing similar vehicles with different 
technologies against each other in fuel economy testing, such as a 
Honda Civic Hybrid versus a directly comparable Honda Civic 
conventional drive), and confidential manufacturer estimates of 
technology effectiveness. NHTSA and EPA engineers reviewed 
effectiveness information from the multiple sources for each technology 
and ensured that such effectiveness estimates were based on technology 
hardware consistent with the BOM components used to estimate costs. The 
agencies also carefully examined the pertinent public comments. 
Together, they compared the multiple estimates and assessed their 
validity, taking care to ensure that common BOM definitions and other 
vehicle attributes such as performance, refinement, and drivability 
were taken into account. However, because the agencies' respective 
models employ different numbers of vehicle subclasses and use different 
modeling techniques to arrive at the standards, direct comparison of 
BOMs was somewhat more complicated. To address this and to confirm that 
the outputs from the different modeling techniques produced the same 
result, NHTSA and EPA developed mapping techniques, devising technology 
packages and mapping them to corresponding incremental technology 
estimates. This approach helped compare the outputs

[[Page 25377]]

from the incremental modeling technique to those produced by the 
technology packaging approach to ensure results that are consistent and 
could be translated into the respective models of the agencies.
    In general, most effectiveness estimates used in both the MY 2011 
final rule and the 2008 EPA staff report were determined to be accurate 
and were carried forward without significant change first into the 
NPRM, and now into these final rules. When NHTSA and EPA's estimates 
for effectiveness diverged slightly due to differences in how the 
agencies apply technologies to vehicles in their respective models, we 
report the ranges for the effectiveness values used in each model. 
There were only a few comments on the technology effectiveness 
estimates used in the NPRM. Most of the technologies that were 
mentioned in the comments were the more advanced technologies that are 
not assumed to have large penetrations in the market within the 
timeframe of this rule, notably hybrid technologies. Even if the 
effectiveness figures for hybrid vehicles were adjusted, it would have 
made little difference in the NHTSA and EPA analysis of the impacts and 
costs of the rule. The response to comments document has more specific 
responses to these comments.
    The agencies note that the effectiveness values estimated for the 
technologies considered in the modeling analyses may represent average 
values, and do not reflect the enormous spectrum of possible values 
that could result from adding the technology to different vehicles. For 
example, while the agencies have estimated an effectiveness of 0.5 
percent for low friction lubricants, each vehicle could have a unique 
effectiveness estimate depending on the baseline vehicle's oil 
viscosity rating. Similarly, the reduction in rolling resistance (and 
thus the improvement in fuel economy and the reduction in 
CO2 emissions) due to the application of low rolling 
resistance tires depends not only on the unique characteristics of the 
tires originally on the vehicle, but on the unique characteristics of 
the tires being applied, characteristics which must be balanced between 
fuel efficiency, safety, and performance. Aerodynamic drag reduction is 
much the same--it can improve fuel economy and reduce CO2 
emissions, but it is also highly dependent on vehicle-specific 
functional objectives. For purposes of the final standards, NHTSA and 
EPA believe that employing average values for technology effectiveness 
estimates, as adjusted depending on vehicle subclass, is an appropriate 
way of recognizing the potential variation in the specific benefits 
that individual manufacturers (and individual vehicles) might obtain 
from adding a fuel-saving technology.
    Chapter 3 of the Joint Technical Support Document contains a 
detailed description of our assessment of vehicle technology cost and 
effectiveness estimates. The agencies note that the technology costs 
included in this final rule take into account only those associated 
with the initial build of the vehicle. Although comments were received 
to the NPRM that suggested there could be additional maintenance 
required with some new technologies (e.g., turbocharging, hybrids, 
etc.), and that additional maintenance costs could occur as a result, 
the agencies do not believe that the amount of additional cost will be 
significant in the timeframe of this rulemaking, based on the 
relatively low application rates for these technologies. The agencies 
will undertake a more detailed review of these potential costs in 
preparation for the next round of CAFE/GHG standards.

F. Joint Economic Assumptions

    The agencies' final analysis of alternative CAFE and GHG standards 
for the model years covered by this final rulemaking rely on a range of 
forecast information, economic estimates, and input parameters. This 
section briefly describes the agencies' choices of specific parameter 
values. These economic values play a significant role in determining 
the benefits of both CAFE and GHG standards.
    In reviewing these variables and the agency's estimates of their 
values for purposes of this final rule, NHTSA and EPA reconsidered 
previous comments that NHTSA had received, reviewed newly available 
literature, and reviewed comments received in response to the proposed 
rule. For this final rule, we made three major changes to the economic 
assumptions. First, we revised the technology costs to reflect more 
recently available data. Second, we updated fuel price and 
transportation demand assumptions to reflect the Annual Energy Outlook 
(AEO) 2010 Early Release. Third, we have updated our estimates of the 
social cost of carbon (SCC) based on a recent interagency process. The 
key economic assumptions are summarized below, and are discussed in 
greater detail in Section III (EPA) and Section IV (NHTSA), as well as 
in Chapter 4 of the Joint TSD, Chapter VIII of NHTSA's RIA and Chapter 
8 of EPA's RIA.
     Costs of fuel economy-improving technologies--These 
estimates are presented in summary form above and in more detail in the 
agencies' respective sections of this preamble, in Chapter 3 of the 
Joint TSD, and in the agencies' respective RIAs. The technology cost 
estimates used in this analysis are intended to represent 
manufacturers' direct costs for high-volume production of vehicles with 
these technologies and sufficient experience with their application so 
that all cost reductions due to ``learning curve'' effects have been 
fully realized. Costs are then modified by applying near-term indirect 
cost multipliers ranging from 1.11 to 1.64 to the estimates of vehicle 
manufacturers' direct costs for producing or acquiring each technology 
to improve fuel economy, depending on the complexity of the technology 
and the time frame over which costs are estimated. This accounts for 
both the direct and indirect costs associated with implementing new 
technologies in response to this final rule. The technology cost 
estimates for a select group of technologies have changed since the 
NPRM. These changes, as summarized in Section II.E and in Chapter 3 of 
the Joint TSD, were made in response to updated cost estimates 
available to the agencies shortly after publication of the NPRM, not in 
response to comments. In general, commenters were supportive of the 
cost estimates used in the NPRM and the transparency of the methodology 
used to generate them.
     Potential opportunity costs of improved fuel economy--This 
estimate addresses the possibility that achieving the fuel economy 
improvements required by alternative CAFE or GHG standards would 
require manufacturers to compromise the performance, carrying capacity, 
safety, or comfort of their vehicle models. If it did so, the resulting 
sacrifice in the value of these attributes to consumers would represent 
an additional cost of achieving the required improvements, and thus of 
manufacturers' compliance with stricter standards. Currently the 
agencies assume that these vehicle attributes do not change, and 
include the cost of maintaining these attributes as part of the cost 
estimates for technologies. However, it is possible that the technology 
cost estimates do not include adequate allowance for the necessary 
efforts by manufacturers to maintain vehicle performance, carrying 
capacity, and utility while improving fuel economy and reducing GHG 
emissions. While, in principle, consumer vehicle demand models can 
measure these effects, these models do not appear to be robust across 
specifications, since authors derive a

[[Page 25378]]

wide range of willingness-to-pay values for fuel economy from these 
models, and there is not clear guidance from the literature on whether 
one specification is clearly preferred over another. This issue is 
discussed in EPA's RIA, Section 8.1.2 and NHTSA's RIA Section VIII.H. 
The agencies requested comment on how to estimate explicitly the 
changes in vehicle buyers' welfare from the combination of higher 
prices for new vehicle models, increases in their fuel economy, and any 
accompanying changes in vehicle attributes such as performance, 
passenger- and cargo-carrying capacity, or other dimensions of utility. 
Commenters did not provide recommendations for how to evaluate the 
quality of different models or identify a model appropriate for the 
agencies' purposes. Some commenters expressed various concerns about 
the use of existing consumer vehicle choice models. While EPA and NHTSA 
are not using a consumer vehicle choice model to analyze the effects of 
this rule, we continue to investigate these models.
     The on-road fuel economy ``gap''--Actual fuel economy 
levels achieved by light-duty vehicles in on-road driving fall somewhat 
short of their levels measured under the laboratory-like test 
conditions used by NHTSA and EPA to establish compliance with the final 
CAFE and GHG standards. The agencies use an on-road fuel economy gap 
for light-duty vehicles of 20 percent lower than published fuel economy 
levels. For example, if the measured CAFE fuel economy value of a light 
truck is 20 mpg, the on-road fuel economy actually achieved by a 
typical driver of that vehicle is expected to be 16 mpg (20*.80).\96\ 
NHTSA previously used this estimate in its MY 2011 final rule, and the 
agencies confirmed it based on independent analysis for use in this 
FRM. No substantive comments were received on this input.
---------------------------------------------------------------------------

    \96\ U.S. Environmental Protection Agency, Final Technical 
Support Document, Fuel Economy Labeling of Motor Vehicle Revisions 
to Improve Calculation of Fuel Economy Estimates, EPA420-R-06-017, 
December 2006.
---------------------------------------------------------------------------

     Fuel prices and the value of saving fuel--Projected future 
fuel prices are a critical input into the preliminary economic analysis 
of alternative standards, because they determine the value of fuel 
savings both to new vehicle buyers and to society. For the proposed 
rule, the agencies had relied on the then most recent fuel price 
projections from the U.S. Energy Information Administration's (EIA) 
Annual Energy Outlook (AEO) 2009 (Revised Updated). However, for this 
final rule, the agencies have updated the analyses based on AEO 2010 
(December 2009 Early Release) Reference Case forecasts of inflation-
adjusted (constant-dollar) retail gasoline and diesel fuel prices, 
which represent the EIA's most up-to-date estimate of the most likely 
course of future prices for petroleum products.\97\ AEO 2010 includes 
slightly lower petroleum prices compared to AEO 2009.
---------------------------------------------------------------------------

    \97\ Energy Information Administration, Annual Energy Outlook 
2010, Early Release Reference Case (December 2009), Table 12. 
Available at http://www.eia.doe.gov/oiaf/aeo/aeoref_tab.html (last 
accessed February 02, 2010).
---------------------------------------------------------------------------

    The forecasts of fuel prices reported in EIA's AEO 2010 Early 
Release Reference Case extends through 2035, compared to the AEO 2009 
which only went through 2030. As in the proposal, fuel prices beyond 
the time frame of AEO's forecast were estimated using an average growth 
rate.
    While EIA revised AEO 2010, the vehicle MPG standards are similar 
to those that were published in AEO 2009. No substantive comments were 
received on the use of AEO as a source of fuel prices.\98\
---------------------------------------------------------------------------

    \98\ Kahan, A. and Pickrell, D. Memo to Docket EPA-HQ-OAR-2009-
0472 and Docket NHTSA-2009-0059. ``Energy Information 
Administration's Annual Energy Outlook 2009 and 2010.'' March 24, 
2010.
---------------------------------------------------------------------------

     Consumer valuation of fuel economy and payback period--In 
estimating the impacts on vehicle sales, the agencies assume that 
potential buyers value the resulting fuel savings improvements that 
would result from alternative CAFE and GHG standards over only part of 
the expected lifetime of the vehicles they purchase. Specifically, we 
assume that buyers value fuel savings over the first five years of a 
new vehicle's lifetime, and that buyers discount the value of these 
future fuel savings using rates of 3% and 7%. The five-year figure 
represents the current average term of consumer loans to finance the 
purchase of new vehicles. One commenter argued that higher-fuel-economy 
vehicles should have higher resale prices than vehicles with lower fuel 
economy, but did not provide supporting data. This revision, if made, 
would increase the net benefits of the rule. Another commenter 
supported the use of a five-year payback period for this analysis. In 
the absence of data to support changes, EPA and NHTSA have kept the 
same assumptions. In the analysis of net benefits, EPA and NHTSA assume 
that vehicle buyers benefit from the full fuel savings over the 
vehicle's lifetime, discounted for present value calculations at 3 and 
7 percent.
     Vehicle sales assumptions--The first step in estimating 
lifetime fuel consumption by vehicles produced during a model year is 
to calculate the number of vehicles expected to be produced and 
sold.\99\ The agencies relied on the AEO 2010 Early Release for 
forecasts of total vehicle sales, while the baseline market forecast 
developed by the agencies (see Section II.B) divided total projected 
sales into sales of cars and light trucks.
---------------------------------------------------------------------------

    \99\ Vehicles are defined to be of age 1 during the calendar 
year corresponding to the model year in which they are produced; 
thus for example, model year 2000 vehicles are considered to be of 
age 1 during calendar year 2000, age 2 during calendar year 2001, 
and to reach their maximum age of 26 years during calendar year 
2025. NHTSA considers the maximum lifetime of vehicles to be the age 
after which less than 2 percent of the vehicles originally produced 
during a model year remain in service. Applying these conventions to 
vehicle registration data indicates that passenger cars have a 
maximum age of 26 years, while light trucks have a maximum lifetime 
of 36 years. See Lu, S., NHTSA, Regulatory Analysis and Evaluation 
Division, ``Vehicle Survivability and Travel Mileage Schedules,'' 
DOT HS 809 952, 8-11 (January 2006). Available at http://www-
nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed Feb. 15, 2010).
---------------------------------------------------------------------------

     Vehicle survival assumptions--We then applied updated 
values of age-specific survival rates for cars and light trucks to 
these adjusted forecasts of passenger car and light truck sales to 
determine the number of these vehicles remaining in use during each 
year of their expected lifetimes. No substantive comments were received 
on vehicle survival assumptions.
     Total vehicle use--We then calculated the total number of 
miles that cars and light trucks produced in each model year will be 
driven during each year of their lifetimes using estimates of annual 
vehicle use by age tabulated from the Federal Highway Administration's 
2001 National Household Transportation Survey (NHTS),\100\ adjusted to 
account for the effect on vehicle use of subsequent increases in fuel 
prices. Due to the lower fuel prices projected in AEO 2010, the average 
vehicle is estimated to be used slightly more (~3 percent) over its 
lifetime than assumed in the proposal. In order to insure that the 
resulting mileage schedules imply reasonable estimates of future growth 
in total car and light truck use, we calculated the rate of growth in 
annual car and light truck mileage at each age that is necessary for 
total car and light truck travel to increase at the rates forecast in 
the AEO 2010 Early Release Reference Case. The growth rate in average 
annual car and light truck use produced by this calculation is

[[Page 25379]]

approximately 1.1 percent per year.\101\ This rate was applied to the 
mileage figures derived from the 2001 NHTS to estimate annual mileage 
during each year of the expected lifetimes of MY 2012-2016 cars and 
light trucks.\102\ While commenters requested further detail on the 
assumptions regarding total vehicle use, no specific issues were 
raised.
---------------------------------------------------------------------------

    \100\ For a description of the Survey, see http://nhts.ornl.gov/
quickStart.shtml (last accessed July 27, 2009).
    \101\ It was not possible to estimate separate growth rates in 
average annual use for cars and light trucks, because of the 
significant reclassification of light truck models as passenger cars 
discussed previously.
    \102\ While the adjustment for future fuel prices reduces 
average mileage at each age from the values derived from the 2001 
NHTS, the adjustment for expected future growth in average vehicle 
use increases it. The net effect of these two adjustments is to 
increase expected lifetime mileage by about 18 percent for passenger 
cars and about 16 percent for light trucks.
---------------------------------------------------------------------------

     Accounting for the rebound effect of higher fuel economy--
The rebound effect refers to the fraction of fuel savings expected to 
result from an increase in vehicle fuel economy--particularly an 
increase required by the adoption of more stringent CAFE and GHG 
standards--that is offset by additional vehicle use. The increase in 
vehicle use occurs because higher fuel economy reduces the fuel cost of 
driving, typically the largest single component of the monetary cost of 
operating a vehicle, and vehicle owners respond to this reduction in 
operating costs by driving slightly more. We received comments 
supporting our proposed value of 10 percent, although we also received 
comments recommending higher and lower values. However, we did not 
receive any new data or comments that justify revising the 10 percent 
value for the rebound effect at this time.
     Benefits from increased vehicle use--The increase in 
vehicle use from the rebound effect provides additional benefits to 
their owners, who may make more frequent trips or travel farther to 
reach more desirable destinations. This additional travel provides 
benefits to drivers and their passengers by improving their access to 
social and economic opportunities away from home. These benefits are 
measured by the net ``consumer surplus'' resulting from increased 
vehicle use, over and above the fuel expenses associated with this 
additional travel. We estimate the economic value of the consumer 
surplus provided by added driving using the conventional approximation, 
which is one half of the product of the decline in vehicle operating 
costs per vehicle-mile and the resulting increase in the annual number 
of miles driven. Because it depends on the extent of improvement in 
fuel economy, the value of benefits from increased vehicle use changes 
by model year and varies among alternative standards.
     The value of increased driving range--By reducing the 
frequency with which drivers typically refuel their vehicles, and by 
extending the upper limit of the range they can travel before requiring 
refueling, improving fuel economy and reducing GHG emissions thus 
provides some additional benefits to their owners. No direct estimates 
of the value of extended vehicle range are readily available, so the 
agencies' analysis calculates the reduction in the annual number of 
required refueling cycles that results from improved fuel economy, and 
applies DOT-recommended values of travel time savings to convert the 
resulting time savings to their economic value.\103\ Please see the 
Chapter 4 of the Joint TSD for details.
---------------------------------------------------------------------------

    \103\ Department of Transportation, Guidance Memorandum, ``The 
Value of Saving Travel Time: Departmental Guidance for Conducting 
Economic Evaluations,'' Apr. 9, 1997. http://ostpxweb.dot.gov/
policy/Data/VOT97guid.pdf (last accessed Feb. 15, 2010); update 
available at http://ostpxweb.dot.gov/policy/Data/VOTrevision1_2-11-
03.pdf (last accessed Feb. 15, 2010).
---------------------------------------------------------------------------

     Added costs from congestion, crashes and noise--Although 
it provides some benefits to drivers, increased vehicle use associated 
with the rebound effect also contributes to increased traffic 
congestion, motor vehicle accidents, and highway noise. Depending on 
how the additional travel is distributed over the day and on where it 
takes place, additional vehicle use can contribute to traffic 
congestion and delays by increasing traffic volumes on facilities that 
are already heavily traveled during peak periods. These added delays 
impose higher costs on drivers and other vehicle occupants in the form 
of increased travel time and operating expenses, increased costs 
associated with traffic accidents, and increased traffic noise. The 
agencies rely on estimates of congestion, accident, and noise costs 
caused by automobiles and light trucks developed by the Federal Highway 
Administration to estimate the increased external costs caused by added 
driving due to the rebound effect.\104\
---------------------------------------------------------------------------

    \104\ These estimates were developed by FHWA for use in its 1997 
Federal Highway Cost Allocation Study; http://www.fhwa.dot.gov/
policy/hcas/final/index.htm (last accessed Feb. 15, 2010).
---------------------------------------------------------------------------

     Petroleum consumption and import externalities--U.S. 
consumption and imports of petroleum products also impose costs on the 
domestic economy that are not reflected in the market price for crude 
petroleum, or in the prices paid by consumers of petroleum products 
such as gasoline. In economics literature on this subject, these costs 
include (1) higher prices for petroleum products resulting from the 
effect of U.S. oil import demand on the world oil price (``monopsony 
costs''); (2) the expected costs from the risk of disruptions to the 
U.S. economy caused by sudden reductions in the supply of imported oil 
to the U.S.; and (3) expenses for maintaining a U.S. military presence 
to secure imported oil supplies from unstable regions, and for 
maintaining the strategic petroleum reserve (SPR) to cushion against 
resulting price increases.\105\ Reducing U.S. imports of crude 
petroleum or refined fuels can reduce the magnitude of these external 
costs. Any reduction in their total value that results from lower fuel 
consumption and petroleum imports represents an economic benefit of 
setting more stringent standards over and above the dollar value of 
fuel savings itself. Since the agencies are taking a global perspective 
with respect to the estimate of the social cost of carbon for this 
rulemaking, the agencies do not include the value of any reduction in 
monopsony payments as a benefit from lower fuel consumption, because 
those payments from a global perspective represent a transfer of income 
from consumers of petroleum products to oil suppliers rather than a 
savings in real economic resources. Similarly, the agencies do not 
include any savings in budgetary outlays to support U.S. military 
activities among the benefits of higher fuel economy and the resulting 
fuel savings. Based on a recently-updated ORNL study, we estimate that 
each gallon of fuel saved that results in a reduction in U.S. petroleum 
imports (either crude petroleum or refined fuel) will reduce the 
expected costs of oil supply disruptions to the U.S. economy by $0.169 
(2007$). Each gallon of fuel saved as a consequence of higher standards 
is anticipated to reduce total U.S. imports of crude petroleum or 
refined fuel by 0.95 gallons.\106\
---------------------------------------------------------------------------

    \105\ See, e.g., Bohi, Douglas R. and W. David Montgomery 
(1982). Oil Prices, Energy Security, and Import Policy Washington, 
DC: Resources for the Future, Johns Hopkins University Press; Bohi, 
D. R., and M. A. Toman (1993). ``Energy and Security: Externalities 
and Policies,'' Energy Policy 21:1093-1109; and Toman, M. A. (1993). 
``The Economics of Energy Security: Theory, Evidence, Policy,'' in 
A. V. Kneese and J. L. Sweeney, eds. (1993). Handbook of Natural 
Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, 
pp. 1167-1218.
    \106\ Each gallon of fuel saved is assumed to reduce imports of 
refined fuel by 0.5 gallons, and the volume of fuel refined 
domestically by 0.5 gallons. Domestic fuel refining is assumed to 
utilize 90 percent imported crude petroleum and 10 percent 
domestically-produced crude petroleum as feedstocks. Together, these 
assumptions imply that each gallon of fuel saved will reduce imports 
of refined fuel and crude petroleum by 0.50 gallons + 0.50 
gallons*90 percent = 0.50 gallons + 0.45 gallons = 0.95 gallons.

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[[Page 25380]]

    The energy security analysis conducted for this rule estimates that 
the world price of oil will fall modestly in response to lower U.S. 
demand for refined fuel. One potential result of this decline in the 
world price of oil would be an increase in the consumption of petroleum 
products outside the U.S., which would in turn lead to a modest 
increase in emissions of greenhouse gases, criteria air pollutants, and 
airborne toxics from their refining and use. While additional 
information would be needed to analyze this ``leakage effect'' in 
detail, NHTSA provides a sample estimate of its potential magnitude in 
its Final EIS.\107\ This analysis indicates that the leakage effect is 
likely to offset only a modest fraction of the reductions in emissions 
projected to result from the rule.
---------------------------------------------------------------------------

    \107\ NHTSA Final Environmental Impact Statement: Corporate 
Average Fuel Economy Standards, Passenger Cars and Light Trucks, 
Model Years 2012-2016, February 2010, page 3-14.
---------------------------------------------------------------------------

    EPA and NHTSA received comments about the treatment of the 
monopsony effect, macroeconomic disruption effect, and the military 
costs associated with the energy security benefits of this rule. The 
agencies did not receive any comments that justify changing the energy 
security analysis. As a result, the agencies continue to only use the 
macroeconomic disruption component of the energy security analysis 
under a global context when estimating the total energy security 
benefits associated with this rule. Further, the Agencies did not 
receive any information that they could use to quantity that component 
of military costs directly related to energy security, and thus did not 
modify that part of its analysis. A more complete discussion of the 
energy security analysis can be found in Chapter 4 of the Joint TSD, 
and Sections III and IV of this preamble.
     Air pollutant emissions
    [cir] Impacts on criteria air pollutant emissions--While reductions 
in domestic fuel refining and distribution that result from lower fuel 
consumption will reduce U.S. emissions of criteria pollutants, 
additional vehicle use associated with the rebound effect will increase 
emissions of these pollutants. Thus the net effect of stricter 
standards on emissions of each criteria pollutant depends on the 
relative magnitudes of reduced emissions from fuel refining and 
distribution, and increases in emissions resulting from added vehicle 
use. Criteria air pollutants emitted by vehicles and during fuel 
production include carbon monoxide (CO), hydrocarbon compounds (usually 
referred to as ``volatile organic compounds,'' or VOC), nitrogen oxides 
(NOX), fine particulate matter (PM2.5), and 
sulfur oxides (SOX). It is assumed that the emission rates 
(per mile) stay constant for future year vehicles.
    [cir] Economic value of reductions in criteria air pollutants--For 
the purpose of the joint technical analysis, EPA and NHTSA estimate the 
economic value of the human health benefits associated with reducing 
exposure to PM2.5 using a ``benefit-per-ton'' method. These 
PM2.5-related benefit-per-ton estimates provide the total 
monetized benefits to human health (the sum of reductions in premature 
mortality and premature morbidity) that result from eliminating one ton 
of directly emitted PM2.5, or one ton of a pollutant that 
contributes to secondarily-formed PM2.5 (such as 
NOX, SOX, and VOCs), from a specified source. 
Chapter 4.2.9 of the Technical Support Document that accompanies this 
rule includes a description of these values. Separately, EPA also 
conducted air quality modeling to estimate the change in ambient 
concentrations of criteria pollutants and used this as a basis for 
estimating the human health benefits and their economic value. Section 
III.H.7 presents these benefits estimates.
    [cir] Reductions in GHG emissions--Emissions of carbon dioxide and 
other GHGs occur throughout the process of producing and distributing 
transportation fuels, as well as from fuel combustion itself. By 
reducing the volume of fuel consumed by passenger cars and light 
trucks, higher standards will thus reduce GHG emissions generated by 
fuel use, as well as throughout the fuel supply cycle. The agencies 
estimated the increases of GHGs other than CO2, including 
methane and nitrous oxide, from additional vehicle use by multiplying 
the increase in total miles driven by cars and light trucks of each 
model year and age by emission rates per vehicle-mile for these GHGs. 
These emission rates, which differ between cars and light trucks as 
well as between gasoline and diesel vehicles, were estimated by EPA 
using its recently-developed Motor Vehicle Emission Simulator (Draft 
MOVES 2010).\108\ Increases in emissions of non-CO2 GHGs are 
converted to equivalent increases in CO2 emissions using 
estimates of the Global Warming Potential (GWP) of methane and nitrous 
oxide.
---------------------------------------------------------------------------

    \108\ The MOVES model assumes that the per-mile rates at which 
cars and light trucks emit these GHGs are determined by the 
efficiency of fuel combustion during engine operation and chemical 
reactions that occur during catalytic after-treatment of engine 
exhaust, and are thus independent of vehicles' fuel consumption 
rates. Thus MOVES' emission factors for these GHGs, which are 
expressed per mile of vehicle travel, are assumed to be unaffected 
by changes in fuel economy.
---------------------------------------------------------------------------

    [cir] Economic value of reductions in CO2 emissions --
EPA and NHTSA assigned a dollar value to reductions in CO2 
emissions using the marginal dollar value (i.e., cost) of climate-
related damages resulting from carbon emissions, also referred to as 
``social cost of carbon'' (SCC). The SCC is intended to measure the 
monetary value society places on impacts resulting from increased GHGs, 
such as property damage from sea level rise, forced migration due to 
dry land loss, and mortality changes associated with vector-borne 
diseases. Published estimates of the SCC vary widely as a result of 
uncertainties about future economic growth, climate sensitivity to GHG 
emissions, procedures used to model the economic impacts of climate 
change, and the choice of discount rates.
    EPA and NHTSA received extensive comments about how to improve the 
characterization of the SCC and have since developed new estimates 
through an interagency modeling exercise. The comments addressed 
various issues, such as discount rate selection, treatment of 
uncertainty, and emissions and socioeconomic trajectories, and 
justified the revision of SCC for the final rule. The modeling exercise 
involved running three integrated assessment models using inputs agreed 
upon by the interagency group for climate sensitivity, socioeconomic 
and emissions trajectories, and discount rates. A more complete 
discussion of SCC can be found in the Technical Support Document, 
Social Cost of Carbon for Regulatory Impact Analysis Under Executive 
Order 12866 (hereafter, ``SCC TSD''); revised SCC estimates 
corresponding to assumed values of the discount rate are shown in Table 
II.F-1.\109\
---------------------------------------------------------------------------

    \109\ Interagency Working Group on Social Cost of Carbon, U.S. 
Government, with participation by Council of Economic Advisers, 
Council on Environmental Quality, Department of Agriculture, 
Department of Commerce, Department of Energy, Department of 
Transportation, Environmental Protection Agency, National Economic 
Council, Office of Energy and Climate Change, Office of Management 
and Budget, Office of Science and Technology Policy, and Department 
of Treasury, ``Social Cost of Carbon for Regulatory Impact Analysis 
Under Executive Order 12866,'' February 2010, available in docket 
EPA-HQ-OAR-2009-0472.

[[Page 25381]]

                                                         Table II.F-1--Social Cost of CO2, 2010
                                                                    [In 2007 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Discount Rate                         5%                3%               2.5%                                3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source of Estimate............................                Mean of Estimates Values                95th percentile estimate.
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010 Estimate.................................                $5               $21               $35  $65.
--------------------------------------------------------------------------------------------------------------------------------------------------------

     Discounting future benefits and costs--Discounting future 
fuel savings and other benefits is intended to account for the 
reduction in their value to society when they are deferred until some 
future date, rather than received immediately. The discount rate 
expresses the percent decline in the value of these benefits--as viewed 
from today's perspective--for each year they are deferred into the 
future. In evaluating the non-climate related benefits of the final 
standards, the agencies have employed discount rates of both 3 percent 
and 7 percent. We received some comments on the discount rates used in 
the proposal, most of which were directed at the discount rates used to 
value future fuel savings and the rates used to value of the social 
cost of carbon. In general, commenters were supporting one of the 
discount rates over the other, although some suggested that our rates 
were too high or too low. We have revised the discounting used when 
calculating the net present value of social cost of carbon as explained 
in Sections III.H. and VI but have not revised our discounting 
procedures for other costs or benefits.
    For the reader's reference, Table II.F-2 below summarizes the 
values used to calculate the impacts of each final standard. The values 
presented in this table are summaries of the inputs used for the 
models; specific values used in the agencies' respective analyses may 
be aggregated, expanded, or have other relevant adjustments. See the 
respective RIAs for details.
    The agencies recognize that each of these values has some degree of 
uncertainty, which the agencies further discuss in the Joint TSD. The 
agencies have conducted a range of sensitivities and present them in 
their respective RIAs. For example, NHTSA has conducted a sensitivity 
analysis on several assumptions including (1) forecasts of future fuel 
prices, (2) the discount rate applied to future benefits and costs, (3) 
the magnitude of the rebound effect, (4) the value to the U.S. economy 
of reducing carbon dioxide emissions, (5) inclusion of the monopsony 
effect, and (6) the reduction in external economic costs resulting from 
lower U.S. oil imports. This information is provided in NHTSA's RIA.

         Table II.F-2--Economic Values for Benefits Computations
                                 [2007$]
------------------------------------------------------------------------

------------------------------------------------------------------------
Fuel Economy Rebound Effect...............  10%.
``Gap'' between test and on-road MPG......  20%.
Value of refueling time per ($ per vehicle- $24.64.
 hour).
Average tank volume refilled during         55%.
 refueling stop.
Annual growth in average vehicle use......  1.15%.
Fuel Prices (2012-50 average, $/gallon):    ............................
    Retail gasoline price.................  $3.66.
    Pre-tax gasoline price................  $3.29.
------------------------------------------------------------------------
         Economic Benefits From Reducing Oil Imports ($/gallon)
------------------------------------------------------------------------
``Monopsony'' Component...................  $0.00.
Price Shock Component.....................  $0.17.
Military Security Component...............  $0.00.
Total Economic Costs ($/gallon)...........  $0.17.
------------------------------------------------------------------------
           Emission Damage Costs (2020, $/ton or $/metric ton)
------------------------------------------------------------------------
Carbon monoxide...........................  $0.
Volatile organic compounds (VOC)..........  $1,300.
Nitrogen oxides (NOX)--vehicle use........  $5,100.
Nitrogen oxides (NOX)--fuel production and  $ 5,300.
 distribution.
Particulate matter (PM2.5)--vehicle use...  $ 240,000.
Particulate matter (PM2.5)--fuel            $ 290,000.
 production and distribution.
Sulfur dioxide (SO2)......................  $ 31,000.
Carbon dioxide (CO2) emissions in 2010....  $5.
                                            $21.
                                            $35.
                                            $65.
Annual Increase in CO2 Damage Cost........  variable, depending on
                                             estimate.
------------------------------------------------------------------------
     External Costs From Additional Automobile Use ($/vehicle-mile)
------------------------------------------------------------------------
Congestion................................  $ 0.054.
Accidents.................................  $ 0.023.
Noise.....................................  $ 0.001.
                                           -----------------------------

[[Page 25382]]

    Total External Costs..................  $ 0.078.
------------------------------------------------------------------------
     External Costs From Additional Light Truck Use ($/vehicle-mile)
------------------------------------------------------------------------
Congestion................................  $0.048.
Accidents.................................  $0.026.
Noise.....................................  $0.001.
Total External Costs......................  $0.075.
Discount Rates Applied to Future Benefits.  3%, 7%.
------------------------------------------------------------------------

G. What are the estimated safety effects of the final MYs 2012-2016 
CAFE and GHG standards?

    The primary goals of the final CAFE and GHG standards are to reduce 
fuel consumption and GHG emissions, but in addition to these intended 
effects, the agencies must consider the potential of the standards to 
affect vehicle safety,\110\ which the agencies have assessed in 
evaluating the appropriate levels at which to set the final standards. 
Safety trade-offs associated with fuel economy increases have occurred 
in the past, and the agencies must be mindful of the possibility of 
future ones. These past safety trade-offs occurred because 
manufacturers chose, at the time, to build smaller and lighter 
vehicles--partly in response to CAFE standards--rather than adding more 
expensive fuel-saving technologies (and maintaining vehicle size and 
safety), and the smaller and lighter vehicles did not fare as well in 
crashes as larger and heavier vehicles. Historically, as shown in FARS 
data analyzed by NHTSA, the safest vehicles have been heavy and large, 
while the vehicles with the highest fatal-crash rates have been light 
and small, both because the crash rate is higher for small/light 
vehicles and because the fatality rate per crash is higher for small/
light vehicle crashes.
---------------------------------------------------------------------------

    \110\ In this rulemaking document, vehicle safety is defined as 
societal fatality rates which include fatalities to occupants of all 
the vehicles involved in the collisions, plus any pedestrians.
---------------------------------------------------------------------------

    Changes in relative safety are related to shifts in the 
distribution of vehicles on the road. A policy that induces a widening 
in the size distribution of vehicles on the road, could result in 
negative impacts on safety, The primary mechanism in this rulemaking 
for mitigating the potential negative effects on safety is the 
application of footprint-based standards, which create a disincentive 
for manufacturers to produce smaller-footprint vehicles. This is 
because as footprint decreases, the corresponding fuel economy/GHG 
emission target becomes more stringent.\111\ The shape of the footprint 
curves themselves have also been designed to be approximately 
``footprint neutral'' within the sloped portion of the functions--that 
is, to neither encourage manufacturers to increase the footprint of 
their fleets, nor to decrease it. Upsizing also is discouraged through 
a ``cut-off'' at larger footprints. For both cars and light trucks 
there is a ``cut-off'' that affects vehicles smaller than 41 square 
feet. The agencies recognize that for manufacturers who make small 
vehicles in this size range, this cut off creates some incentive to 
downsize (i.e. further reduce the size and/or increase the production 
of models currently smaller than 41 square feet) to make it easier to 
meet the target. The cut off may also create some incentive for 
manufacturers who do not currently offer such models to do so in the 
future. However, at the same time, the agencies believe that there is a 
limit to the market for cars smaller than 41 square feet--most 
consumers likely have some minimum expectation about interior volume, 
among other things. In addition, vehicles in this market segment are 
the lowest price point for the light-duty automotive market, with a 
number of models in the $10,000 to $15,000 range. In order to justify 
selling more vehicles in this market in order to generate fuel economy 
or CO2 credits (that is, for this final rule to be the 
incentive for selling more vehicles in this small car segment), a 
manufacturer would need to add additional technology to the lowest 
price segment vehicles, which could be challenging. Therefore, due to 
these two reasons (a likely limit in the market place for the smallest 
sized cars and the potential consumer acceptance difficulty in adding 
the necessary technologies in order to generate fuel economy and 
CO2 credits), the agencies believe that the incentive for 
manufacturers to increase the sale of vehicles smaller than 41 square 
feet due to this rulemaking, if present, is small. For further 
discussion on these aspects of the standards, please see Section II.C 
above and Chapter 2 of the Joint TSD.
---------------------------------------------------------------------------

    \111\ We note, however, that vehicle footprint is not synonymous 
with vehicle size. Since the footprint is only that portion of the 
vehicle between the front and rear axles, footprint-based standards 
do not discourage downsizing the portions of a vehicle in front of 
the front axle and to the rear of the rear axle, or to other 
portions of the vehicle outside the wheels. The crush space provided 
by those portions of a vehicle can make important contributions to 
managing crash energy. At least one manufacturer has confidentially 
indicated plans to reduce overhang as a way of reducing mass on some 
vehicles during the rulemaking time frame. Additionally, simply 
because footprint-based standards create no incentive to downsize 
vehicles, does not mean that manufacturers may not choose to do so 
if doing so makes it easier to meet the overall standard (as, for 
example, if the smaller vehicles are so much lighter that they 
exceed their targets by much greater amounts).
---------------------------------------------------------------------------

    Manufacturers have stated, however, that they will reduce vehicle 
weight as one of the cost-effective means of increasing fuel economy 
and reducing CO2 emissions, and the agencies have 
incorporated this expectation into our modeling analysis supporting 
today's final standards. NHTSA's previous analyses examining the 
relationship between vehicle mass and fatalities found fatality 
increases as vehicle weight and size were reduced, but these previous 
analyses did not differentiate between weight reductions and size 
(i.e., weight and footprint) reductions.
    The question of the effect of changes in vehicle mass on safety in 
the context of fuel economy is a complex question that poses serious 
analytic challenges and has been a contentious issue for many years, as 
discussed by a number of commenters to the NPRM. This contentiousness 
arises, at least in part, from the difficulty of isolating vehicle mass 
from other confounding factors (e.g., driver behavior, or vehicle 
factors such as engine size and wheelbase). In addition, several 
vehicle factors have been closely related historically, such as vehicle 
mass, wheelbase, and track width. The issue has been reviewed and 
analyzed in the literature for more than two decades. For the reader's 
reference, much more information about safety in the CAFE context is 
available in Chapter IX of NHTSA's FRIA. Chapter 7.6 of EPA's final RIA 
also contained

[[Page 25383]]

additional discussion on mass and safety.
    Over the past several years, as also discussed by a number of 
commenters to the NPRM, contention has arisen with regard to the 
applicability of analysis of historical crash data to future safety 
effects due to mass reduction. The agencies recognize that there are a 
host of factors that may make future mass reduction different than what 
is reflected in the historical data. For one, the footprint-based 
standards have been carefully developed by the agencies so that they do 
not encourage vehicle footprint reductions as a way of meeting the 
standards, but so that they do encourage application of fuel-saving 
technologies, including mass reduction. This in turn encourages 
manufacturers to find ways to separate mass reduction from footprint 
reduction, which will very likely result in a future relationship 
between mass and fatalities that is safer than the historical 
relationship. However, as manufacturers pursue these methods of mass 
reduction, the fleet moves further away from the historical trends, 
which the agencies recognize.
    NHTSA's NPRM analysis of the safety effects of the proposed CAFE 
standards was based on NHTSA's 2003 report concerning mass and size 
reduction in MYs 1991-1999 vehicles, and evaluated a ``worst-case 
scenario'' in which the safety effects of the combined reductions of 
both mass and size for those vehicles were determined for the future 
passenger car and light truck fleets.\112\ In the NPRM analysis, mass 
and size could not be separated from one another, resulting in what 
NHTSA recognized was a larger safety disbenefit than was likely under 
the MYs 2012-2016 footprint-based CAFE standards. NHTSA emphasized, 
however, that actual fatalities would likely be less than these 
``worst-case'' estimates, and possibly significantly less, based on the 
various factors discussed in the NPRM that could reduce the estimates, 
such as careful mass reduction through material substitution, etc.
---------------------------------------------------------------------------

    \112\ The analysis excluded 2-door cars.
---------------------------------------------------------------------------

    For the final rule, as discussed in the NPRM and in recognition of 
the importance of conducting analysis that better reflects, within the 
limits of our current knowledge, the potential safety effects of future 
mass reduction in response to the final CAFE and GHG standards that is 
highly unlikely to involve concurrent reductions in footprint, NHTSA 
has revised its analysis in consultation with EPA. Perhaps the most 
important change has been that NHTSA agreed with commenters that it was 
both possible and appropriate to separate the effect of mass reductions 
from the effect of footprint reductions. NHTSA thus performed a new 
statistical analysis, hereafter referred to as the 2010 Kahane 
analysis, of the MYs 1991-99 vehicle database from its 2003 report (now 
including rather than excluding 2-door cars in the passenger car 
fleet), assessing relationships between fatality risk, mass, and 
footprint for both passenger cars and LTVs (light trucks and 
vans).\113\ As part of its results, the new report presents an ``upper-
estimate scenario,'' a ``lower-estimate scenario,'' as well as an 
``actual regression result scenario'' representing potential safety 
effects of future mass reductions without corresponding vehicle size 
reductions, that assume, by virtue of being a cross-sectional analysis 
of historical data, that historical relationships between vehicle mass 
and fatalities are maintained. The ``upper-estimate scenario'' and 
``lower-estimate scenario'' are based on NHTSA's judgment as a vehicle 
safety agency, and are not meant to convey any more or less likelihood 
in the results, but more to convey a sense of bounding for potential 
safety effects of reducing mass while holding footprint constant. The 
upper-estimate scenario reflects potential safety effects given the 
report's finding that, using the one-step regression method of the 2003 
Kahane report, the regression coefficients show that mass and footprint 
each accounted for about half the fatality increase associated with 
downsizing in a cross-sectional analysis of MYs 1991-1999 cars. A 
similar effect was found for lighter LTVs. Applying the same regression 
method to heavier LTVs, however, the coefficients indicated a 
significant societal fatality reduction when mass, but not footprint, 
is reduced in the heavier LTVs.\114\ Fatalities are reduced primarily 
because mass reduction in the heavier LTVs will reduce risk to 
occupants of the other cars and lighter LTVs involved in collisions 
with these heavier LTVs.\115\ Thus, even in the ``upper-estimate 
scenario,'' the potential fatality increases associated with mass 
reduction in the passenger cars would be to a large extent offset by 
the benefits of mass reduction in the heavier LTVs.
---------------------------------------------------------------------------

    \113\ ``Relationships Between Fatality Risk, Mass, and Footprint 
in Model Year 1991-1999 and Other Passenger Cars and LTVs,'' Charles 
J. Kahane, NCSA, NHTSA, March 2010. The text of the report may be 
found in Chapter IX of NHTSA's FRIA, where it constitutes a section 
of that chapter. We note that this report has not yet been 
externally peer-reviewed, and therefore may be changed or refined 
after it has been subjected to peer review. The results of the 
report have not been included in the tables summarizing the costs 
and benefits of this rulemaking and did not affect the stringency of 
the standards. NHTSA has begun the process for obtaining peer review 
in accordance with OMB guidance. The agency will ensure that 
concerns raised during the peer review process are addressed before 
relying on the report for future rulemakings. The results of the 
peer review and any subsequent revisions to the report will be made 
available in a public docket and on NHTSA's Web site as they are 
completed.
    \114\ Conversely, the coefficients indicate a significant 
increase if footprint is reduced.
    \115\ We note that there may be some (currently non-
quantifiable) welfare losses for purchasers of these heavier LTVs, 
the mass of which is reduced in response to these final standards. 
This is due to the fact that in certain crashes, as discussed below 
and in greater detail in Chapter IX of the NHTSA FRIA, more mass 
will always be helpful (although certainly in other crashes, the 
amount of mass reduction modeled by the agency will not be enough to 
have any significant effect on driver/occupant safety). However, we 
believe the effects of this will likely be minor. Consumer welfare 
impacts of the final rule are discussed in more detail in Chapter 
VIII of the NHTSA FRIA.
---------------------------------------------------------------------------

    The lower-estimate scenario, in turn, reflects NHTSA's estimate of 
potential safety effects if future mass reduction is accomplished 
entirely by material substitution, smart design,\116\ and component 
integration, among other things, that can reduce mass without 
perceptibly changing a vehicle's shape, functionality, or safety 
performance, maintaining structural strength without compromising other 
aspects of safety. If future mass reduction follows this path, it could 
limit the added risk close to only the effects of mass per se (the 
ability to transfer momentum to other vehicles or objects in a 
collision), resulting in estimated effects in passenger cars that are 
substantially smaller than in the upper-estimate scenario based 
directly on the regression results. The lower-estimate scenario also 
covers both passenger cars and LTVs.
---------------------------------------------------------------------------

    \116\ Manufacturers may reduce mass through smart design using 
computer aided engineering (CAE) tools that can be used to better 
optimize load paths within structures by reducing stresses and 
bending moments applied to structures. This allows better 
optimization of the sectional thicknesses of structural components 
to reduce mass while maintaining or improving the function of the 
component. Smart designs also integrate separate parts in a manner 
that reduces mass by combining functions or the reduced use of 
separate fasteners. In addition, some ``body on frame'' vehicles are 
redesigned with a lighter ``unibody'' construction.
---------------------------------------------------------------------------

    Overall, based on the new analyses, NHTSA estimated that fatality 
effects could be markedly less than those estimated in the ``worst-case 
scenario'' presented in the NPRM. The agencies believe that the overall 
effect of mass reduction in cars and LTVs may be close to zero, and may 
possibly be beneficial in terms of the fleet as a whole if mass 
reduction is carefully applied in the future (as with careful material 
substitution and other methods of mass reduction that can reduce mass 
without perceptibly changing a car's shape, functionality, or safety 
performance,

[[Page 25384]]

and maintain its structural strength without making it excessively 
rigid). This is especially important if the mass reduction in the 
heavier LTVs is greater (in absolute terms) than in passenger cars, as 
discussed further below and in the 2010 Kahane report.
    The following sections will address how the agencies addressed 
potential safety effects in the NPRM for the proposed standards, how 
commenters responded, and the work that NHTSA has done since the NPRM 
to revise its estimates of potential safety effects for the final rule. 
The final section discusses some of the agencies' plans for the future 
with respect to potential analysis and studies to further enhance our 
understanding of this important and complex issue.
1. What did the agencies say in the NPRM with regard to potential 
safety effects?
    In the NPRM preceding these final standards, NHTSA's safety 
assessment derived from the agency's belief that some of these vehicle 
factors, namely vehicle mass and footprint, could not be accurately 
separated. NHTSA relied on the 2003 study by Dr. Charles Kahane, which 
estimates the effect of 100-pound reductions in MYs 1991-1999 heavy 
light trucks and vans (LTVs), light LTVs, heavy passenger cars, and 
light passenger cars.\117\ The study compares the fatality rates of 
LTVs and cars to quantify differences between vehicle types, given 
drivers of the same age/gender, etc. In that analysis, the effect of 
``weight reduction'' is not limited to the effect of mass per se, but 
includes all the factors, such as length, width, structural strength, 
safety features, and size of the occupant compartment, that were 
naturally or historically confounded with mass in MYs 1991-1999 
vehicles. The rationale was that adding length, width, or strength to a 
vehicle historically also made it heavier.
---------------------------------------------------------------------------

    \117\ Kahane, Charles J., PhD, ``Vehicle Weight, Fatality Risk 
and Crash Compatibility of Model Year 1991-99 Passenger Cars and 
Light Trucks,'' DOT HS 809 662, October 2003, Executive Summary. 
Available at http://www.nhtsa.dot.gov/cars/rules/regrev/evaluate/
809662.html (last accessed March 10, 2010).
---------------------------------------------------------------------------

    NHTSA utilized the relationships between mass and safety from 
Kahane (2003), expressed as percentage increases in fatalities per 100-
pound mass reduction, and examined the mass effects assumed in the NPRM 
modeling analysis. While previous CAFE rulemakings had limited mass 
reduction as a ``technology option'' to vehicles over 5,000 pounds 
GVWR, both NHTSA's and EPA's modeling analyses in the NPRM included 
mass reduction of up to 5-10 percent of baseline curb weight, depending 
on vehicle subclass, in response to recently-submitted manufacturer 
product plans as well as public statements indicating that these levels 
were possible and likely. 5-10 percent represented a maximum bound; 
EPA's modeling, for example, included average vehicle weight reductions 
of 4 percent between MYs 2011 and 2016, although the average per-
vehicle mass reduction was greater in absolute terms for light trucks 
than for passenger cars. NHTSA's assumptions for mass reduction were 
also limited by lead time such that mass reductions of 1.5 percent were 
included for redesigns occurring prior to MY 2014, and mass reductions 
of 5-10 percent were only ``achievable'' in redesigns occurring in MY 
2014 or later. NHTSA further assumed that mass reductions would be 
limited to 5 percent for small vehicles (e.g., subcompact passenger 
cars), and that reductions of 10 percent would only be applied to the 
larger vehicle types (e.g., large light trucks).
    Based on these assumptions of how manufacturers might comply with 
the standards, NHTSA examined the effects of the identifiable safety 
trends over the lifetime of the vehicles produced in each model year. 
The effects were estimated on a year-by-year basis, assuming that 
certain known safety trends would result in a reduction in the target 
population of fatalities from which the mass effects are derived.\118\ 
Using this method, NHTSA found a 12.6 percent reduction in fatality 
levels between 2007 and 2020. The estimates derived from applying 
Kahane's 2003 percentages to a baseline of 2007 fatalities were then 
multiplied by 0.874 to account for changes that the agency believed 
would take place in passenger car and light truck safety between the 
2007 baseline on-road fleet used for that particular analysis and year 
2020.\119\
---------------------------------------------------------------------------

    \118\ NHTSA explained that there are several identifiable safety 
trends that are already in place or expected to occur in the 
foreseeable future and that were not accounted for in the study. For 
example, two important new safety standards that have already been 
issued and will be phasing in during the rulemaking time frame. 
Federal Motor Vehicle Safety Standard No. 126 (49 CFR 571.126) will 
require electronic stability control in all new vehicles by MY 2012, 
and the upgrade to Federal Motor Vehicle Safety Standard No. 214 
(Side Impact Protection, 49 CFR 571.214) will likely result in all 
new vehicles being equipped with head-curtain air bags by MY 2014. 
Additionally, the agency stated that it anticipates continued 
improvements in driver (and passenger) behavior, such as higher 
safety belt use rates. All of these will tend to reduce the absolute 
number of fatalities resulting from mass reductions. Thus, while the 
percentage increases in Kahane (2003) was applied, the reduced base 
resulted in smaller absolute increases than those that were 
predicted in the 2003 report.
    \119\ Blincoe, L. and Shankar, U, ``The Impact of Safety 
Standards and Behavioral Trends on Motor Vehicle Fatality Rates,'' 
DOT HS 810 777, January 2007. See Table 4 comparing 2020 to 2007 
(37,906/43,363 = 12.6% reduction (1-.126 = .874)
---------------------------------------------------------------------------

    NHTSA and EPA both emphasized that the safety effect estimates in 
the NPRM needed to be understood in the context of the 2003 Kahane 
report, which is based upon a cross-sectional analysis of the actual 
on-road safety experience of 1991-1999 vehicles. For those vehicles, 
heavier usually also meant larger-footprint. Hence, the numbers in 
those analyses were used to predict the safety-related fatalities that 
could occur in the unlikely event that weight reduction for MYs 2012-
2016 is accomplished entirely by reducing mass and reducing footprint. 
Any estimates derived from those analyses represented a ``worst-case'' 
estimate of safety effects, for several reasons.
    First, manufacturers are far less likely to reduce mass by 
``downsizing'' (making vehicles smaller overall) under the current 
attribute-based standards, because the standards are based on vehicle 
footprint. The selection of footprint as the attribute in setting CAFE 
and GHG standards helps to reduce the incentive to alter a vehicle's 
physical dimensions. This is because as footprint decreases, the 
corresponding fuel economy/GHG emission target becomes more 
stringent.\120\ The shape of the footprint curves themselves have also 
been designed to be approximately ``footprint neutral'' within the 
sloped portion of the functions--that is, to neither encourage 
manufacturers to increase the footprint of their fleets, nor to 
decrease it. For further discussion on these aspects of the standards, 
please see Section II.C above and Chapter 2 of the Joint TSD. However, 
as discussed in Sections III.H.1 and IV.G.6 below, the agencies 
acknowledge some uncertainty regarding how consumer purchases will 
change in response to the vehicles

[[Page 25385]]

designed to meet the MYs 2012-2016 standards. This could potentially 
affect the mix of vehicles sold in the future, including the mass and 
footprint distribution.
---------------------------------------------------------------------------

    \120\ We note, however, that vehicle footprint is not synonymous 
with vehicle size. Since the footprint is only that portion of the 
vehicle between the front and rear axles, footprint-based standards 
do not discourage downsizing the portions of a vehicle in front of 
the front axle and to the rear of the rear axle, or to other 
portions of the vehicle outside the wheels. The crush space provided 
by those portions of a vehicle can make important contributions to 
managing crash energy. NHTSA noted in the NPRM that at least one 
manufacturer has confidentially indicated plans to reduce overhang 
as a way of reducing mass on some vehicles during the rulemaking 
time frame. Additionally, simply because footprint-based standards 
create no incentive to downsize vehicles, does not mean that 
manufacturers may not choose to do so if doing so makes it easier to 
meet the overall standard (as, for example, if the smaller vehicles 
are so much lighter that they exceed their targets by much greater 
amounts).
---------------------------------------------------------------------------

    As a result, the agencies found it likely that a significant 
portion of the mass reduction in the MY 2012-2016 vehicles would be 
accomplished by strategies, such as material substitution, smart 
design, reduced powertrain requirements,\121\ and mass compounding, 
that have a lesser safety effect than the prevalent 1980s strategy of 
simply making the vehicles smaller. The agencies noted that to the 
extent that future mass reductions could be achieved by these methods--
without any accompanying reduction in the size or structural strength 
of the vehicle--then the fatality increases associated with the mass 
reductions anticipated by the model as a result of the proposed 
standards could be significantly smaller than those in the worst-case 
scenario.
---------------------------------------------------------------------------

    \121\ Reduced powertrain requirements do not include a reduction 
in performance. When vehicle mass is reduced, engine torque and 
transmission gearing can be altered so that acceleration performance 
is held constant instead of improving. A detailed discussion is 
included in Chapter 3 of the Technical Support Document.
---------------------------------------------------------------------------

    However, even though the agencies recognized that these methods of 
mass reduction could be technologically feasible in the rulemaking time 
frame, and included them as such in our modeling analyses, the agencies 
diverged as to how potential safety effects accompanying such methods 
of mass reduction could be evaluated, particularly in relation to the 
worst-case scenario presented by NHTSA. NHTSA stated that it could not 
predict how much smaller those increases would be for any given mixture 
of mass reduction methods, since the data on the safety effects of mass 
reduction alone (without size reduction) was not available due to the 
low numbers of vehicles in the current on-road fleet that have utilized 
these technologies extensively. Further, to the extent that mass 
reductions were accomplished through use of light, high-strength 
materials, NHTSA emphasized that there would be significant additional 
costs that would need to be determined and accounted for than were 
reflected in the agency's proposal.
    Additionally, NHTSA emphasized that while it thought material 
substitution and other methods of mass reduction could considerably 
lessen the potential safety effects compared to the historical trend, 
NHTSA also stated that it did not believe the effects in passenger cars 
would be smaller than zero. EPA disagreed with this, and stated in the 
NPRM that the safety effects could very well be smaller than zero. Even 
though footprint-based standards discourage downsizing as a way of 
``balancing out'' sales of larger/heavier vehicles, they do not 
discourage manufacturers from reducing crush space in overhang areas or 
from reducing structural support as a way of taking out mass.\122\ 
Moreover, NHTSA's analysis had also found that lighter cars have a 
higher involvement rate in fatal crashes, even after controlling for 
the driver's age, gender, urbanization, and region of the country. 
Being unable to explain this clear trend in the crash data, NHTSA 
stated that it must assume that mass reduction is likely to be 
associated with higher fatal-crash rates, no matter how the weight 
reduction is achieved.
---------------------------------------------------------------------------

    \122\ However, we recognize that FMVSS and NCAP ratings may 
limit the manufacturer's ability to reduce crush space or structural 
support.
---------------------------------------------------------------------------

    NHTSA also noted in the NPRM that several studies by Dynamic 
Research, Inc. (DRI) had been repeatedly cited to the agency in support 
of the proposition that reducing vehicle mass while maintaining track 
width and wheelbase would lead to significant safety benefits. In its 
2005 studies, one of which was published and peer-reviewed through the 
Society of Automotive Engineers as a technical paper, DRI attempted to 
assess the independent effects of vehicle weight and size (in terms of 
wheelbase and track width) on safety, and presented results indicating 
that reducing vehicle weight tends to reduce fatalities, but that 
reducing vehicle wheelbase and track width tends to increase 
fatalities. DRI's analysis was based on FARS data for MYs 1985-1998 
passenger cars and 1985-1997 light trucks, similar to the MYs 1991-1999 
car and truck data used in the 2003 Kahane report. However, DRI 
included 2-door passenger cars, while the 2003 Kahane report excluded 
those vehicles out of concern that their inclusion could bias the 
results of the regression analysis, because a significant proportion of 
MYs 1991-1999 2-door cars were sports and ``muscle'' cars, which have 
particularly high fatal crash rates for their relatively short 
wheelbases compared to the rest of the fleet. While in the NPRM NHTSA 
rejected the results of the DRI studies based in part on this concern, 
the agencies note that upon further consideration, NHTSA has agreed for 
this final rule that the inclusion of 2-door cars in regression 
analysis of historical data is appropriate, and indeed has no overly-
biasing effects.
    The 2005 DRI studies also differed from the 2003 Kahane report in 
terms of their estimates of the effect of vehicle weight on rollover 
fatalities. The 2003 Kahane report analyzed a single variable, curb 
weight, as a surrogate for both vehicle size and weight, and found that 
curb weight reductions would increase rollover fatalities. The DRI 
study, in contrast, attempted to analyze curb weight, wheelbase, and 
track width separately, and found that curb weight reduction would 
decrease rollover fatalities, while wheelbase reduction and track width 
reduction would increase them. DRI suggested that heavier vehicles may 
have higher rollover fatalities for two reasons: first, because taller 
vehicles tend to be heavier, so the correlation between vehicle height 
and weight and vehicle center-of-gravity height may make heavier 
vehicles more rollover-prone; and second, because heavier vehicles may 
have been less rollover-crashworthy due to FMVSS No. 216's constant (as 
opposed to proportional) requirements for MYs 1995-1999 vehicles 
weighing more than 3,333 lbs unloaded.
    Overall, DRI's 2005 studies found a reduction in fatalities for 
cars (580 in the first study, and 836 in the second study) and for 
trucks (219 in the first study, 682 in the second study) for a 100 
pound reduction in curb weight without accompanying wheelbase or track 
width reductions. In the NPRM, NHTSA disagreed with the results of the 
DRI studies, out of concern that DRI's inclusion of 2-door cars in its 
analysis biased the results, and because NHTSA was unable to reproduce 
DRI's results despite repeated attempts. NHTSA stated that it agreed 
intuitively with DRI's conclusion that vehicle mass reductions without 
accompanying size reductions (as through substitution of a heavier 
material for a lighter one) would be less harmful than downsizing, but 
without supporting real-world data and unable to verify DRI's results, 
NHTSA stated that it could not conclude that mass reductions would 
result in safety benefits. EPA, in contrast, believed that DRI's 
results contained some merit, in particular because the study separated 
the effects of mass and size and EPA stated that applying them using 
the curb weight reductions in EPA's modeling analysis would show an 
overall reduction of fatalities for the proposed standards.
    On balance, both agencies recognized that mass reduction could be 
an important tool for achieving higher levels of fuel economy and 
reducing CO2 emissions, and emphasized that NHTSA's fatality 
estimates represented a worst-case scenario for the potential effects 
of the proposed standards, and

[[Page 25386]]

that actual fatalities will be less than these estimates, possibly 
significantly less, based on the various factors discussed in the NPRM 
that could reduce the estimates. The agencies sought comment on the 
safety analysis and discussions presented in the NPRM.
2. What public comments did the agencies receive on the safety analysis 
and discussions in the NPRM?
    Several dozen commenters addressed the safety issue. Claims and 
arguments made by commenters in response to the safety effects analysis 
and discussion in the NPRM tended to follow several general themes, as 
follows:
     NHTSA's safety effects estimates are inaccurate because 
they do not account for:
    [cir] While NHTSA's study only considers vehicles from MYs 1991-
1999, more recently-built vehicles are safer than those, and future 
vehicles will be safer still;
    [cir] Lighter vehicles are safer than heavier cars in terms of 
crash-avoidance, because they handle and brake better;
    [cir] Fatalities are linked more to other factors than mass;
    [cir] The structure of the standards reduces/contributes to 
potential safety effects from mass reduction;
    [cir] NHTSA could mitigate additional safety effects from mass 
reduction, if there are any, by simply regulating safety more;
    [cir] Casualty risks range widely for vehicles of the same weight 
or footprint, which skews regression analysis and makes computer 
simulation a better predictor of the safety effects of mass reduction;
     DRI's analysis shows that lighter vehicles will save 
lives, and NHTSA reaches the opposite conclusion without disproving 
DRI's analysis;
    [cir] Possible reasons that NHTSA and DRI have reached different 
conclusions:
    [dec222] NHTSA's study should distinguish between reductions in 
size and reductions in weight like DRI's;
    [dec222] NHTSA's study should include two-door cars;
    [dec222] NHTSA's study should have used different assumptions;
    [dec222] NHTSA's study should include confidence intervals;
     NHTSA should include a ``best-case'' estimate in its 
study;
     NHTSA should not include a ``worst-case'' estimate in its 
study;
    The agencies recognize that the issue of the potential safety 
effects of mass reduction, which was one of the many factors considered 
in the balancing that led to the agencies' conclusion as to appropriate 
stringency levels for the MYs 2012-2016 standards, is of great interest 
to the public and could possibly be a more significant factor in 
regulators' and manufacturers' decisions with regard to future 
standards beyond MY 2016. The agencies are committed to analyzing this 
issue thoroughly and holistically going forward, based on the best 
available science, in order to further their closely related missions 
of safety, energy conservation, and environmental protection. We 
respond to the issues and claims raised by commenters in turn below.

NHTSA's estimates are inaccurate because NHTSA's study only considers 
vehicles from MYs 1991-1999, but more recently-built vehicles are safer 
than those, and future vehicles will be safer still

    A number of commenters (CAS, Adcock, NACAA, NJ DEP, NY DEC, UCS, 
and Wenzel) argued that the 2003 Kahane report, on which the ``worst-
case scenario'' in the NPRM was based, is outdated because it considers 
the relationship between vehicle weight and safety in MYs 1991-1999 
passenger cars. These commenters generally stated that data from MYs 
1991-1999 vehicles provide an inaccurate basis for assessing the 
relationship between vehicle weight and safety in current or future 
vehicles, because the fleets of vehicles now and in the future are 
increasingly different from that 1990s fleet (more crossovers, fewer 
trucks, lighter trucks, etc.), with different vehicle shapes and 
characteristics, different materials, and more safety features. Several 
of these commenters argued that NHTSA should conduct an updated 
analysis for the final rule using more recent data--Wenzel, for 
example, stated that an updated regression analysis that accounted for 
the recent introduction of crossover SUVs would likely find reduced 
casualty risk, similar to DRI's previous finding using fatality data. 
CEI, in contrast, argued that the ``safety trade-off'' would not be 
eliminated by new technologies and attribute-based standards, because 
additional weight inherently makes a vehicle safer to its own 
occupants, citing the 2003 Kahane report, while AISI argued that 
Desapriya had found that passenger car drivers and occupants are two 
times more likely to be injured than drivers and occupants in larger 
pickup trucks and SUVs.
    Several commenters (Adcock, CARB, Daimler, NESCAUM, NRDC, Public 
Citizen, UCS, Wenzel) suggested that NHTSA's analysis was based on 
overly pessimistic assumptions about how manufacturers would choose to 
reduce mass in their vehicles, because manufacturers have a strong 
incentive in the market to build vehicles safely. Many of these 
commenters stated that several manufacturers have already committed 
publicly to fairly ambitious mass reduction goals in the mid-term, but 
several stated further that NHTSA should not assume that manufacturers 
will reduce the same amount of mass in all vehicles, because it is 
likely that they will concentrate mass reduction in the heaviest 
vehicles, which will improve compatibility and decrease aggressivity in 
the heaviest vehicles. Daimler emphasized that all vehicles will have 
to comply with the Federal Motor Vehicle Safety Standards, and will 
likely be designed to test well in NHTSA's NCAP tests.
    Other commenters (Aluminum Association, CARB, CAS, ICCT, MEMA, 
NRDC, U.S. Steel) also emphasized the need for NHTSA to account for the 
safety benefits to be expected in the future from use of advanced 
materials for lightweighting purposes and other engineering advances. 
The Aluminum Association stated that advanced vehicle design and 
construction techniques using aluminum can improve energy management 
and minimize adverse safety effects of their use,\123\ but that NHTSA's 
safety analysis could not account for those benefits if it were based 
on MYs 1991-1999 vehicles. CAS, ICCT, and U.S. Steel discussed similar 
benefits for more recent and future vehicles built with high strength 
steel (HSS), although U.S. Steel cautioned that given the stringency of 
the proposed standards, manufacturers would likely be encouraged to 
build smaller and lighter vehicles in order to achieve compliance, 
which fare worse in head-on collisions than larger, heavier vehicles. 
AISI, in contrast to U.S. Steel, stated that in its research with the 
Auto/Steel Partnership and in programs supported by DOE, it had found 
that the use of new Advanced HSS steel grades could enable mass of 
critical crash structures, such as front rails and bumper systems, to 
be reduced by 25 percent without degrading performance in standard 
NHTSA frontal or IIHS offset

[[Page 25387]]

instrumented crash tests compared to their ``heavier counterparts.''
---------------------------------------------------------------------------

    \123\ The Aluminum Association (NHTSA-2009-0059-0067.3) stated 
that its research on vehicle safety compatibility between an SUV and 
a mid-sized car, done jointly with DRI, shows that reducing the 
weight of a heavier SUV by 20% (a realistic value for an aluminum-
intensive vehicle) could reduce the combined injury rate for both 
vehicles by 28% in moderately severe crashes. The commenter stated 
that it would keep NHTSA apprised of its results as its research 
progressed. Based on the information presented, NHTSA believes that 
this research appears to agree with NHTSA's latest analysis, which 
finds that a reduction in weight for the heaviest vehicles may 
improve overall fleet safety.
---------------------------------------------------------------------------

    Agencies' response: NHTSA, in consultation with EPA and DOE, plans 
to begin updating the MYs 1991-1999 database on which NHTSA's safety 
analyses in the NPRM and final rule are based in the next several 
months in order to analyze the differences in safety effects against 
vehicles built in more recent model years. As this task will take at 
least a year to complete, beginning it immediately after the NPRM would 
not have enabled the agency to complete it and then conduct a new 
analysis during the period between the NPRM and the final rule.
    For purposes of this final rule, however, we believe that using the 
same MYs 1991-1999 database as that used in the 2003 Kahane study 
provides a reasonable basis for attempting to estimate safety effects 
due to reductions in mass. While commenters often stated that updating 
the database would help to reveal the effect of recently-introduced 
lightweight vehicles with extensive material substitution, there have 
in fact not yet been a significant number of vehicles with substantial 
mass reduction/material substitution to analyze, and they must also 
show up in the crash databases for NHTSA to be able to add them to its 
analysis. Based on NHTSA's research, specifically, on three statistical 
analyses over a 12-year period (1991-2003) covering a range of 22 model 
years (1978-1999), NHTSA believes that the relationships between mass, 
size, and safety has only changed slowly over time, although we 
recognize that they may change somewhat more rapidly in the 
future.\124\ As the on-road fleet gains increasing numbers of vehicles 
with increasing amounts of different methods of mass reduction applied 
to them, we may begin to discern changes in the crash databases due to 
the presence of these vehicles, but any such changes are likely to be 
slow and evolutionary, particularly in the context of MYs 2000-2009 
vehicles. The agencies do expect that further analysis of historical 
data files will continue to provide a robust and practicable basis for 
estimating the potential safety effects that might occur with future 
reductions in vehicle mass. However, we recognize that estimates 
derived from analysis of historical data, like estimates from any other 
type of analysis (including simulation-based analysis, which cannot 
feasibly cover all relevant scenarios), will be uncertain in terms of 
predicting actual future outcomes with respect to a vehicle fleet, 
driving population, and operating environment that does not yet exist.
---------------------------------------------------------------------------

    \124\ NHTSA notes the CAS' comments regarding changes in the 
vehicle fleets since the introduction of CAFE standards in the late 
1970s, but believes they apply more to the differences between late 
1970s through 1980s vehicles and 2010s vehicles than to the 
differences between 1990s and 2010s vehicles. NHTSA believes that 
the CAS comments regarding the phase-out of 1970s vehicles and their 
replacement with safer, better fuel-economy-achieving 1980s vehicles 
paint with rather too large a brush to be relevant to the main 
discussion of whether the 2003 Kahane report database can reasonably 
be used to estimate safety effects of mass reduction for the MYs 
2012-2016 fleet.
---------------------------------------------------------------------------

    The agencies also recognize that more recent vehicles have more 
safety features than 1990s vehicles, which are likely to make them 
safer overall. To account for this, NHTSA did adjust the results of 
both its NPRM and final rule analysis to include known safety 
improvements, like ESC and increases in seat belt use, that have 
occurred since MYs 1991-1999.\125\ However, simply because newer 
vehicles have more safety countermeasures, does not mean that the 
weight/safety relationship necessarily changes. More likely, it would 
change the target population (the number of fatalities) to which one 
would apply the weight/safety relationship. Thus, we still believe that 
some mass reduction techniques for both passenger cars and light trucks 
can make them less safe, in certain crashes as discussed in NHTSA's 
FRIA, than if mass had not been reduced.\126\
---------------------------------------------------------------------------

    \125\ See NHTSA FRIA Chapter IX.
    \126\ If one has a vehicle (vehicle A), and both reduces the 
vehicle's mass and adds new safety equipment to it, thus creating a 
variant (vehicle A1), the variant might conceivably have 
a level of overall safety for its occupants equal to that of the 
original vehicle (vehicle A). However, vehicle A1 might 
not be as safe as second variant (vehicle A2) of vehicle 
A, one that is produced by adding to vehicle A the same new safety 
equipment added to the first variant, but this time without any mass 
reduction.
---------------------------------------------------------------------------

    As for NHTSA's assumptions about mass reduction, in its analysis, 
NHTSA generally assumed that lighter vehicles could be reduced in 
weight by 5 percent while heavier light trucks could be reduced in 
weight by 10 percent. NHTSA recognizes that manufacturers might choose 
a different mass reduction scheme than this, and that its 
quantification of the estimated effect on safety would be different if 
they did. We emphasize that our estimates are based on the assumptions 
we have employed and are intended to help the agency consider the 
potential effect of the final standards on vehicle safety. Thus, based 
on the 2010 Kahane analysis, reductions in weight for the heavier light 
trucks would have positive overall safety effects,\127\ while mass 
reductions for passenger cars and smaller light trucks would have 
negative overall safety effects.
---------------------------------------------------------------------------

    \127\ This is due to the beneficial effect on the occupants of 
vehicles struck by the downweighted larger vehicles.

NHTSA's estimates are inaccurate because they do not account for the 
fact that lighter vehicles are safer than heavier cars in terms of 
---------------------------------------------------------------------------
crash-avoidance, because they handle and brake better

    ICCT stated that lighter vehicles are better able to avoid crashes 
because they ``handle and brake slightly better,'' arguing that size-
based standards encourage lighter-weight car-based SUVs with 
``significantly better handling and crash protection'' than 1996-1999 
mid-size SUVs, which will reduce both fatalities and fuel consumption. 
ICCT stated that NHTSA did not include these safety benefits in its 
analysis. DRI also stated that its 2005 report found that crash 
avoidance improves with reduction in curb weight and/or with increases 
in wheelbase and track, because ``Crash avoidance can depend, amongst 
other factors, on the vehicle directional control and rollover 
characteristics.'' DRI argued that, therefore, ``These results indicate 
that vehicle weight reduction tends to decrease fatalities, but vehicle 
wheelbase and track reduction tends to increase fatalities.''
    Agencies' response: In fact, NHTSA's regression analysis of crash 
fatalities per million registration years measures the effects of crash 
avoidance, if there are any, as well as crashworthiness. Given that the 
historical empirical data for passenger cars show a trend of higher 
crash rates for lighter cars, it is unclear whether lighter cars have, 
in the net, superior crash avoidance, although the agencies recognize 
that they may have advantages in certain individual situations. EPA 
presents a discussion of improved accident avoidance as vehicle mass is 
reduced in Chapter 7.6 of its final RIA. The important point to 
emphasize is that it depends on the situation--it would oversimplify 
drastically to point to one situation in which extra mass helps or 
hurts and then extrapolate effects for crash avoidance across the board 
based on only that.
    For example, the relationship of vehicle mass to rollover and 
directional stability is more complex than commenters imply. For 
rollover, it is true that if heavy pickups were always more top-heavy 
than lighter pickups of the same footprint, their higher center of 
gravity could make them more rollover-prone, yet some mass can be 
placed so as to lower a vehicle's center of gravity and make it less 
rollover-prone. For mass reduction to be beneficial in rollover 
crashes, then, it must take

[[Page 25388]]

center of gravity height into account along with other factors such as 
passenger compartment design and structure, suspension, the presence of 
various safety equipment, and so forth.
    Similarly, for directional stability, it is true that having more 
mass increases the ``understeer gradient'' of cars--i.e., it reinforces 
their tendency to proceed in a straight line and slows their response 
to steering input, which would be harmful where prompt steering 
response is essential, such as in a double-lane-change maneuver to 
avoid an obstacle. Yet more mass and a higher understeer gradient could 
help when it is better to remain on a straight path, such as on a 
straight road with icy patches where wheel slip might impair 
directional stability. Thus, while less vehicle mass can sometimes 
improve crash avoidance capability, there can also be situations when 
more vehicle mass can help in other kinds of crash avoidance.
    Further, NHTSA's research suggests that additional vehicle mass may 
be even more helpful, as discussed in Chapter IX of NHTSA's FRIA, when 
the average driver's response to a vehicle's maneuverability is taken 
into account. Lighter cars have historically (1976-2009) had higher 
collision-involvement rates than heavier cars--even in multi-vehicle 
crashes where directional and rollover stability is not particularly an 
issue.\128\ Based on our analyses using nationally-collected FARS and 
GES data, drivers of lighter cars are more likely to be the culpable 
party in a 2-vehicle collision, even after controlling for footprint, 
the driver's age, gender, urbanization, and region of the country.
---------------------------------------------------------------------------

    \128\ See, e.g., NHTSA (2000). Traffic Safety Facts 1999. Report 
No. DOT HS 809 100. Washington, DC: National Highway Traffic Safety 
Administration, p. 71; Najm, W.G., Sen, B., Smith, J.D., and 
Campbell, B.N. (2003). Analysis of Light Vehicle Crashes and Pre-
Crash Scenarios Based on the 2000 General Estimates System, Report 
No. DOT HS 809 573. Washington, DC: National Highway Traffic Safety 
Administration, p. 48.
---------------------------------------------------------------------------

    Thus, based on this data, it appears that lighter cars may not be 
driven as well as heavier cars, although it is unknown why this is so. 
If poor drivers intrinsically chose light cars (self-selection), it 
might be evidenced by an increase in antisocial driving behavior (such 
as DWI, drug involvement, speeding, or driving without a license) as 
car weight decreases, after controlling for driver age and gender--in 
addition to the increases in merely culpable driver behavior (such as 
failure to yield the right of way). But analyses in NHTSA's 2003 report 
did not show an increase in antisocial driver behavior in the lighter 
cars paralleling their increase in culpable involvements.
    NHTSA also hypothesizes that certain aspects of lightness and/or 
smallness in a car may give a driver a perception of greater 
maneuverability that ultimately results in driving with less of a 
``safety margin,'' e.g., encouraging them to weave in traffic. That may 
appear paradoxical at first glance, as maneuverability is, in the 
abstract, a safety plus. Yet the situation is not unlike powerful 
engines that could theoretically enable a driver to escape some 
hazards, but in reality have long been associated with high crash and 
fatality rates.\129\
---------------------------------------------------------------------------

    \129\ Robertson, L.S. (1991), ``How to Save Fuel and Reduce 
Injuries in Automobiles,'' The Journal of Trauma, Vol. 31, pp. 107-
109; Kahane, C.J. (1994). Correlation of NCAP Performance with 
Fatality Risk in Actual Head-On Collisions, NHTSA Technical Report 
No. DOT HS 808 061. Washington, DC: National Highway Traffic Safety 
Administration, http://www-nrd.nhtsa.dot.gov/Pubs/808061.PDF, pp. 4-
7.

NHTSA's estimates are inaccurate because fatalities are linked more to 
---------------------------------------------------------------------------
other factors than mass

    Tom Wenzel stated that the safety record of recent model year 
crossover SUVs indicates that weight reduction in this class of 
vehicles (small to mid-size SUVs) resulted in a reduction in fatality 
risk. Wenzel argued that NHTSA should acknowledge that other vehicle 
attributes may be as important, if not more important, than vehicle 
weight or footprint in terms of occupant safety, such as unibody 
construction as compared to ladder-frame, lower bumpers, and less rigid 
frontal structures, all of which make crossover SUVs more compatible 
with cars than truck-based SUVs.
    Marc Ross commented that fatalities are linked more strongly to 
intrusion than to mass, and stated that research by safety experts in 
Japan and Europe suggests the main cause of serious injuries and deaths 
is intrusion due to the failure of load-bearing elements to properly 
protect occupants in a severe crash. Ross argued that the results from 
this project have ``overturned the original views about 
compatibility,'' which thought that mass and the mass ratio were the 
dominant factors. Since footprint-based standards will encourage the 
reduction of vehicle weight through materials substitution while 
maintaining size, Ross stated, they will help to reduce intrusion and 
consequently fatalities, as the lower weight reduces crash forces while 
maintaining size preserves crush space. Ross argued that this factor 
was not considered by NHTSA in its discussion of safety. ICCT agreed 
with Ross' comments on this issue.
    In previous comments on NHTSA rulemakings and in several studies, 
Wenzel and Ross have argued generally that vehicle design and 
``quality'' is a much more important determinant of vehicle safety than 
mass. In comments on the NPRM, CARB, NRDC, Sierra Club, and UCS echoed 
this theme.
    ICCT commented as well that fatality rates in the EU are much lower 
than rates in the U.S., even though the vehicles in the EU fleet tend 
to be smaller and lighter than those in the U.S. fleet. Thus, ICCT 
argued, ``This strongly supports the idea that vehicle and highway 
design are far more important factors than size or weight in vehicle 
safety.'' ICCT added that ``It also suggests that the rise in SUVs in 
the U.S. has not helped reduce fatalities.'' CAS also commented that 
Germany's vehicle fleet is both smaller and lighter than the American 
fleet, and has lower fatality rates.
    Agencies' response: NHTSA and EPA agree that there are many 
features that affect safety. While crossover SUVs have lower fatality 
rates than truck-based SUVs, there are no analyses that attribute the 
improved safety to mass alone, and not to other factors such as the 
lower center of gravity or the unibody construction of these vehicles. 
While a number of improvements in safety can be made, they do not 
negate the potential that another 100 lbs. could make a passenger car 
or crossover vehicle safer for its occupants, because of the effects of 
mass per se as discussed in NHTSA's FRIA, albeit similar mass 
reductions could make heavier LTVs safer to other vehicles without 
necessarily harming their own drivers and occupants. Moreover, in the 
2004 response to docket comments, NHTSA explained that the significant 
relationship between mass and fatality risk persisted even after 
controlling for vehicle price or nameplate, suggesting that vehicle 
``quality'' as cited by Wenzel and Ross is not necessarily more 
important than vehicle mass.
    As for reductions in intrusions due to material substitution, the 
agencies agree generally that the use of new and innovative materials 
may have the potential to reduce crash fatalities, but such vehicles 
have not been introduced in large numbers into the vehicle fleet. The 
agencies will continue to monitor the situation, but ultimately the 
effects of different methods of mass reduction on overall safety in the 
real world (not just in simulations) will need to be analyzed when 
vehicles with these types of mass reduction are on the road in 
sufficient quantities to provide statistically significant results. For 
example, a vehicle that is designed to be

[[Page 25389]]

much stiffer to reduce intrusion is likely to have a more severe crash 
pulse and thus impose greater forces on the occupants during a crash, 
and might not necessarily be good for elderly and child occupant safety 
in certain types of crashes. Such trade-offs make it difficult to 
estimate overall results accurately without real world data. The 
agencies will continue to evaluate and analyze such real world data as 
it becomes available, and will keep the public informed as to our 
progress.
    ICCT's comment illustrates the fact that different vehicle fleets 
in different countries can face different challenges. NHTSA does not 
believe that the fact that the EU vehicle fleet is generally lighter 
than the U.S. fleet is the exclusive reason, or even the primary 
factor, for the EU's lower fatality rates. The data ICCT cites do not 
account for significant differences between the U.S. and EU such as in 
belt usage, drunk driving, rural/urban roads, driving culture, etc.

The structure of the standards reduces/contributes to potential safety 
risks from mass reduction

    Since switching in 2006 to setting attribute-based light truck CAFE 
standards, NHTSA has emphasized that one of the benefits of a 
footprint-based standard is that it discourages manufacturers from 
building smaller, less safe vehicles to achieve CAFE compliance by 
``balancing out'' their larger vehicles, and thus avoids a negative 
safety consequence of increasing CAFE stringency.\130\ Some commenters 
on the NPRM (Daimler, IIHS, NADA, NRDC, Sierra Club et al.) agreed that 
footprint-based standards would protect against downsizing and help to 
mitigate safety risks, while others stated that there would still be 
safety risks even with footprint-based standards--CEI, for example, 
argued that mass reduction inherently creates safety risks, while IIHS 
and Porsche expressed concern about footprint-based standards 
encouraging manufacturers to manipulate wheelbase, which could reduce 
crush space and worsen vehicle handling. U.S. Steel and AISI both 
commented that the ``aggressive schedule'' for the proposed increases 
in stringency could encourage manufacturers to build smaller, lighter 
vehicles in order to comply.
---------------------------------------------------------------------------

    \130\ We note that commenters were divided on whether they 
believed there was a clear correlation between vehicle size/weight 
and safety (CEI, Congress of Racial Equality, Heritage Foundation, 
IIHS, Spurgeon, University of PA Environmental Law Project) or 
whether they believed that the correlation was less clear, for 
example, because they believed that vehicle design was more 
important than vehicle mass (CARB, Public Citizen).
---------------------------------------------------------------------------

    Some commenters also focused on the shape and stringency of the 
target curves and their potential effect on vehicle safety. IIHS agreed 
with the agencies' tentative decision to cut off the target curves at 
the small-footprint end. Regarding the safety effect of the curves 
requiring less stringent targets for larger vehicles, while IIHS stated 
that increasing footprint is good for safety, CAS, Wenzel, and the UCSB 
students stated that decreasing footprint may be better for safety in 
terms of risk to occupants of other vehicles. Daimler, Wenzel, and the 
University of PA Environmental Law Project commented generally that 
more similar passenger car and light truck targets at identical 
footprints (as Wenzel put it, a single target curve) would improve 
fleet compatibility and thus, safety, by encouraging manufacturers to 
build more passenger cars instead of light trucks.
    Agencies' response: The agencies continue to believe that 
footprint-based standards help to mitigate potential safety risks from 
downsizing if the target curves maintain sufficient slope, because, 
based on NHTSA's analysis, larger-footprint vehicles are safer than 
smaller-footprint vehicles.\131\ The structure of the footprint-based 
curves will also discourage the upsizing of vehicles. Nevertheless, we 
recognize that footprint-based standards are not a panacea--NHTSA's 
analysis continues to show that there was a historical relationship 
between lower vehicle mass and increased safety risk in passenger cars 
even if footprint is maintained, and there are ways that manufacturers 
may increase footprint that either improve or reduce vehicle safety, as 
indicated by IIHS and Porsche.
---------------------------------------------------------------------------

    \131\ See Chapter IX of NHTSA's FRIA.
---------------------------------------------------------------------------

    With regard to whether the agencies should set separate curves or a 
single one, NHTSA also notes in Section II.C that EPCA requires NHTSA 
to establish standards separately for passenger cars and light trucks, 
and thus concludes that the standards for each fleet should be based on 
the characteristics of vehicles in each fleet. In other words, the 
passenger car curve should be based on the characteristics of passenger 
cars, and the light truck curve should be based on the characteristics 
of light trucks--thus to the extent that those characteristics are 
different, an artificially-forced convergence would not accurately 
reflect those differences. However, such convergence could be 
appropriate depending on future trends in the light vehicle market, 
specifically further reduction in the differences between passenger car 
and light truck characteristics. While that trend was more apparent 
when car-like 2WD SUVs were classified as light trucks, it seems likely 
to diminish for the model year vehicles subject to these rules as the 
truck fleet will be more purely ``truck-like'' than has been the case 
in recent years.

NHTSA's estimates are inaccurate because NHTSA could mitigate 
additional safety risks from mass reduction, if there are any, by 
simply regulating safety more

    Since NHTSA began considering the potential safety risks from mass 
reduction in response to increased CAFE standards, some commenters have 
suggested that NHTSA could mitigate those safety risks, if any, by 
simply regulating more.\132\ In response to the safety analysis 
presented in the NPRM, several commenters stated that NHTSA should 
develop additional safety regulations to require vehicles to be 
designed more safely, whether to improve compatibility (Adcock, NY DEC, 
Public Citizen, UCS), to require seat belt use (CAS, UCS), to improve 
rollover and roof crush resistance (UCS), or to improve crashworthiness 
generally by strengthening NCAP and the star rating system (Adcock). 
Wenzel commented further that ``Improvements in safety regulations will 
have a greater effect on occupant safety than FE standards that are 
structured to maintain, but may actually increase, vehicle size.''
---------------------------------------------------------------------------

    \132\ See, e.g., MY 2011 CAFE final rule, 74 FR 14403-05 (Mar. 
30, 2009).
---------------------------------------------------------------------------

    Agencies' response: NHTSA appreciates the commenters' suggestions 
and notes that the agency is continually striving to improve motor 
vehicle safety consistent with its mission. As noted above, improving 
safety in other areas affects the target population that the mass/
footprint relationship could affect, but it does not necessarily change 
the relationship.
    The 2010 Kahane analysis discussed in this final rule evaluates the 
relative safety risk when vehicles are made lighter than they might 
otherwise be absent the final MYs 2012-2016 standards. It does consider 
the effect of known safety regulations as they are projected to affect 
the target population.

Casualty risks range widely for vehicles of the same weight or 
footprint, which skews regression analysis and makes computer 
simulation a better predictor of the safety effects of mass reduction

[[Page 25390]]

    Wenzel commented that he had found, in his most recent work, after 
accounting for drivers and crash location, that there is a wide range 
in casualty risk for vehicles with the same weight or footprint. Wenzel 
stated that for drivers, casualty risk does generally decrease as 
weight or footprint increases, especially for passenger cars, but the 
degree of variation in the data for vehicles (particularly light 
trucks) at a given weight or footprint makes it difficult to say that a 
decrease in weight or footprint will necessarily result in increased 
casualty risk. In terms of risk imposed on the drivers of other 
vehicles, Wenzel stated that risk increases as light truck weight or 
footprint increases.
    Wenzel further stated that because a regression analysis can only 
consider the average trend in the relationship between vehicle weight/
size and risk, it must ``ignore'' vehicles that do not follow that 
trend. Wenzel therefore recommended that the agency employ computer 
crash simulations for analyzing the effect of vehicle weight reduction 
on safety, because they can ``pinpoint the effect of specific vehicle 
designs on safety,'' and can model future vehicles which do not yet 
exist and are not bound to analyzing historical data. Wenzel cited, as 
an example, a DRI simulation study commissioned by the Aluminum 
Association (Kebschull 2004), which used a computer model to simulate 
the effect of changing SUV mass or footprint (without changing other 
attributes of the vehicle) on crash outcomes, and showed a 15 percent 
net decrease in injuries, while increasing wheelbase by 4.5 inches 
while maintaining weight showed a 26 percent net decrease in serious 
injuries.
    Agencies' response: The agencies have reviewed Mr. Wenzel's draft 
report for DOE to which he referred in his comments, but based on 
NHTSA's work do not find such a wide range of safety risk for vehicles 
with the same weight, although we agree there is a range of risk for a 
given footprint. Wenzel found that for drivers, casualty risk does 
generally decrease as weight or footprint increases, especially for 
passenger cars, and that in terms of risk imposed on the drivers of 
other vehicles, risk increases as light truck weight or footprint 
increases, but concluded that the variation in the data precluded the 
possibility of drawing any conclusions. In the 2010 Kahane study 
presented in the FRIA, NHTSA undertook a similar analysis in which it 
correlated weight to fatality risk for vehicles of essentially the same 
footprint.\133\ The ``decile analysis,'' provided as a check on the 
trend/direction of NHTSA's regression analysis, shows that societal 
fatality risk generally increases and rarely decreases for lighter 
relative to heavier cars of the same footprint. Thus, while Mr. Wenzel 
was reluctant to draw a conclusion, NHTSA believes that both our 
research and Mr. Wenzel's appear to point to the same conclusion. We 
agree that there is a wide range in casualty risk among cars of the 
same footprint, but we find that that casualty risk is correlated with 
weight. The correlation shows that heavier cars have lower overall 
societal fatality rates than lighter cars of very similar footprint.
---------------------------------------------------------------------------

    \133\ Subsections 2.4 and 3.3 of new report.
---------------------------------------------------------------------------

    The agencies agree that simulation can be beneficial in certain 
circumstances. NHTSA cautions, however, that it is difficult for a 
simulation analysis to capture the full range of variations in crash 
situations in the way that a statistical regression analysis does. 
Vehicle crash dynamics are complex, and small changes in initial crash 
conditions (such as impact angle or closing speed) can have large 
effects on injury outcome. This condition is a consequence of 
variations in the deformation mode of individual components (e.g., 
buckling, bending, crushing, material failure, etc.) and how those 
variations affect the creation and destruction of load paths between 
the impacting object and the occupant compartment during the crash 
event. It is therefore difficult to predict and assess structural 
interactions using computational methods when one does not have a 
detailed, as-built geometric and material model. Even when a complete 
model is available, prudent engineering assessments require extensive 
physical testing to verify crash behavior and safety. Despite all this, 
the agencies recognize that detailed crash simulations can be useful in 
estimating the relative structural effects of design changes over a 
limited range of crash conditions, and will continue to evaluate the 
appropriate use of this tool in the future.
    Simplified crash simulations can also be valuable tools, but only 
when employed as part of a comprehensive analytical program. They are 
especially valuable in evaluating the relative effect and associated 
confidence intervals of feasible design alternatives. For example, the 
method employed by Nusholtz et al.\134\ could be used by a vehicle 
designer to estimate the benefit of incremental changes in mass or 
wheelbase as well as the tradeoffs that might be made between them once 
that designer has settled on a preliminary design. A key difference 
between the research by Nusholtz and the research by Kebschull that Mr. 
Wenzel cited \135\ is in their suggested applications. The former is 
useful in evaluating proposed alternatives early in the design 
process--Nusholtz specifically warns that the model provides only 
``general insights into the overall risk * * * and cannot be used to 
obtain specific response characteristics.'' Mr. Wenzel implies the 
latter can ``isolate the effect of specific design changes, such as 
weight reduction'' and thus quantify the fleet-wide effect of 
substantial vehicle redesigns. Yet while Kebschull reports injury 
reductions to three significant digits, there is no validation that 
vehicle structures of the proposed weight and stiffness are even 
feasible with current technology. Thus, while the agencies agree that 
computer simulations can be useful tools, we also recognize the value 
of statistical regression analysis for determining fleet-wide effects, 
because it inherently incorporates real-world factors in historical 
safety assessments.
---------------------------------------------------------------------------

    \134\ Nusholtz, G.S., G. Rabbiolo, and Y. Shi, ``Estimation of 
the Effects of Vehicle Size and Mass on Crash-Injury Outcome Through 
Parameterized Probability Manifolds,'' Society of Automotive 
Engineers (2003), Document No. 2003-01-0905. Available at http://
www.sae.org/technical/papers/2003-01-0905 (last accessed Feb. 15, 
2010).
    \135\ Mr. Wenzel cites the report by Kebschull et al. [2004, 
DRI-TR-04-04-02] as an example of what he regards as the effective 
use of computer crash simulation. NHTSA does not concur that this 
analysis represents a viable analytical method for evaluating the 
fleet-wide tradeoffs between vehicle mass and societal safety. The 
simulation method employed was not a full finite element 
representation of each major structural component in the vehicles in 
question. Instead, an Articulated Total Body (ATB) representation 
was constructed for each of two representative vehicles. In the ATB 
model, large structural subsystems were represented by a single 
ellipsoid. Consolidated load-deflection properties of these 
subsystems and the joints that tie them together were ``calibrated'' 
for an ATB vehicle model by requiring that it reproduce the 
acceleration pulse of a physical NHTSA crash test. NHTSA notes that 
vehicle simulation models that are calibrated to a single crash test 
configuration (e.g., a longitudinal NCAP test into a rigid wall) are 
often ill-equipped to analyze alternative crash scenarios (e.g., 
vehicle-to-vehicle crashes at arbitrary angles and lateral offsets).

DRI's analysis shows that lighter vehicles will save lives, and NHTSA 
---------------------------------------------------------------------------
reaches the opposite conclusion without disproving DRI's analysis

    The difference between NHTSA's results and DRI's results for the 
relationship between vehicle mass and vehicle safety has been at the 
crux of this issue for several years. While NHTSA offered some theories 
in the NPRM as to why DRI might have found a safety benefit for mass 
reduction, NHTSA's work since then has enabled it to identify what we 
believe is the most likely reason for DRI's findings.

[[Page 25391]]

The potential near multicollinearity of the variables of curb weight, 
track width, and wheelbase creates some degree of concern that any 
regression models with those variables could inaccurately calibrate 
their effects. However, based on its own experience with statistical 
analysis, NHTSA believes that the specific two-step regression model 
used by DRI increases this concern, because it weakens relationships 
between curb weight and dependent variables by splitting the effect of 
curb weight across the two regression steps.
    The comments below are in response to NHTSA's theories in the NPRM 
about the source of the differences between NHTSA's and DRI's results. 
The majority of them are answered more fully in the 2010 Kahane report 
included in NHTSA's FRIA, but we respond to them in this document as 
well for purposes of completeness.

NHTSA and DRI may have reached different conclusions because NHTSA's 
study does not distinguish between reductions in size and reductions in 
weight like DRI's

    Several commenters (CARB, CBD, EDF, ICCT, NRDC, and UCS) stated 
that DRI had been able to separate the effect of size and weight in its 
analysis, and in so doing proved that there was a safety benefit to 
reducing weight without reducing size. The commenters suggested that if 
NHTSA properly distinguished between reductions in size and reductions 
in weight, it would find the same result as DRI.
    Agencies' response: In the 2010 Kahane analysis presented in the 
FRIA, NHTSA did attempt to separate the effects of vehicle size and 
weight by performing regression analyses with footprint (or 
alternatively track width and wheelbase) and curb weight as separate 
independent variables. For passenger cars, NHTSA found that the 
regressions attribute the fatality increase due to downsizing about 
equally to mass and footprint--that is, the effect of reducing mass 
alone is about half the effect of reducing mass and reducing footprint. 
Unlike DRI's results, NHTSA's regressions for passenger cars and for 
lighter LTVs did not find a safety benefit to reducing weight without 
reducing size; while NHTSA did find a safety benefit for reducing 
weight in the heaviest LTVs, the magnitude of the benefit as compared 
to DRI's was significantly smaller. NHTSA believes that these 
differences in results may be an artifact of DRI's two-step regression 
model, as explained above.

NHTSA and DRI may have reached different conclusions because NHTSA's 
study does not include two-door cars like DRI's

    One of NHTSA's primary theories in the NPRM as to why NHTSA and 
DRI's results differed related to DRI's inclusion in its analysis of 2-
door cars. NHTSA had excluded those vehicles from its analysis on the 
grounds that 2-door cars had a disproportionate crash rate (perhaps due 
to their inclusion of muscle and sports cars) which appeared likely to 
skew the regression. Several commenters argued that NHTSA should have 
included 2-door cars in its analysis. DRI and James Adcock stated that 
2-door cars should not be excluded because they represent a significant 
portion of the light-duty fleet, while CARB and ICCT stated that 
because DRI found safety benefits whether 2-door cars were included or 
not, NHTSA should include 2-door cars in its analysis. Wenzel also 
commented that NHTSA should include 2-door cars in subsequent analyses, 
stating that while his analysis of MY 2000-2004 crash data from 5 
states indicates that, in general, 4-door cars tend to have lower 
fatality risk than 2-door cars, the risk is even lower when he accounts 
for driver age/gender and crash location. Wenzel suggested that the 
increased fatality risk in the 2-door car population seemed primarily 
attributable to the sports cars, and that that was not sufficient 
grounds to exclude all 2-door cars from NHTSA's analysis.
    Agencies' response: The agencies agree that 2-door cars can be 
included in the analysis, and NHTSA retracts previous statements that 
DRI's inclusion of them was incorrect. In its 2010 analysis, NHTSA 
finds that it makes little difference to the results whether 2-door 
cars are included, partially included, or excluded from the analysis. 
Thus, analyses of 2-door and 4-door cars combined, as well as other 
combinations, have been included in the analysis. That said, no 
combination of 2-door and 4-door cars resulted in NHTSA's finding a 
safety benefit for passenger cars due to mass reduction.

NHTSA and DRI may have reached different conclusions due to different 
assumptions

    DRI commented that the differences found between its study and 
NHTSA's may be due to the different assumptions about the linearity of 
the curb weight effect and control variable for driver age, vehicle 
age, road conditions, and other factors. NHTSA's analysis was based on 
a two-piece linear model for curb weight with two different weight 
groups (less than 2,950 lbs., and greater than or equal to 2.950 lbs). 
The DRI analysis assumed a linear model for curb weight with a single 
weight group. Additionally, DRI stated that NHTSA's use of eight 
control variables (rather than three control variables like DRI used) 
for driver age introduces additional degrees of freedom into the 
regressions, which it suggested may be correlated with the curb weight, 
wheelbase, and track width, and/or other control variables. DRI 
suggested that this may also affect the results and cause or contribute 
to the differences in outcomes between NHTSA and DRI.
    Agencies' response: NHTSA's FRIA documents that NHTSA analyzed its 
database using both a single parameter for weight (a linear model) and 
two parameters for weight (a two-piece linear model). In both cases, 
the logistic regression responded identically, allocating the same way 
between weight, wheelbase, track width, or footprint.\136\ Thus, NHTSA 
does not believe that the differences between its results and DRI's 
results are due to whether the studies used a single weight group or 
two weight groups.
---------------------------------------------------------------------------

    \136\ Subsections 2.2 and 2.3 of new report.
---------------------------------------------------------------------------

    The FRIA also documents that NHTSA examined NHTSA's use of eight 
control variables for driver age (ages 14-30, 30-50, 50-70, 70+ for 
males and females separately, versus DRI's use of three control 
variables for age (FEMALE = 1 for females, 0 for males, YOUNGDRV = 35-
AGE for drivers under 35, 0 for all others, OLDMAN = AGE-50 for males 
over 50, 0 for all others; OLDWOMAN = AGE-45 for females over 45, 0 for 
all others) to see if that affected the results. NHTSA ran its analysis 
using the eight control variables and again using three control 
variables for age, and obtained similar results each time.\137\ Thus, 
NHTSA does not believe that the differences between its results and 
DRI's results are due to the number of control variables used for 
driver age.
---------------------------------------------------------------------------

    \137\ Id.

NHTSA's and DRI's conclusions may be similar if confidence intervals 
---------------------------------------------------------------------------
are taken into account

    DRI commented that NHTSA has not reported confidence intervals, 
while DRI has reported them in its studies. Thus, DRI argued, it is not 
possible to determine whether the confidence intervals overlap and 
whether the differences between NHTSA's and DRI's analyses are 
statistically significant.
    Agencies' response: NHTSA has included confidence intervals for the 
main results of the 2010 Kahane analysis, as shown in Chapter IX of 
NHTSA's FRIA. For passenger cars, the NHTSA results are a statistically

[[Page 25392]]

significant increase in fatalities with a 100 pound reduction while 
maintaining track width and wheelbase (or footprint); the DRI results 
are a statistically significant decrease in fatalities with a 100 pound 
reduction while maintaining track width and wheelbase. The DRI results 
are thus outside the confidence bounds of the NHTSA results and do not 
overlap.

NHTSA should include a ``best-case'' estimate in its study

    Several commenters (Center for Auto Safety, NRDC, Public Citizen, 
Sierra Club et al., and Wenzel) urged NHTSA to include a ``best-case'' 
estimate in the final rule, showing scenarios in which lives were saved 
rather than lost. Public Citizen stated that there would be safety 
benefits to reducing the weight of the heaviest vehicles while leaving 
the weight of the lighter vehicles unchanged, and that increasing the 
number of smaller vehicles would provide safety benefits to 
pedestrians, bicyclists, and motorcyclists. Sierra Club et al. stated 
that new materials, smart design, and lighter, more advanced engines 
can all improve fuel economy while maintaining or increasing vehicle 
safety. Both Center for Auto Safety and Sierra Club argued that the 
agency should have presented a ``best-case'' scenario to balance out 
the ``worst-case'' scenario presented in the NPRM, especially if NHTSA 
itself believed that the worst-case scenario was not inevitable. NRDC 
requested that NHTSA present both a ``best-case'' and a ``most likely'' 
scenario. Wenzel simply stated that NHTSA did not present a ``best-
case'' scenario, despite DRI's finding in 2005 that fatalities would be 
reduced if track width was held constant.
    Agencies' response: NHTSA has included an ``upper estimate'' and a 
``lower estimate'' in the new 2010 Kahane analysis. The lower estimate 
assumes that mass reduction will be accomplished entirely by material 
substitution or other techniques that do not perceptibly change a 
vehicle's shape, structural strength, or ride quality. The lower 
estimate examines specific crash modes and is meant to reflect the 
increase in fatalities for the specific crash modes in which a 
reduction in mass per se in the case vehicle would result in a 
reduction in safety: namely, collisions with larger vehicles not 
covered by the regulations (e.g., trucks with a GVWR over 10,000 lbs), 
collisions with partially-movable objects (e.g., some trees, poles, 
parked cars, etc.), and collisions of cars or light LTVs with heavier 
LTVs--as well as the specific crash modes where a reduction in mass per 
se in the case vehicle would benefit safety: namely, collisions of 
heavy LTVs with cars or lighter LTVs. NHTSA believes that this is the 
effect of mass per se, i.e., the effects of reduced mass will generally 
persist in these crashes regardless of how the mass is reduced. The 
lower estimate attempts to quantify that scenario, although any such 
estimate is hypothetical and subject to considerable uncertainty. NHTSA 
believes that a ``most likely'' scenario cannot be determined with any 
certainty, and would depend entirely upon agency assumptions about how 
manufacturers intend to reduce mass in their vehicles. While we can 
speculate upon the potential effects of different methods of mass 
reduction, we cannot predict with certainty what manufacturers will 
ultimately do.

NHTSA should not include a ``worst-case'' estimate in its study

    NRDC, Public Citizen and Sierra Club et al. commented that NHTSA 
should remove the ``worst-case scenario'' estimate from the rulemaking, 
generally because it was based on an analysis that evaluated historical 
vehicles, and future vehicles would be sufficiently different to render 
the ``worst-case scenario'' inapplicable.
    Agencies' response: NHTSA stated in the NPRM that the ``worst-case 
scenario'' addressed the effect of a kind of downsizing (i.e., mass 
reduction accompanied by footprint reduction) that was not likely to be 
a consequence of attribute-based CAFE standards, and that the agency 
would refine its analysis of such a scenario for the final rule. NHTSA 
has not used the ``worst-case scenario'' in the final rule. Instead, we 
present three scenarios: the first is an estimate based directly on the 
regression coefficients of weight reduction while maintaining footprint 
in the statistical analyses of historical data. As discussed above, 
presenting this scenario is possible because NHTSA attempted to 
separate the effects of weight and footprint reduction in the new 
analysis. However, even the new analysis of LTVs produced some 
coefficients that NHTSA did not consider entirely plausible. NHTSA also 
presents an ``upper estimate'' in which those coefficients for the LTVs 
were adjusted based on additional analyses and expert opinion as a 
safety agency and a ``lower estimate,'' which estimates the effect if 
mass reduction is accomplished entirely by safety-conscious 
technologies such as material substitution.
3. How has NHTSA refined its analysis for purposes of estimating the 
potential safety effects of this Final Rule?
    During the past months, NHTSA has extensively reviewed the 
literature on vehicle mass, size, and fatality risk. NHTSA now agrees 
with DRI and other commenters that it is essential to analyze the 
effect of mass independently from the effects of size parameters such 
as wheelbase, track width, or footprint--and that the NPRM's ``worst-
case'' scenario based on downsizing (in which weight, wheelbase, and 
track width could all be changed) is not useful for that purpose. The 
agency should instead provide estimates that better reflect the more 
likely effect of the regulation--estimating the effect of mass 
reduction that maintains footprint.
    Yet it is more difficult to analyze multiple, independent 
parameters than a single parameter (e.g., curb weight), because there 
is a potential concern that the near multicollinearity of the 
parameters--the strong, natural and historical correlation of mass and 
size--can lead to inaccurate statistical estimates of their 
effects.\138\ NHTSA has performed new statistical analyses of its 
historical database of passenger cars, light trucks, and vans (LTVs) 
from its 2003 report (now including also 2-door cars), assessing 
relationships between fatality risk, mass, and footprint. They are 
described in Subsections 2.2 (cars) and 3.2 (LTVs) of the 2010 Kahane 
report presented in Chapter IX of the FRIA. While the potential 
concerns associated with near multicollinearity are inherent in 
regression analyses with multiple size/mass parameters, NHTSA believes 
that the analysis approach in the 2010 Kahane report, namely a single-
step regression analysis, generally reduces those concerns \139\ and 
models the trends in the historical data. The results differ 
substantially from DRI's, based on a two-step regression analysis. 
Subsections 2.3 and 2.4 of the 2010

[[Page 25393]]

Kahane report attempt to account for the differences primarily by 
applying selected techniques from DRI's analyses to NHTSA's database.
---------------------------------------------------------------------------

    \138\ Greene, W. H. (1993). Econometric Analysis, Second 
Edition. New York: Macmillan Publishing Company, pp. 266-268; 
Allison, P.D. (1999), Logistic Regression Using the SAS System. 
Cary, NC: SAS Institute Inc., pp. 48-51. The report shows variance 
inflation factor (VIF) scores in the 5-7 range for curb weight, 
wheelbase, and track width (or, alternatively, curb weight and 
footprint) in NHTSA's database, exceeding the 2.5 level where near 
multicollinearity begins to become a concern in logistic regression 
analyses.
    \139\ NHTSA believes that, given the near multicollinearity of 
the independent variables, the two-step regression augments the 
possibility of estimating inaccurate coefficients for curb weight, 
because it weakens relationships between curb weight and dependent 
variables by splitting the effect of curb weight across the two 
regression steps as discussed further in Subsection 2.3 of NHTSA's 
report.
---------------------------------------------------------------------------

    The statistical analyses--logistic regressions--of trends in MYs 
1991-1999 vehicles generate one set of estimates of the possible 
effects of reducing mass by 100 pounds while maintaining footprint. 
While these effects might conceivably carry over to future mass 
reductions, there are two reasons that future safety effects of mass 
reduction could differ from projections from historical data:
     The statistical analyses are ``cross-sectional'' analyses 
that estimate the increase in fatality rates for vehicles weighing n-
100 pounds relative to vehicles weighing n pounds, across the spectrum 
of vehicles on the road, from the lightest to the heaviest. They do not 
directly compare the fatality rates for a specific make and model 
before and after a 100-pound reduction from that model. Instead, they 
use the differences across makes and models as a surrogate for the 
effects of actual reductions within a specific model; those cross-
sectional differences could include trends that are statistically, but 
not causally related to mass.
     The manner in which mass changed across MY 1991-1999 
vehicles might not be consistent with future mass reductions, due to 
the availability of newer materials and design methods.

Therefore, Subsections 2.5 and 3.4 of the 2010 Kahane report supplement 
those estimates with one or more scenarios in which some of the 
logistic regression coefficients are replaced by numbers based on 
additional analyses and NHTSA's judgment of the likely effect of mass 
per se (the ability to transfer momentum to other vehicles or objects 
in a collision) and of what trends in the historical data could be 
avoided by current mass-reduction technologies such as materials 
substitution. The various scenarios may be viewed as a plausible range 
of point estimates for the effects of mass reduction while maintaining 
footprint, but they should not be construed as upper and lower bounds. 
Furthermore, being point estimates, they are themselves subject to 
uncertainties, such as, for example, the sampling errors associated 
with statistical analyses.
    The principal findings and conclusions of the 2010 Kahane report 
are as follows:
    Passenger cars: This database with the one-step regression method 
of the 2003 Kahane report estimates an increase of 700-800 fatalities 
when curb weight is reduced by 100 pounds and footprint is reduced by 
0.65 square feet (the historic average footprint reduction per 100-
pound mass reduction in cars). The regression attributes the fatality 
increase about equally to curb weight and to footprint. The results are 
approximately the same whether 2-door cars are fully included or 
partially included in the analysis or whether only 4-door cars are 
included (as in the 2003 report). Regressions by curb weight, track 
width and wheelbase produce findings quite similar to the regressions 
by curb weight and footprint, but the results with the single ``size'' 
variable, footprint, rather than the two variables, track width and 
wheelbase vary even less with the inclusion or exclusion of 2-door 
cars.
    In Subsection 2.3 of the new report, a two-step regression method 
that resembles (without exactly replicating) the approach by DRI, when 
applied to the same (NHTSA's) crash and registration data, estimates a 
large benefit when mass is reduced, offset by even larger fatality 
increases when track width and wheelbase (or footprint) are reduced. 
NHTSA believes that the benefit estimated by this method is inaccurate, 
due to the potential concerns with the near multicollinearity of the 
parameters (curb weight, track width, and wheelbase) \140\ even though 
the analysis is theoretically unbiased.\141\ Almost any analysis 
incorporating those parameters has a possibility of inaccurate 
coefficients due to near multicollinearity; however, based on our own 
experience with other regression analyses of crash data, NHTSA believes 
a DRI-type two-step method augments the possibility of estimating 
inaccurate coefficients for curb weight, because it weakens 
relationships between curb weight and dependent variables by splitting 
the effect of curb weight across the two regression steps.
---------------------------------------------------------------------------

    \140\ As evidenced by VIF scores in the 5-7 range, exceeding the 
2.5 level where near multicollinearity begins to become a concern in 
logistic regression analyses.
    \141\ Subsection 2.3 of the 2010 Kahane report attempts to 
explain why the two-step method, when applied to NHTSA's 2003 
database, produces results a lot like DRI's, but it does not claim 
that DRI obtained its results from its own database for exactly 
those reasons. NHTSA did not analyze DRI's database. The two-step 
method is ``theoretically unbiased'' in the sense that it seeks to 
estimate the same parameters as the one-step analysis.
---------------------------------------------------------------------------

    In Subsection 2.4 of the new report, as a check on the results from 
the regression methods, NHTSA also performed what we refer to as 
``decile'' analyses: Simpler, tabular data analysis that compares 
fatality rates of cars of different mass but similar footprint. Decile 
analysis is not a precise tool because it does not control for 
confounding factors such as driver age/gender or the specific type of 
car, but it may be helpful in identifying the general directional trend 
in the data when footprint is held constant and curb weight varies. The 
decile analyses show that fatality risk in MY 1991-1999 cars generally 
increased and rarely decreased for lighter relative to heavier cars of 
the same footprint. They suggest that the historical, cross-sectional 
trend was generally in the lighter [harr] more fatalities direction and 
not in the opposite direction, as might be suggested by the regression 
coefficients from the method that resembles DRI's approach.
    The regression coefficients from NHTSA's one-step method suggest 
that mass and footprint each accounted for about half the fatality 
increase associated with downsizing in a cross-sectional analysis of 
1991-1999 cars. They estimate the historical difference in societal 
fatality rates (i.e., including fatalities to occupants of all the 
vehicles involved in the collisions, plus any pedestrians) of cars of 
different curb weights but the same footprint. They may be considered 
an ``upper-estimate scenario'' of the effect of future mass reduction--
if it were accomplished in a manner that resembled the historical 
cross-sectional trend--i.e., without any particular regard for safety 
(other than not to reduce footprint).
    However, NHTSA believes that future vehicle design is likely to 
take advantage of safety-conscious technologies such as materials 
substitution that can reduce mass without perceptibly changing a car's 
shape or ride and maintain its structural strength. This could avoid 
much of the risk associated with lighter and smaller vehicles in the 
historical analyses, especially the historical trend toward higher 
crash-involvement rates for lighter and smaller vehicles.\142\ It could 
thereby shrink the added risk close to just the effects of mass per se 
(the ability to transfer momentum to other vehicles or objects in a 
collision). Subsection 2.5 of the 2010 Kahane report attempts to 
quantify a ``lower-estimate scenario'' for the potential effect of mass 
reduction achieved by safety-conscious technologies; the estimated 
effects are substantially smaller than in the upper-

[[Page 25394]]

estimate scenario based directly on the regression results.
---------------------------------------------------------------------------

    \142\ This is discussed in greater depth in Subsections 2.1 and 
2.5 of the 2010 Kahane report. The historic trend toward higher 
crash-involvement rates for lighter and smaller vehicles is 
documented in IIHS Advisory No. 5, July 1988, http://www.iihs.org/
research/advisories/iihs_advisory_5.pdf; IIHS News Release, 
February 24, 1998, http://www.iihs.org/news/1998/iihs_news_
022498.pdf; Auto Insurance Loss Facts, September 2009, http://
www.iihs.org/research/hldi/fact_sheets/CollisionLoss_0909.pdf.
---------------------------------------------------------------------------

    We note, again, that the preceding paragraph is conditional. 
Nothing in the CAFE standard requires manufacturers to use material 
substitution or, more generally, take a safety-conscious approach to 
mass reduction.\143\ Federal Motor Vehicle Safety Standards include 
performance tests that verify historical improvements in structural 
strength and crashworthiness, but few FMVSS provide test information 
that sheds light about how a vehicle rides or otherwise helps explain 
the trend toward higher crash-involvement rates for lighter and smaller 
vehicles. It is possible that using material substitution and other 
current mass reduction methods could avoid the historical trend in this 
area, but that remains to be studied as manufacturers introduce more of 
these vehicles into the on-road fleet in coming years. A detailed 
discussion of methods currently used for reducing the mass of passenger 
cars and light trucks is included in Chapter 3 of the Technical Support 
Document.
---------------------------------------------------------------------------

    \143\ Footprint-based standards do not specify how or where to 
remove mass while maintaining footprint, nor do they categorically 
forbid footprint reductions, even if they discourage them.
---------------------------------------------------------------------------

    LTVs: The principal difference between LTVs and passenger cars is 
that mass reduction in the heavier LTVs is estimated to have 
significant societal benefits, in that it reduces the fatality risk for 
the occupants of cars and light LTVs that collide with the heavier 
LTVs. By contrast, footprint (size) reduction in LTVs has a harmful 
effect (for the LTVs' own occupants), as in cars. The regression method 
of the 2003 Kahane report applied to the database of that report 
estimates a societal increase of 231 fatalities when curb weight is 
reduced by 100 pounds and footprint is reduced by 0.975 square feet 
(the historic average footprint reduction per 100-pound mass reduction 
in LTVs). But the regressions attribute an overall reduction of 266 
fatalities to the 100-pound mass reduction and an increase of 497 
fatalities to the .975-square-foot footprint reduction. The regression 
results constitute one of the scenarios for the possible societal 
effects of future mass reduction in LTVs.
    However, NHTSA cautions that some of the regression coefficients, 
even by NHTSA's preferred method, might not accurately model the 
historical trend in the data, possibly due to near multicollinearity of 
curb weight and footprint or because of the interaction of both of 
these variables with LTV type.\144\ Based on supplementary analyses and 
discussion in Subsections 3.3 and 3.4, the new report defines an 
additional upper-estimate scenario that NHTSA believes may more 
accurately reflect the historical trend in the data and a lower-
estimate scenario that may come closer to the effects of mass per se. 
All three scenarios, however, attribute a societal fatality reduction 
to mass reduction in the heavier LTVs.
---------------------------------------------------------------------------

    \144\ For example, mid-size SUVs of the 1990s typically had high 
mass relative to their short wheelbase and footprint (and 
exceptionally high rates of fatal rollovers); minivans typically 
have low mass relative to their footprint (and low fatality rates); 
heavy-duty pickup trucks used extensively for work tend to have more 
mass, for the same footprint, as basic full-sized pickup trucks that 
are more often used for personal transportation.
---------------------------------------------------------------------------

    Overall effects of mass reduction while maintaining footprint in 
cars and LTVs: The immediate purpose of the new report's analyses of 
relationships between fatality risk, mass, and footprint is to develop 
the four parameters that the Volpe model needs in order to predict the 
safety effects, if any, of the modeled mass reductions in MYs 2012-2016 
cars and LTVs over the lifetime of those vehicles. The four numbers are 
the overall percentage increases or decreases, per 100-pound mass 
reduction while holding footprint constant, in crash fatalities 
involving: (1) Cars < 2,950 pounds (which was the median curb weight of 
cars in MY 1991-1999), (2) cars >= 2,950 pounds, (3) LTVs < 3,870 
pounds (which was the median curb weight of LTVs in those model years), 
and (4) LTVs >= 3,870 pounds. Here are the percentage effects for each 
of the three alternative scenarios, again, the ``upper-estimate 
scenario'' and the ``lower-estimate scenario'' have been developed 
based on NHTSA's expert opinion as a vehicle safety agency:

                               Fatality Increase per 100-Pound Reduction (%) \145\
----------------------------------------------------------------------------------------------------------------
                                                                               NHTSA expert
                                                         Actual regression    opinion upper-      NHTSA expert
                                                          result scenario   estimate scenario    opinion lower-
                                                                                  \146\        estimate scenario
----------------------------------------------------------------------------------------------------------------
Cars < 2,950 pounds....................................               2.21               2.21               1.02
Cars >= 2,950 pounds...................................               0.90               0.90               0.44
LTVs < 3,870 pounds....................................               0.17               0.55               0.41
LTVs >= 3,870 pounds...................................              -1.90              -0.62              -0.73
----------------------------------------------------------------------------------------------------------------

    In all three scenarios, the estimated effects of a 100-pound mass 
reduction while maintaining footprint are an increase in fatalities in 
cars < 2,950 pounds, substantially smaller increases in cars >= 2,950 
pounds and LTVs < 3,870 pounds, and a societal benefit for LTVs >= 
3,870 pounds (because it reduces fatality risk to occupants of cars and 
lighter LTVs they collide with). These are the estimated effects of 
reducing each vehicle by exactly 100 pounds. However, the actual mass 
reduction will vary by make, model, and year. The aggregate effect on 
fatalities can only be estimated by attempting to forecast, as NHTSA 
has using inputs to the Volpe model, the mass reductions by make and 
model. It should be noted, however, that a 100-pound reduction would be 
5 percent of the mass of a 2000-pound car but only 2 percent of a 5000-
pound LTV. Thus, a forecast that mass will decrease by an equal or 
greater percentage in the heavier vehicles than in the lightest cars 
would be proportionately more influenced by the benefit for mass 
reduction in the heavy LTVs than by the fatality increases in the other 
groups; it is likely to result in an estimated net benefit under one or 
more of the scenarios. It should also be noted, again, that the

[[Page 25395]]

three scenarios are point estimates and are subject to uncertainties, 
such as the sampling errors associated with the regression results. In 
the scenario based on actual regression results, the 1.96-sigma 
sampling errors in the above estimates are  0.91 percentage 
points for cars < 2,950 pounds and also for cars >= 2,950 pounds, 
 0.82 percentage points for LTVs < 3,870 pounds, and  1.18 percentage points for LTVs >= 3,870 pounds. In other words, 
the fatality increase in the cars < 2,950 pounds and the societal 
fatality reduction attributed to mass reduction in the LTVs >= 3,870 
pounds are statistically significant. The sampling errors associated 
with the scenario based on actual regression results perhaps also 
indicate the general level of statistical noise in the other two 
scenarios.
---------------------------------------------------------------------------

    \145\ Reducing mass by 100 pounds in these vehicles is estimated 
to have the listed percentage effect on fatalities in crashes 
involving these vehicles. For example, if these vehicles are 
involved in crashes that result in 10,000 fatalities, 2.21 means 
that if mass is reduced by 100 pounds, fatalities will increase to 
10,221 and -0.73 means fatalities will decrease to 9,927. In the 
scenario based on actual regression results, the 1.96-sigma sampling 
errors in the above estimates are 0.91 percentage points 
for cars < 2,950 pounds and also for cars >= 2,950 pounds, 0.82 percentage points for LTVs < 3,870 pounds, and 1.18 percentage points for LTVs >= 3,870 pounds. In other 
words, the fatality increase in the cars < 2,950 pounds and the 
societal fatality reduction attributed to mass reduction in the LTVs 
>= 3,870 pounds are statistically significant. The sampling errors 
associated with the scenario based on actual regression results 
perhaps also indicate the general level of statistical noise in the 
other two scenarios.
    \146\ For passenger cars, the upper-estimate scenario is the 
actual-regression-result scenario.
---------------------------------------------------------------------------

4. What are the estimated safety effects of this Final Rule?
    The table below shows the estimated safety effects of the modeled 
reduction in vehicle mass provided in the NPRM and in this final rule 
in order to meet the MYs 2012-2016 standards, based on the analysis 
described briefly above and in much more detail in Chapter IX of the 
FRIA. These are combined results for passenger cars and light trucks. A 
positive number is an estimated increase in fatalities and a negative 
number (shown in parentheses) is an estimated reduction in fatalities 
over the lifetime of the model year vehicles compared to the MY 2011 
baseline fleet.

----------------------------------------------------------------------------------------------------------------
                                   MY 2012         MY 2013         MY 2014          MY 2015          MY 2016
----------------------------------------------------------------------------------------------------------------
NPRM ``Worst Case''..........              34              54             194              313              493
NHTSA Expert Opinion Final                  9              14              26               24               22
 Rule Upper Estimate.........
NHTSA Expert Opinion Final                  2               4             (17)             (53)             (80)
 Rule Lower Estimate.........
Actual Regression Result                    0               2             (94)            (206)            (301)
 Scenario....................
----------------------------------------------------------------------------------------------------------------

    NHTSA emphasizes that the table above is based on the NHTSA's 
assumptions about how manufacturers might choose to reduce the mass of 
their vehicles in response to the final rule, which are very similar to 
EPA's assumptions. In general, as discussed above, the agencies assume 
that mass will be reduced by as much as 10 percent in the heaviest LTVs 
but only by as much as 5 percent in other vehicles and that substantial 
mass reductions will take place only in the year that models are 
redesigned. The actual mass reduction that is likely to occur in 
response to the standards will of course vary by make and model, 
depending on each manufacturer's particular approach, with likely more 
opportunity for the largest LTVs that still use separate frame 
construction.
    The ``upper estimate'' presented above, as discussed in the FRIA, 
assumes only that manufacturers will reduce vehicle mass without 
reducing footprint. Thus, under such a scenario, safety effects could 
be somewhat adverse if, for example, manufacturers chose to reduce 
crush space associated with vehicle overhang as a way of reducing mass 
without changing footprint. The ``lower estimate,'' in turn, is based 
on the assumption that manufacturers will reduce vehicle mass solely 
through methods like material substitution, which (under these 
assumptions) fully maintain not only footprint but also all structural 
integrity, and other aspects of vehicle safety. Under these scenarios, 
safety effects could be worse if mass reduction was not undertaken 
thoughtfully to maintain existing safety levels, but could also be 
better if it was undertaken with a thorough and extensive vehicle 
redesign to maximize both mass reduction and safety.
    And finally, while NHTSA does not believe that the ``worst-case'' 
scenario presented in the NPRM is likely to occur during the MYs 2012-
2016 timeframe, we cannot guarantee that manufacturers will never 
choose to reduce vehicle footprint, particularly if market forces lead 
to increased sales of small vehicles in response to sharp increases in 
the price of petroleum, though this situation would not be in direct 
response to the CAFE/GHG standards. Thus, we cannot completely reject 
the worst-case scenario for all vehicles, although we can and do 
recognize that the footprint-based standards will significantly limit 
the likelihood of its occurrence within the context of this rulemaking.
    In summary, the agencies recognize the balancing inherent in 
achieving higher levels of fuel economy and lower levels of 
CO2 emissions through reduction of vehicle mass. Based on 
the 2010 Kahane analysis that attempts to separate the effects of mass 
reductions and footprint reductions, and to account better for the 
possibility that mass reduction will be accomplished entirely through 
methods that preserves structural strength and vehicle safety, the 
agencies now believe that the likely deleterious safety effects of the 
MYs 2012-2016 standards may be much lower than originally estimated. 
They may be close to zero, or possibly beneficial if mass reduction is 
carefully undertaken in the future and if the mass reduction in the 
heavier LTVs is greater (in absolute terms) than in passenger cars. In 
light of these findings, we believe that the balancing is reasonable.
5. How do the agencies plan to address this issue going forward?
    NHTSA and EPA believe that it is important for the agencies to 
conduct further study and research into the interaction of mass, size 
and safety to assist future rulemakings. The agencies intend to begin 
working collaboratively and to explore with DOE, CARB, and perhaps 
other stakeholders an interagency/intergovernmental working group to 
evaluate all aspects of mass, size and safety. It would also be the 
goal of this team to coordinate government supported studies and 
independent research, to the extent possible, to help ensure the work 
is complementary to previous and ongoing research and to guide further 
research in this area. DOE's EERE office has long funded extensive 
research into component advanced vehicle materials and vehicle mass 
reduction. Other agencies may have additional expertise that will be 
helpful in establishing a coordinated work plan. The agencies are 
interested in looking at the weight-safety relationship in a more 
holistic (complete vehicle) way, and thanks to this CAFE rulemaking 
NHTSA has begun to bring together parts of the agency--crashworthiness, 
and crash avoidance rulemaking offices and the agency's Research & 
Development office--in an interdisciplinary way to better leverage the 
expertise of the agency. Extending this effort to other agencies will 
help to ensure that all aspects of the weight-safety relationship are 
considered completely and carefully with our future research. The 
agencies also intend to carefully consider comments received in 
response to the NPRM in developing plans for future studies and 
research and to solicit input from stakeholders.
    The agencies also plan to watch for safety effects as the U.S. 
light-duty vehicle fleet evolves in response both to the CAFE/GHG 
standards and to consumer preferences over the next several years. 
Additionally, as new and

[[Page 25396]]

advanced materials and component smart designs are developed and 
commercialized, and as manufacturers implement them in more vehicles, 
it will be useful for the agencies to learn more about them and to try 
to track these vehicles in the fleet to understand the relationship 
between vehicle design and injury/fatality data. Specifically, the 
agencies intend to follow up with study and research of the following:
    First, NHTSA is in the process of contracting with an independent 
institution to review the statistical methods that NHTSA and DRI have 
used to analyze historical data related to mass, size and safety, and 
to provide recommendation on whether the existing methods or other 
methods should be used for future statistical analysis of historical 
data. This study will include a consideration of potential near 
multicollinearity in the historical data and how best to address it in 
a regression analysis. This study is being initiated because, in 
response to the NPRM, NHTSA received a number of comments related to 
the methodology NHTSA used for the NPRM to determine the relationship 
between mass and safety, as discussed in detail above.
    Second, NHTSA and EPA, in consultation with DOE, intend to begin 
updating the MYs 1991-1999 database on which the safety analyses in the 
NPRM and final rule are based with newer vehicle data in the next 
several months. This task will take at least a year to complete. This 
study is being initiated in response to the NPRM comments related to 
the use of data from MYs 1991-1999 in the NHTSA analysis, as discussed 
in detail above.
    Third, in order to assess if the design of recent model year 
vehicles that incorporate various mass reduction methods affect the 
relationships among vehicle mass, size and safety, NHTSA and EPA intend 
to conduct collaborative statistical analysis, beginning in the next 
several months. The agencies intend to work with DOE to identify 
vehicles that are using material substitution and smart design. After 
these vehicles are identified, the agencies intend to assess if there 
are sufficient data for statistical analysis. If there are sufficient 
data, statistical analysis would be conducted to compare the 
relationship among mass, size and safety of these smart design vehicles 
to vehicles of similar size and mass with more traditional designs. 
This study is being initiated because, in response to the NPRM, NHTSA 
received comments related to the use of data from MYs 1991-1999 in the 
NHTSA analysis that did not include new designs that might change the 
relationship among mass, size and safety, as discussed in detail above.
    NHTSA may initiate a two-year study of the safety of the fleet 
through an analysis of the trends in structural stiffness and whether 
any trends identified impact occupant injury response in crashes. 
Vehicle manufacturers may employ stiffer light weight materials to 
limit occupant compartment intrusion while controlling for mass that 
may expose the occupants to higher accelerations resulting in a greater 
chance of injury in real-world crashes. This study would provide 
information that would increase the understanding of the effects on 
safety of newer vehicle designs.
    In addition, NHTSA and EPA, possibly in collaboration with DOE, may 
conduct a longer-term computer modeling-based design and analysis study 
to help determine the maximum potential for mass reduction in the MYs 
2017-2021 timeframe, through direct material substitution and smart 
design while meeting safety regulations and guidelines, and maintaining 
vehicle size and functionality. This study may build upon prior 
research completed on vehicle mass reduction. This study would further 
explore the comprehensive vehicle effects, including dissimilar 
material joining technologies, manufacturer feasibility of both 
supplier and OEM, tooling costs, and crash simulation and perhaps 
eventual crash testing.

III. EPA Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Rule

1. Introduction
    The Environmental Protection Agency (EPA) is establishing GHG 
emissions standards for the largest sources of transportation GHGs--
light-duty vehicles, light-duty trucks, and medium-duty passenger 
vehicles (hereafter light vehicles). These vehicle categories, which 
include cars, sport utility vehicles, minivans, and pickup trucks used 
for personal transportation, are responsible for almost 60% of all U.S. 
transportation related emissions of the six gases discussed above 
(Section I.A). This action represents the first-ever EPA rule to 
regulate vehicle GHG emissions under the Clean Air Act (CAA) and will 
establish standards for model years 2012-2016 and later light vehicles 
sold in the United States.
    EPA is adopting three separate standards. The first and most 
important is a set of fleet-wide average carbon dioxide 
(CO2) emission standards for cars and trucks. These 
standards are CO2 emissions-footprint curves, where each 
vehicle has a different CO2 emissions compliance target 
depending on its footprint value. Vehicle CO2 emissions will 
be measured over the EPA city and highway tests. The rule allows for 
credits based on demonstrated improvements in vehicle air conditioner 
systems, including both efficiency and refrigerant leakage improvement, 
which are not captured by the EPA tests. The EPA projects that the 
average light vehicle tailpipe CO2 level in model year 2011 
will be 325 grams per mile while the average vehicle fleetwide average 
CO2 emissions compliance level for the model year 2016 
standard will be 250 grams per mile, an average reduction of 23 percent 
from today's CO2 levels.
    EPA is also finalizing standards that will cap tailpipe nitrous 
oxide (N2O) and methane (CH4) emissions at 0.010 
and 0.030 grams per mile, respectively. Even after adjusting for the 
higher relative global warming potencies of these two compounds, 
nitrous oxide and methane emissions represent less than one percent of 
overall vehicle greenhouse gas emissions from new vehicles. 
Accordingly, the goal of these two standards is to limit any potential 
increases of tailpipe emissions of these compounds in the future but 
not to force reductions relative to today's low levels.
    This final rule responds to the Supreme Court's 2007 decision in 
Massachusetts v. EPA \147\ which found that greenhouse gases fit within 
the definition of air pollutant in the Clean Air Act. The Court held 
that the Administrator must determine whether or not emissions from new 
motor vehicles cause or contribute to air pollution which may 
reasonably be anticipated to endanger public health or welfare, or 
whether the science is too uncertain to make a reasoned decision. The 
Court further ruled that, in making these decisions, the EPA 
Administrator is required to follow the language of section 202(a) of 
the CAA. The case was remanded back to the Agency for reconsideration 
in light of the court's decision.
---------------------------------------------------------------------------

    \147\ 549 U.S.C. 497 (2007). For further information on 
Massachusetts v. EPA see the Endangerment and Cause or Contribute 
Findings for Greenhouse Gases under Section 202(a) the Clean Air 
Act, published in the Federal Register on December 15, 2009 (74 FR 
66496). There is a comprehensive discussion of the litigation's 
history, the Supreme Court's findings, and subsequent actions 
undertaken by the Bush Administration and the EPA from 2007-2008 in 
response to the Supreme Court remand. This information is also 
available at: http://www.epa.gov/climatechange/endangerment.html.
---------------------------------------------------------------------------

    The Administrator has responded to the remand by issuing two 
findings under section 202(a) of the Clean Air

[[Page 25397]]

Act.\148\ First, the Administrator found that the science supports a 
positive endangerment finding that the mix of six greenhouse gases 
(carbon dioxide (CO2), methane (CH4), nitrous 
oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons 
(PFCs), and sulfur hexafluoride (SF6)) in the atmosphere 
endangers the public health and welfare of current and future 
generations. This is referred to as the endangerment finding. Second, 
the Administrator found that the combined emissions of the same six 
gases from new motor vehicles and new motor vehicle engines contribute 
to the atmospheric concentrations of these key greenhouse gases and 
hence to the threat of climate change. This is referred to as the cause 
and contribute finding. Motor vehicles and new motor vehicle engines 
emit carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons. 
EPA provides more details below on the legal and scientific bases for 
this final rule.
---------------------------------------------------------------------------

    \148\ See 74 FR 66496 (Dec. 15, 2009), ``Endangerment and Cause 
or Contribute Findings for Greenhouse Gases Under Section 202(a) of 
the Clean Air Act''.
---------------------------------------------------------------------------

    As discussed in Section I, this GHG rule is part of a joint 
National Program such that a large majority of the projected benefits 
are achieved jointly with NHTSA's CAFE rule which is described in 
detail in Section IV of this preamble. EPA projects total 
CO2 equivalent emissions savings of approximately 960 
million metric tons as a result of the rule, and oil savings of 1.8 
billion barrels over the lifetimes of the MY 2012-2016 vehicles subject 
to the rule. EPA projects that over the lifetimes of the MY 2012-2016 
vehicles, the rule will cost $52 billion but will result in benefits of 
$240 billion at a 3 percent discount rate, or $192 billion at a 7 
percent discount rate (both values assume the average SCC value at 3%, 
i.e., the $21/ton SCC value in 2010). Accordingly, these light vehicle 
greenhouse gas emissions standards represent an important contribution 
under the Clean Air Act toward meeting long-term greenhouse gas 
emissions and import oil reduction goals, while providing important 
economic benefits as well. The results of our analysis of 2012-2016 MY 
vehicles, which we refer to as our ``model year analysis,'' are 
summarized in Tables III.H.10-4 to III.H.10-7.
    We have also looked beyond the lifetimes of 2012-2016 MY vehicles 
at annual costs and benefits of the program for the 2012 through 2050 
timeframe. We refer to this as our ``calendar year'' analysis (as 
opposed to the costs and benefits mentioned above which we refer to as 
our ``model year analysis''). In our calendar year analysis, the new 
2016 MY standards are assumed to apply to all vehicles sold in model 
years 2017 and later. The net present values of annual costs for the 
2012 through 2050 timeframe are $346 billion for new vehicle technology 
which will provide $1.5 billion in fuel savings, both values at a 3 
percent discount rate. At a 7 percent discount rate over the same 
period, the technology costs are estimated at $192 billion which will 
provide $673 billion in fuel savings. The social benefits during the 
2012 through 2050 timeframe are estimated at $454 billion and $305 
billion at a 3 and 7 percent discount rate, respectively. Both of these 
benefit estimates assume the average SCC value at 3% (i.e., the $21/ton 
SCC value in 2010). The net benefits during this time period are then 
$1.7 billion and $785 million at a 3 and 7 percent discount rate, 
respectively. The results of our ``calendar year'' analysis are 
summarized in Tables III.H 10-1 to III.H.10-3.
2. Why is EPA establishing this Rule?
    This rule addresses only light vehicles. EPA is addressing light 
vehicles as a first step in control of greenhouse gas emissions under 
the Clean Air Act for four reasons. First, light vehicles are 
responsible for almost 60% of all mobile source GHG emissions, a share 
three times larger than any other mobile source subsector, and 
represent about one-sixth of all U.S. greenhouse gas emissions. Second, 
technology exists that can be readily and cost-effectively applied to 
these vehicles to reduce their greenhouse gas emissions in the near 
term. Third, EPA already has an existing testing and compliance program 
for these vehicles, refined since the mid-1970s for emissions 
compliance and fuel economy determinations, which would require only 
minor modifications to accommodate greenhouse gas emissions 
regulations. Finally, this rule is an important step in responding to 
the Supreme Court's ruling in Massachusetts v. EPA, which applies to 
other emissions sources in addition to light-duty vehicles. In fact, 
EPA is currently evaluating controls for motor vehicles other than 
those covered by this rule, and is also reviewing seven motor vehicle 
related petitions submitted by various states and organizations 
requesting that EPA use its Clean Air Act authorities to take action to 
reduce greenhouse gas emissions from aircraft (under Sec.  231(a)(2)), 
ocean-going vessels (under Sec.  213(a)(4)), and other nonroad engines 
and vehicle sources (also under Sec.  213(a)(4)).
a. Light Vehicle Emissions Contribute to Greenhouse Gases and the 
Threat of Climate Change
    Greenhouse gases are gases in the atmosphere that effectively trap 
some of the Earth's heat that would otherwise escape to space. 
Greenhouse gases are both naturally occurring and anthropogenic. The 
primary greenhouse gases of concern that are directly emitted by human 
activities include carbon dioxide, methane, nitrous oxide, 
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.
    These gases, once emitted, remain in the atmosphere for decades to 
centuries. Thus, they become well mixed globally in the atmosphere and 
their concentrations accumulate when emissions exceed the rate at which 
natural processes remove greenhouse gases from the atmosphere. The 
heating effect caused by the human-induced buildup of greenhouse gases 
in the atmosphere is very likely the cause of most of the observed 
global warming over the last 50 years.\149\ The key effects of climate 
change observed to date and projected to occur in the future include, 
but are not limited to, more frequent and intense heat waves, more 
severe wildfires, degraded air quality, heavier and more frequent 
downpours and flooding, increased drought, greater sea level rise, more 
intense storms, harm to water resources, continued ocean acidification, 
harm to agriculture, and harm to wildlife and ecosystems. A detailed 
explanation of observed and projected changes in greenhouse gases and 
climate change and its impact on health, society, and the environment 
is included in EPA's technical support document for the recently 
promulgated Endangerment and Cause or Contribute Findings for 
Greenhouse Gases Under Section 202(a) of the Clean Air Act.\150\
---------------------------------------------------------------------------

    \149\ ``Technical Support Document for Endangerment and Cause or 
Contribute Findings for Greenhouse Gases Under Section 202(a) of the 
Clean Air Act'' Docket: EPA-HQ-OAR-2009-0472-11292.
    \150\ 74 FR 66496 (Dec. 15, 2009). Both the Federal Register 
Notice and the Technical Support Document for Endangerment and Cause 
or Contribute Findings are found in the public docket No. EPA-OAR-
2009-0171, in the public docket established for this rulemaking, and 
at http://epa.gov/climatechange/endangerment.html.
---------------------------------------------------------------------------

    Mobile sources represent a large and growing share of United States 
greenhouse gases and include light-duty vehicles, light-duty trucks, 
medium-duty passenger vehicles, heavy duty trucks, airplanes, 
railroads, marine vessels and a variety of other sources. In 2007, all 
mobile sources emitted 31% of

[[Page 25398]]

all U.S. GHGs, and were the fastest-growing source of U.S. GHGs in the 
U.S. since 1990. Transportation sources, which do not include certain 
off-highway sources such as farm and construction equipment, account 
for 28% of U.S. GHG emissions, and Section 202(a) sources, which 
include light-duty vehicles, light-duty trucks, medium-duty passenger 
vehicles, heavy-duty trucks, buses, and motorcycles account for 23% of 
total U.S. GHGs.\151\
---------------------------------------------------------------------------

    \151\ Inventory of U.S. Greenhouse Gases and Sinks: 1990-2007.
---------------------------------------------------------------------------

    Light vehicles emit carbon dioxide, methane, nitrous oxide and 
hydrofluorocarbons. Carbon dioxide (CO2) is the end product 
of fossil fuel combustion. During combustion, the carbon stored in the 
fuels is oxidized and emitted as CO2 and smaller amounts of 
other carbon compounds.\152\ Methane (CH4) emissions are a 
function of the methane content of the motor fuel, the amount of 
hydrocarbons passing uncombusted through the engine, and any post-
combustion control of hydrocarbon emissions (such as catalytic 
converters).\153\ Nitrous oxide (N2O) (and nitrogen oxide 
(NOX)) emissions from vehicles and their engines are closely 
related to air-fuel ratios, combustion temperatures, and the use of 
pollution control equipment. For example, some types of catalytic 
converters installed to reduce motor vehicle NOX, carbon 
monoxide (CO) and hydrocarbon emissions can promote the formation of 
N2O.\154\ Hydrofluorocarbons (HFC) emissions are 
progressively replacing chlorofluorocarbons (CFC) and 
hydrochlorofluorocarbons (HCFC) in these vehicles' cooling and 
refrigeration systems as CFCs and HCFCs are being phased out under the 
Montreal Protocol and Title VI of the CAA. There are multiple emissions 
pathways for HFCs with emissions occurring during charging of cooling 
and refrigeration systems, during operations, and during 
decommissioning and disposal.\155\
---------------------------------------------------------------------------

    \152\ Mobile source carbon dioxide emissions in 2006 equaled 26 
percent of total U.S. CO2 emissions.
    \153\ In 2006, methane emissions equaled 0.32 percent of total 
U.S. methane emissions. Nitrous oxide is a product of the reaction 
that occurs between nitrogen and oxygen during fuel combustion.
    \154\ In 2006, nitrous oxide emissions for these sources 
accounted for 8 percent of total U.S. nitrous oxide emissions.
    \155\ In 2006, HFC from these source categories equaled 56 
percent of total U.S. HFC emissions, making it the single largest 
source category of U.S. HFC emissions.
---------------------------------------------------------------------------

b. Basis for Action Under the Clean Air Act
    Section 202(a)(1) of the Clean Air Act (CAA) 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.'' As noted above, the 
Administrator has found that the elevated concentrations of greenhouse 
gases in the atmosphere may reasonably be anticipated to endanger 
public health and welfare.\156\ The Administrator defined the ``air 
pollution'' referred to in CAA section 202(a) to be the combined mix of 
six long-lived and directly emitted GHGs: Carbon dioxide 
(CO2), methane (CH4), nitrous oxide 
(N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), 
and sulfur hexafluoride (SF6). The Administrator has further 
found under CAA section 202(a) that emissions of the single air 
pollutant defined as the aggregate group of these same six greenhouse 
gases from new motor vehicles and new motor vehicle engines contribute 
to air pollution. As a result of these findings, section 202(a) 
requires EPA to issue standards applicable to emissions of that air 
pollutant. New motor vehicles and engines emit CO2, methane, 
N2O and HFC. This preamble describes the provisions that 
control emissions of CO2, HFCs, nitrous oxide, and methane. 
For further discussion of EPA's authority under section 202(a), see 
Section I.C.2 of the preamble to the proposed rule (74 FR at 49464-66).
---------------------------------------------------------------------------

    \156\ 74 FR 66496 (Dec. 15, 2009).
---------------------------------------------------------------------------

    There are a variety of other CAA Title II provisions that are 
relevant to standards established under section 202(a). The standards 
are applicable to motor vehicles for their useful life. EPA has the 
discretion in determining what standard applies over the vehicles' 
useful life and has exercised that discretion in this rule. See Section 
III.E.4 below.
    The standards established under CAA section 202(a) are implemented 
and enforced through various mechanisms. Manufacturers are required to 
obtain an EPA certificate of conformity before they may sell or 
introduce their new motor vehicle into commerce, according to CAA 
section 206(a). The introduction into commerce of vehicles without a 
certificate of conformity is a prohibited act under CAA section 203 
that may subject a manufacturer to civil penalties and injunctive 
actions (see CAA sections 204 and 205). Under CAA section 206(b), EPA 
may conduct testing of new production vehicles to determine compliance 
with the standards. For in-use vehicles, if EPA determines that a 
substantial number of vehicles do not conform to the applicable 
regulations then the manufacturer must submit and implement a remedial 
plan to address the problem (see CAA section 207(c)). There are also 
emissions-based warranties that the manufacturer must implement under 
CAA section 207(a). Section III.E describes the rule's certification, 
compliance, and enforcement mechanisms.
c. EPA's Endangerment and Cause or Contribute Findings for Greenhouse 
Gases Under Section 202(a) of the Clean Air Act
    On December 7, 2009 EPA's Administrator signed an action with two 
distinct findings regarding greenhouse gases under section 202(a) of 
the Clean Air Act. On December 15, 2009, the final findings were 
published in the Federal Register. This action is called the 
Endangerment and Cause or Contribute Findings for Greenhouse Gases 
under Section 202(a) of the Clean Air Act (Endangerment Finding).\157\ 
Below are the two distinct findings:
---------------------------------------------------------------------------

    \157\ 74 FR 66496 (Dec. 15, 2009)
---------------------------------------------------------------------------

     Endangerment Finding: The Administrator finds that the 
current and projected concentrations of the six key well-mixed 
greenhouse gases--carbon dioxide (CO2), methane 
(CH4), nitrous oxide (N2O), hydrofluorocarbons 
(HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride 
(SF6)--in the atmosphere threaten the public health and 
welfare of current and future generations.
     Cause or Contribute Finding: The Administrator finds that 
the combined emissions of these well-mixed greenhouse gases from new 
motor vehicles and new motor vehicle engines contribute to the 
greenhouse gas pollution which threatens public health and welfare.
    Specifically, the Administrator found, after a thorough examination 
of the scientific evidence on the causes and impact of current and 
future climate change, and careful review of public comments, that the 
science compellingly supports a positive finding that atmospheric 
concentrations of these greenhouse gases result in air pollution which 
may reasonably be anticipated to endanger both public health and 
welfare. In her finding, the Administrator relied heavily upon the 
major findings and conclusions from the

[[Page 25399]]

recent assessments of the U.S. Climate Change Science Program and the 
U.N. Intergovernmental Panel on Climate Change.\158\ The Administrator 
made a positive endangerment finding after considering both observed 
and projected future effects of climate change, key uncertainties, and 
the full range of risks and impacts to public health and welfare 
occurring within the United States. In addition, the finding focused on 
impacts within the U.S. but noted that the evidence concerning risks 
and impacts occurring outside the U.S. provided further support for the 
finding.
---------------------------------------------------------------------------

    \158\ The U.S. Climate Change Science Program (CCSP) is now 
called the U.S. Global Change Research Program (GCRP).
---------------------------------------------------------------------------

    The key scientific findings supporting the endangerment finding are 
that:

-- Concentrations of greenhouse gases are at unprecedented levels 
compared to recent and distant past. These high concentrations are the 
unambiguous result of anthropogenic emissions and are very likely the 
cause of the observed increase in average temperatures and other 
climatic changes.
-- The effects of climate change observed to date and projected to 
occur in the future include more frequent and intense heat waves, more 
severe wildfires, degraded air quality, heavier downpours and flooding, 
increasing drought, greater sea level rise, more intense storms, harm 
to water resources, harm to agriculture, and harm to wildlife and 
ecosystems. These impacts are effects on public health and welfare 
within the meaning of the Clean Air Act.

    The Administrator found that emissions of the single air pollutant 
defined as the aggregate group of these same six greenhouse gases from 
new motor vehicles and new motor vehicle engines contribute to the air 
pollution and hence to the threat of climate change. Key facts 
supporting this cause and contribute finding for on-highway vehicles 
regulated under section 202(a) of the Clean Air Act are that these 
sources are responsible for 24% of total U.S. greenhouse gas emissions, 
and more than 4% of total global greenhouse gas emissions.\159\ As 
noted above, these findings require EPA to issue standards under 
section 202(a) ``applicable to emission'' of the air pollutant that EPA 
found causes or contributes to the air pollution that endangers public 
health and welfare. The final emissions standards satisfy this 
requirement for greenhouse gases from light-duty vehicles. Under 
section 202(a) the Administrator has significant discretion in how to 
structure the standards that apply to the emission of the air pollutant 
at issue here, the aggregate group of six greenhouse gases. EPA has the 
discretion under section 202(a) to adopt separate standards for each 
gas, a single composite standard covering various gases, or any 
combination of these. In this rulemaking EPA is finalizing separate 
standards for nitrous oxide and methane, and a CO2 standard 
that provides for credits based on reductions of HFCs, as the 
appropriate way to issue standards applicable to emission of the single 
air pollutant, the aggregate group of six greenhouse gases. EPA is not 
setting any standards for perfluorocarbons (PFCs) or sulfur 
hexafluoride (SF6) as they are not emitted by motor 
vehicles.
---------------------------------------------------------------------------

    \159\ This figure includes the greenhouse gas contributions of 
light vehicles, heavy duty vehicles, and remaining on-highway mobile 
sources. Light-duty vehicles are responsible for over 70 percent of 
Section 202(a) mobile source GHGs, or about 17% of total U.S. 
greenhouse gas emissions. U.S. EPA.2009 Technical Support Document 
for Endangerment and Cause or Contribute Findings for Greenhouse 
Gases under Section 202(a) of the Clean Air Act. Washington, DC. pp. 
180-194. Available at http://epa.gov/climatechange/endangerment/
downloads/Endangerment%20TSD.pdf.
---------------------------------------------------------------------------

3. What is EPA adopting?
a. Light-Duty Vehicle, Light-Duty Truck, and Medium-Duty Passenger 
Vehicle Greenhouse Gas Emission Standards and Projected Compliance 
Levels
    The following section provides an overview of EPA's final rule. The 
key public comments are not discussed here, but are discussed in the 
sections that follow which provide the details of the program. Comments 
are also discussed in the Response to Comments document.
    The CO2 emissions standards are by far the most 
important of the three standards and are the primary focus of this 
summary. As proposed, EPA is adopting an attribute-based approach for 
the CO2 fleet-wide standard (one for cars and one for 
trucks), using vehicle footprint as the attribute. These curves 
establish different CO2 emissions targets for each unique 
car and truck footprint. Generally, the larger the vehicle footprint, 
the higher the corresponding vehicle CO2 emissions target. 
Table III.A.3-1 shows the greenhouse gas standards for light vehicles 
that EPA is finalizing for model years (MY) 2012 and later:

                        Table III.A.3-1--Industry-Wide Greenhouse Gas Emissions Standards
----------------------------------------------------------------------------------------------------------------
   Standard/covered compounds      Form of standard    Level of standard        Credits           Test cycles
----------------------------------------------------------------------------------------------------------------
CO2 Standard: \160\ Tailpipe CO2  Fleetwide average   Projected           CO2-e credits\161\  EPA 2-cycle (FTP
                                   footprint CO2-      Fleetwide CO2                           and HFET test
                                   curves for cars     level of 250 g/mi                       cycles).\162\
                                   and trucks.         (See footprint
                                                       curves in Sec.
                                                       III.B.2).
N2O Standard: Tailpipe N2O......  Cap per vehicle...  0.010 g/mi........  None *............  EPA FTP test.
CH4 Standard: Tailpipe CH4......  Cap per vehicle...  0.030 g/mi........  None *............  EPA FTP test.
----------------------------------------------------------------------------------------------------------------
* For N2O and CH4, manufacturers may optionally demonstrate compliance with a CO2-equivalent standard equal to
  its footprint-based CO2 target level, using the FTP and HFET tests.

    One important flexibility associated with the CO2 
standard is the option for

[[Page 25400]]

manufacturers to obtain credits associated with improvements in their 
air conditioning systems. EPA is adopting the air conditioning 
provisions with minor modifications. As will be discussed in greater 
detail in later sections, EPA is establishing test procedures and 
design criteria by which manufacturers can demonstrate improvements in 
both air conditioner efficiency (which reduces vehicle tailpipe 
CO2 by reducing the load on the engine) and air conditioner 
refrigerants (using lower global warming potency refrigerants and/or 
improving system design to reduce GHG emissions associated with leaks). 
Neither of these strategies to reduce GHG emissions from air 
conditioners will be reflected in the EPA FTP or HFET tests. These 
improvements will be translated to a g/mi CO2-equivalent 
credit that can be subtracted from the manufacturer's tailpipe 
CO2 compliance value. EPA expects a high percentage of 
manufacturers to use this flexibility to earn air conditioning-related 
credits for MY 2012-2016 vehicles such that the average credit earned 
is about 11 grams per mile CO2-equivalent in 2016.
---------------------------------------------------------------------------

    \160\ While over 99 percent of the carbon in automotive fuels is 
converted to CO2 in a properly functioning engine, 
compliance with the CO2 standard will also account for 
the very small levels of carbon associated with vehicle tailpipe 
hydrocarbon (HC) and carbon monoxide (CO) emissions, converted to 
CO2 on a mass basis, as discussed further in Section 
III.B.
    \161\ CO2-e refers to CO2-equivalent, and 
is a metric that allows non-CO2 greenhouse gases (such as 
hydrofluorocarbons used as automotive air conditioning refrigerants) 
to be expressed as an equivalent mass (i.e., corrected for relative 
global warming potency) of CO2 emissions.
    \162\ FTP is the Federal Test Procedure which uses what is 
commonly referred to as the ``city'' driving schedule, and HFET is 
the Highway Fuel Economy Test which uses the ``highway'' driving 
schedule. Compliance with the CO2 standard will be based 
on the same 2-cycle values that are currently used for CAFE 
standards compliance; EPA projects that fleet-wide in-use or real 
world CO2 emissions are approximately 25 percent higher, 
on average, than 2-cycle CO2 values. Separate mechanisms 
apply for A/C credits.
---------------------------------------------------------------------------

    A second flexibility, being finalized essentially as proposed, is 
CO2 credits for flexible and dual fuel vehicles, similar to 
the CAFE credits for such vehicles which allow manufacturers to gain up 
to 1.2 mpg in their overall CAFE ratings. The Energy Independence and 
Security Act of 2007 (EISA) mandated a phase-out of these flexible fuel 
vehicle CAFE credits beginning in 2015, and ending after 2019. EPA is 
allowing comparable CO2 credits for flexible fuel vehicles 
through MY 2015, but for MY 2016 and beyond, the GHG rule treats 
flexible and dual fuel vehicles on a CO2-performance basis, 
calculating the overall CO2 emissions for flexible and dual 
fuel vehicles based on a fuel use-weighted average of the 
CO2 levels on gasoline and on the alternative fuel, and on a 
manufacturer's demonstration of actual usage of the alternative fuel in 
its vehicle fleet.
    Table III.A.3-2 summarizes EPA projections of industry-wide 2-cycle 
CO2 emissions and fuel economy levels that will be achieved 
by manufacturer compliance with the GHG standards for MY 2012-2016.
    For MY 2011, Table III.A.3-2 uses the NHTSA projections of the 
average fuel economy level that will be achieved by the MY 2011 fleet 
of 30.8 mpg for cars and 23.3 mpg for trucks, converted to an 
equivalent combined car and truck CO2 level of 326 grams per 
mile.\163\ EPA believes this is a reasonable estimate with which to 
compare the MY 2012-2016 CO2 emission standards. Identifying 
the proper MY 2011 estimate is complicated for many reasons, among them 
being the turmoil in the current automotive market for consumers and 
manufacturers, uncertain and volatile oil and gasoline prices, the 
ability of manufacturers to use flexible fuel vehicle credits to meet 
MY 2011 CAFE standards, and the fact that most manufacturers have been 
surpassing CAFE standards (particularly the car standard) in recent 
years. Taking all of these considerations into account, EPA believes 
that the MY 2011 projected CAFE achieved values, converted to 
CO2 emissions levels, represent a reasonable estimate.
---------------------------------------------------------------------------

    \163\ As discussed in Section IV of this preamble.
---------------------------------------------------------------------------

    Table III.A.3-2 shows projected industry-wide average 
CO2 emissions values. The Projected CO2 Emissions 
for the Footprint-Based Standard column shows the CO2 g/mi 
level corresponding with the footprint standard that must be met. It is 
based on the promulgated CO2-footprint curves and projected 
footprint values, and will decrease each year to 250 grams per mile (g/
mi) in MY 2016. For MY 2012-2016, the emissions impact of the projected 
utilization of flexible fuel vehicle (FFV) credits and the temporary 
lead-time allowance alternative standard (TLAAS, discussed below) are 
shown in the next two columns. The Projected CO2 Emissions 
column gives the CO2 emissions levels projected to be 
achieved given use of the flexible fuel credits and temporary lead-time 
allowance program. This column shows that, relative to the MY 2011 
estimate, EPA projects that MY 2016 CO2 emissions will be 
reduced by 23 percent over five years. The Projected A/C Credit column 
represents the industry wide average air conditioner credit 
manufacturers are expected to earn on an equivalent CO2 gram 
per mile basis in a given model year. In MY 2016, the projected A/C 
credit of 10.6 g/mi represents 14 percent of the 76 g/mi CO2 
emissions reductions associated with the final standards. The Projected 
2-cycle CO2 Emissions column shows the projected 
CO2 emissions as measured over the EPA 2-cycle tests, which 
will allow compliance with the standard assuming projected utilization 
of the FFV, TLAAS, and A/C credits.

                                                Table III.A.3-2--Projected Fleetwide CO2 Emissions Values
                                                                    [Grams per mile]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Projected CO2
                                                          emissions for                                                                   Projected  2-
                       Model year                        the footprint-   Projected FFV     Projected     Projected CO2   Projected A/C     cycle CO2
                                                              based          credit       TLAAS credit      emissions        credit         emissions
                                                            standard
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011...................................................  ..............  ..............  ..............           (326)  ..............            (326)
2012...................................................             295             6.5             1.2             303             3.5             307
2013...................................................             286             5.8             0.9             293             5.0             298
2014...................................................             276             5.0             0.6             282             7.5             290
2015...................................................             263             3.7             0.3             267            10.0             277
2016...................................................             250             0.0             0.1             250            10.6             261
--------------------------------------------------------------------------------------------------------------------------------------------------------

    EPA is also finalizing a series of flexibilities for compliance 
with the CO2 standard which are not expected to 
significantly affect the projected compliance and achieved values shown 
above, but which should reduce the costs of achieving those reductions. 
These flexibilities include the ability to earn: Annual credits for a 
manufacturer's over-compliance with its unique fleet-wide average 
standard, early credits from MY 2009-2011, credit for ``off-cycle'' 
CO2 reductions from new and innovative technologies that are 
not reflected in CO2/fuel economy tests, as

[[Page 25401]]

well as the carry-forward and carry-backward of credits, and the 
ability to transfer credits between a manufacturer's car and truck 
fleets. These flexibilities are being adopted with only very minor 
changes from the proposal, as discussed in Section III.C.
    EPA is finalizing an incentive to encourage the commercialization 
of advanced GHG/fuel economy control technologies, including electric 
vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell 
vehicles (FCVs), for model years 2012-2016. EPA's proposal included an 
emissions compliance value of zero grams/mile for EVs and FCVs, and the 
electric portion of PHEVs, and a multiplier in the range of 1.2 to 2.0, 
so that each advanced technology vehicle would count as greater than 
one vehicle in a manufacturer's fleet-wide compliance calculation. 
Several commenters were very concerned about these credits and upon 
considering the public comments on this issue, EPA is finalizing an 
advanced technology vehicle incentive program to assign a zero gram/
mile emissions compliance value for EVs and FCVs, and the electric 
portion of PHEVs, for up to the first 200,000 EV/PHEV/FCV vehicles 
produced by a given manufacturer during MY 2012-2016. For any 
production greater than this amount, the compliance value for the 
vehicle will be greater than zero gram/mile, set at a level that 
reflects the vehicle's average net increase in upstream greenhouse gas 
emissions in comparison to the gasoline or diesel vehicle it replaces. 
EPA is not finalizing a multiplier based on the concerns potentially 
excessive credits using that incentive. EPA agrees that the multiplier, 
in combination with the zero grams/mile compliance value, would be 
excessive. EPA will also allow this early advanced technology incentive 
program beginning in MYs 2009 through 2011. Further discussion on the 
advanced technology vehicle incentives, including more detail on the 
public comments and EPA's response, is found in Section III.C.
    EPA is also finalizing a temporary lead-time allowance (TLAAS) for 
manufacturers that sell vehicles in the U.S. in MY 2009 and for which 
U.S. vehicle sales in that model year are below 400,000 vehicles. This 
allowance will be available only during the MY 2012-2015 phase-in years 
of the program. A manufacturer that satisfies the threshold criteria 
will be able to treat a limited number of vehicles as a separate 
averaging fleet, which will be subject to a less stringent GHG 
standard.\164\ Specifically, a standard of 125 percent of the vehicle's 
otherwise applicable foot-print target level will apply to up to 
100,000 vehicles total, spread over the four-year period of MY 2012 
through 2015. Thus, the number of vehicles to which the flexibility 
could apply is limited. EPA also is setting appropriate restrictions on 
credit use for these vehicles, as discussed further in Section III. By 
MY 2016, these allowance vehicles must be averaged into the 
manufacturer's full fleet (i.e., they will no longer be eligible for a 
different standard). EPA discusses this in more detail in Section III.B 
of the preamble.
---------------------------------------------------------------------------

    \164\ EPCA does not permit such an allowance. Consequently, 
manufacturers who may be able to take advantage of a lead-time 
allowance under the GHG standards would be required to comply with 
the applicable CAFE standard or be subject to penalties for non-
compliance.
---------------------------------------------------------------------------

    EPA received comments from several smaller manufacturers that the 
TLAAS program was insufficient to allow manufacturers with very limited 
product lines to comply. These manufacturers commented that they need 
additional lead-time to meet the standards, because their 
CO2 baselines are significantly higher and their vehicle 
product lines are even more limited, reducing their ability to average 
across their fleets compared even to other TLAAS manufacturers. EPA 
fully summarizes the public comments on the TLAAS program, including 
comments not supporting the program, in Section III.B. In summary, in 
response to the lead time issues raised by manufacturers, EPA is 
modifying the TLAAS program that applies to manufacturers with between 
5,000 and 50,000 U.S. vehicle sales in MY 2009. These manufactures 
would have an increased allotment of vehicles, a total of 250,000, 
compared to 100,000 vehicles for other TLAAS-eligible manufacturers. In 
addition, the TLAAS program for these manufacturers would be extended 
by one year, through MY 2016 for these vehicles, for a total of five 
years of eligibility. The other provisions of the TLAAS program would 
continue to apply, such as the restrictions on credit trading and the 
level of the standard. Additional restrictions would also apply to 
these vehicles, as discussed in Section III.B.5. In addition, for the 
smallest volume manufacturers, those with U.S. sales of below 5,000 
vehicles, EPA is not setting standards at this time but is instead 
deferring standards until a future rulemaking. This is the same 
approach we are using for small businesses. The unique issues involved 
with these manufacturers will be addressed in that future rulemaking. 
Further discussion of the public comment on these issues and details on 
these changes from the proposed program are included in Section 
III.B.6. The agency received comments on its compliance with the 
Regulatory Flexibility Act. As stated in Section III.I.3, small 
entities are not significantly impacted by this rulemaking.
    EPA is also adopting caps on the tailpipe emissions of nitrous 
oxide (N2O) and methane (CH4)--0.010 g/mi for 
N2O and 0.030 g/mi for CH4--over the EPA FTP 
test. While N2O and CH4 can be potent greenhouse 
gases on a relative mass basis, their emission levels from modern 
vehicle designs are extremely low and represent only about 1% of total 
late model light vehicle GHG emissions. These cap standards are 
designed to ensure that N2O and CH4 emissions 
levels do not rise in the future, rather than to force reductions in 
the already low emissions levels. Accordingly, these standards are not 
designed to require automakers to make any changes in current vehicle 
designs, and thus EPA is not projecting any environmental or economic 
costs or benefits associated with these standards.
    EPA has attempted to build on existing practice wherever possible 
in designing a compliance program for the GHG standards. In particular, 
the program structure will streamline the compliance process for both 
manufacturers and EPA by enabling manufacturers to use a single data 
set to satisfy both the new GHG and CAFE testing and reporting 
requirements. Timing of certification, model-level testing, and other 
compliance activities also follow current practices established under 
the Tier 2 emissions and CAFE programs.
    EPA received numerous comments on issues related to the impacts on 
stationary sources, due to the Clean Air Act's provisions for 
permitting requirements related to the issuance of the proposed GHG 
standards for new motor vehicles. Some comments suggested that EPA had 
underestimated the number of stationary sources that may be subject to 
GHG permitting requirements; other comments suggested that EPA did not 
adequately consider the permitting impact on small business sources. 
Other comments related to EPA's interpretation of the CAA's provisions 
for subjecting stationary sources to permit regulation after GHG 
standards are set. EPA's response to these comments is contained in the 
Response to Comments document; however, many of these comments pertain 
to issues that EPA is addressing in its consideration of the final 
Greenhouse Gas Permit Tailoring

[[Page 25402]]

Rule, Prevention of Significant Deterioration and Title V Greenhouse 
Gas Tailoring Rule; Proposed Rule, 74 FR 55292 (October 27, 2009) and 
will thus be fully addressed in that rulemaking.
    Some of the comments relating to the stationary source permitting 
issues suggested that EPA should defer setting GHG standards for new 
motor vehicles to avoid such stationary source permitting impacts. EPA 
is issuing these final GHG standards for light-duty vehicles as part of 
its efforts to expeditiously respond to the Supreme Court's nearly 
three year old ruling in Massachusetts v. EPA, 549 U.S. 497 (2007). In 
that case, the Court held that greenhouse gases fit within the 
definition of air pollutant in the Clean Air Act, and that EPA is 
therefore compelled to respond to the rulemaking petition under section 
202(a) by determining whether or not emissions from new motor vehicles 
cause or contribute to air pollution which may reasonably be 
anticipated to endanger public health or welfare, or whether the 
science is too uncertain to make a reasoned decision. The Court further 
ruled that, in making these decisions, the EPA Administrator is 
required to follow the language of section 202(a) of the CAA. The Court 
stated that under section 202(a), ``[i]f EPA makes [the endangerment 
and cause or contribute findings], the Clean Air Act requires the 
agency to regulate emissions of the deleterious pollutant.'' 549 U.S. 
at 534. As discussed above, EPA has made the two findings on 
contribution and endangerment. 74 FR 66496 (December 15, 2009). Thus, 
EPA is required to issue standards applicable to emissions of this air 
pollutant from new motor vehicles.
    The Court properly noted that EPA retained ``significant latitude'' 
as to the ``timing * * * and coordination of its regulations with those 
of other agencies'' (id.). However it has now been nearly three years 
since the Court issued its opinion, and the time for delay has passed. 
In the absence of these final standards, there would be three separate 
Federal and State regimes independently regulating light-duty vehicles 
to increase fuel economy and reduce GHG emissions: NHTSA's CAFE 
standards, EPA's GHG standards, and the GHG standards applicable in 
California and other states adopting the California standards. This 
joint EPA-NHTSA program will allow automakers to meet all of these 
requirements with a single national fleet because California has 
indicated that it will accept compliance with EPA's GHG standards as 
compliance with California's GHG standards. 74 FR at 49460. California 
has not indicated that it would accept NHTSA's CAFE standards by 
themselves. Without EPA's vehicle GHG standards, the states will not 
offer the Federal program as an alternative compliance option to 
automakers and the benefits of a harmonized national program will be 
lost. California and several other states have expressed strong concern 
that, without comparable Federal vehicle GHG standards, the states will 
not offer the Federal program as an alternative compliance option to 
automakers. Letter dated February 23, 2010 from Commissioners of 
California, Maine, New Mexico, Oregon and Washington to Senators Harry 
Reid and Mitch McConnell (Docket EPA-HQ-OAR-2009-0472-11400). The 
automobile industry also strongly supports issuance of these rules to 
allow implementation of the national program and avoid ``a myriad of 
problems for the auto industry in terms of product planning, vehicle 
distribution, adverse economic impacts and, most importantly, adverse 
consequences for their dealers and customers.'' Letter dated March 17, 
2010 from Alliance of Automobile Manufacturers to Senators Harry Reid 
and Mitch McConnell, and Representatives Nancy Pelosi and John Boehner 
(Docket EPA-HQ-OAR-2009-0472-11368). Thus, without EPA's GHG standards 
as part of a Federal harmonized program, important GHG reductions as 
well as benefits to the automakers and to consumers would be lost.\165\ 
In addition, delaying the rule would impose significant burdens and 
uncertainty on automakers, who are already well into planning for 
production of MY 2012 vehicles, relying on the ability to produce a 
single national fleet. Delaying the issuance of this final rule would 
very seriously disrupt the industry's plans.
---------------------------------------------------------------------------

    \165\ As discussed elsewhere, EPA's GHG standards achieve 
greater overall reductions in GHGs than NHTSA's CAFE standards.
---------------------------------------------------------------------------

    Instead of delaying the LDV rule and losing the benefits of this 
rule and the harmonized national program, EPA is directly addressing 
concerns about stationary source permitting in other actions that EPA 
is taking with regard to such permitting. That is the proper approach 
to address the issue of stationary source permitting, as compared to 
delaying the issuance of this rule for some undefined, indefinite time 
period.
    Some parties have argued that EPA's issuance of this light-duty 
vehicle rule amounts to a denial of various administrative requests 
pending before EPA, in which parties have requested that EPA reconsider 
and stay the GHG endangerment finding published on December 15, 2009. 
That is not an accurate characterization of the impact of this final 
rule. EPA has not taken final action on these administrative requests, 
and issuance of this vehicle rule is not final agency action, 
explicitly or implicitly, on those requests. Currently, while we 
carefully consider the pending requests for reconsideration on 
endangerment, these final findings on endangerment and contribution 
remain in place. Thus under section 202(a) EPA is obligated to 
promulgate GHG motor vehicle standards, although there is no statutory 
deadline for issuance of the light-duty vehicle rule or other motor 
vehicle rules. In that context, issuance of this final light-duty 
vehicle rule does no more than recognize the current status of the 
findings--they are final and impose a rulemaking obligation on EPA, 
unless and until we change them. In issuing the vehicle rule we are not 
making a decision on requests to reconsider or stay the endangerment 
finding, and are not in any way prejudicing or limiting EPA's 
discretion in making a final decision on these administrative requests.
    For discussion of comments on impacts on small entities and EPA's 
compliance with the Regulatory Flexibility Act, see the discussion in 
Section III.I.3.
b. Environmental and Economic Benefits and Costs of EPA's Standards
    In Table III.A.3-3 EPA presents estimated annual net benefits for 
the indicated calendar years. The table also shows the net present 
values of those benefits for the calendar years 2012-2050 using both a 
3 percent and a 7 percent discount rate. As discussed previously, EPA 
recognizes that much of these same costs and benefits are also 
attributable to the CAFE standard contained in this joint final rule.

[[Page 25403]]

                                       Table III.A.3-3--Projected Quantifiable Benefits and Costs for CO2 Standard
                                                                   [In million 2007$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2020            2030            2040            2050         NPV, 3% \a\     NPV, 7% \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quantified Annual Costs\b\..............................        -$20,100        -$64,000       -$101,900       -$152,200     -$1,199,700       -$480,700
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Benefits From Reduced CO2 Emissions at Each Assumed SCC Value c d e
--------------------------------------------------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...........................................             900           2,700           4,600           7,200          34,500          34,500
Avg SCC at 3%...........................................           3,700           8,900          14,000          21,000         176,700         176,700
Avg SCC at 2.5%.........................................           5,800          14,000          21,000          30,000         299,600         299,600
95th percentile SCC at 3%...............................          11,000          27,000          43,000          62,000         538,500         538,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Other Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Criteria Pollutant Benefits f g h i.....................               B     1,200-1,300     1,200-1,300     1,200-1,300          21,000          14,000
Energy Security Impacts (price shock)...................           2,200           4,500           6,000           7,600          81,900          36,900
Reduced Refueling.......................................           2,400           4,800           6,300           8,000          87,900          40,100
Value of Increased Driving \j\..........................           4,200           8,800          13,000          18,400         171,500          75,500
Accidents, Noise, Congestion............................          -2,300          -4,600          -6,100          -7,800         -84,800         -38,600
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Quantified Net Benefits at Each Assumed SCC Value c d e
--------------------------------------------------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...........................................          27,500          81,500         127,000         186,900       1,511,700         643,100
Avg SCC at 3%...........................................          30,300          87,700         136,400         200,700       1,653,900         785,300
Avg SCC at 2.5%.........................................          32,400          92,800         143,400         209,700       1,776,800         908,200
95th percentile SCC at 3%...............................          37,600         105,800         165,400         241,700       2,015,700       1,147,100
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Note that net 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 (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal consistency. Refer to
  Section III.F for more detail.
\b\ Quantified annual costs are negative because of fuel savings (see Table III.H.10-1 for a breakdown of the vehicle technology costs and fuel
  savings). The fuel savings outweigh the vehicle technology costs and, therefore, the costs are presented here are negative values.
\c\ Monetized GHG benefits exclude the value of reductions in non-CO2 GHG emissions (HFC, CH4 and N2O) expected under this final rule. Although EPA has
  not monetized the benefits of reductions in these non-CO2 emissions, the value of these reductions should not be interpreted as zero. Rather, the
  reductions in non-CO2 GHGs will contribute to this rule's climate benefits, as explained in Section III.F.2. The SCC Technical Support Document (TSD)
  notes the difference between the social cost of non-CO2 emissions and CO2 emissions, and specifies a goal to develop methods to value non-CO2
  emissions in future analyses.
\d\ Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC estimates range as follows: for Average SCC at
  5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $35-$65; and for 95th percentile SCC at 3%: $65-$136. Section III.H.6 also
  presents these SCC estimates.
\e\ Note that net 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 (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal consistency. Refer to SCC
  TSD for more detail.
\f\ Note that ``B'' indicates unquantified criteria pollutant benefits in the year 2020. For the final rule, we only modeled the rule's PM2.5- and ozone-
  related impacts in the calendar year 2030. For the purposes of estimating a stream of future-year criteria pollutant benefits, we assume that the
  benefits out to 2050 are equal to, and no less than, those modeled in 2030 as reflected by the stream of estimated future emission reductions. The NPV
  of criteria pollutant-related benefits should therefore be considered a conservative estimate of the potential benefits associated with the final
  rule.
\g\ The benefits presented in this table include an estimate of PM-related premature mortality derived from Laden et al., 2006, and the ozone-related
  premature mortality estimate derived from Bell et al., 2004. If the benefit estimates were based on the ACS study of PM-related premature mortality
  (Pope et al., 2002) and the Levy et al., 2005 study of ozone-related premature mortality, the values would be as much as 70% smaller.
\h\ The calendar year benefits presented in this table assume either a 3% discount rate in the valuation of PM-related premature mortality ($1,300
  million) or a 7% discount rate ($1,200 million) to account for a twenty-year segmented cessation lag. Note that the benefits estimated using a 3%
  discount rate were used to calculate the NPV using a 3% discount rate and the benefits estimated using a 7% discount rate were used to calculate the
  NPV using a 7% discount rate. For benefits totals presented at each calendar year, we used the mid-point of the criteria pollutant benefits range
  ($1,250).
\i\ Note that the co-pollutant impacts presented here do not include the full complement of endpoints that, if quantified and monetized, would change
  the total monetized estimate of impacts. The full complement of human health and welfare effects associated with PM and ozone remain unquantified
  because of current limitations in methods or available data. We have not quantified a number of known or suspected health effects linked with ozone
  and PM for which appropriate health impact functions are not available or which do not provide easily interpretable outcomes (e.g., changes in heart
  rate variability). Additionally, we are unable to quantify a number of known welfare effects, including reduced acid and particulate deposition damage
  to cultural monuments and other materials, and environmental benefits due to reductions of impacts of eutrophication in coastal areas.
\j\ Calculated using pre-tax fuel prices.

4. Basis for the GHG Standards Under Section 202(a)
    EPA statutory authority under section 202(a)(1) of the Clean Air 
Act (CAA) is discussed in more detail in Section I.C.2 of the proposed 
rule (74 FR at 49464-65). The following is a summary of the basis for 
the final GHG standards under section 202(a), which is discussed in 
more detail in the following portions of Section III.
    With respect to CO2 and HFCs, EPA is adopting attribute-
based light-duty car and truck standards that achieve large and 
important emissions reductions of GHGs. EPA has evaluated the 
technological feasibility of the standards, and the information and 
analysis performed by EPA indicates that these standards are feasible 
in the lead time provided. EPA and NHTSA have carefully evaluated the 
effectiveness of individual technologies as well as the interactions 
when technologies are combined. EPA's projection of the technology that 
would be used to comply with the standards indicates that manufacturers 
will be able to meet the standards by employing

[[Page 25404]]

a wide variety of technologies that are already commercially available 
and can be incorporated into their vehicles at the time of redesign. In 
addition to the consideration of the manufacturers' redesign cycle, 
EPA's analysis also takes into account certain flexibilities that will 
facilitate compliance especially in the early years of the program when 
potential lead time constraints are most challenging. These 
flexibilities include averaging, banking, and trading of various types 
of credits. For the industry as a whole, EPA's projections indicate 
that the standards can be met using technology that will be available 
in the lead-time provided. At the same time, it must be noted that 
because technology is commercially available today does not mean it can 
automatically be incorporated fleet-wide during the model years in 
question. As discussed below, and in detail in Section III.D.7, EPA and 
NHTSA carefully analyzed issues of adequacy of lead time in determining 
the level of the standards, and the agencies are convinced both that 
lead time is sufficient to meet the standards but that major further 
additions of technology across the fleet is not possible during these 
model years.
    To account for additional lead-time concerns for various 
manufacturers of typically higher performance vehicles, EPA is adopting 
a Temporary Lead-time Allowance similar to that proposed that will 
further facilitate compliance for limited volumes of such vehicles in 
the program's initial years. For a few very small volume manufacturers, 
EPA is deferring standards pending later rulemaking.
    EPA has also carefully considered the cost to manufacturers of 
meeting the standards, estimating piece costs for all candidate 
technologies, direct manufacturing costs, cost markups to account for 
manufacturers' indirect costs, and manufacturer cost reductions 
attributable to learning. In estimating manufacturer costs, EPA took 
into account manufacturers' own practices such as making major changes 
to model technology packages during a planned redesign cycle. EPA then 
projected the average cost across the industry to employ this 
technology, as well as manufacturer-by-manufacturer costs. EPA 
considers the per vehicle costs estimated from this analysis to be 
within a reasonable range in light of the emissions reductions and 
benefits received. EPA projects, for example, that the fuel savings 
over the life of the vehicles will more than offset the increase in 
cost associated with the technology used to meet the standards.
    EPA has also evaluated the impacts of these standards with respect 
to reductions in GHGs and reductions in oil usage. For the lifetime of 
the model year 2012-2016 vehicles we estimate GHG reductions of 
approximately 960 million metric tons CO2 eq. and fuel 
reductions of 1.8 billion barrels of oil. These are important and 
significant reductions. EPA has also analyzed a variety of other 
impacts of the standards, ranging from the standards' effects on 
emissions of non-GHG pollutants, impacts on noise, energy, safety and 
congestion. EPA has also quantified the cost and benefits of the 
standards, to the extent practicable. Our analysis to date indicates 
that the overall quantified benefits of the standards far outweigh the 
projected costs. Utilizing a 3% discount rate, we estimate the total 
net social benefits over the life of the model year 2012-2016 vehicles 
is $192 billion, and the net present value of the net social benefits 
of the standards through the year 2050 is $1.9 trillion dollars.\166\ 
These values are estimated at $136 billion and $787 billion, 
respectively, using a 7% discount rate and the SCC discounted at 3 
percent.\167\
---------------------------------------------------------------------------

    \166\ Based on the mean SCC at 3 percent discount rate, which is 
$21 per metric ton CO2 in 2010 rising to $45 per metric 
ton CO2 in 2050.
    \167\ SCC was discounted at 3 percent to maintain internal 
consistency in the SCC calculations while all other benefits were 
discounted at 7 percent. Specifically, the same discount rate used 
to discount the value of damages from future CO2 
emissions is used to calculate net present value of SCC.
---------------------------------------------------------------------------

    Under section 202(a) EPA is called upon to set standards that 
provide adequate lead-time for the development and application of 
technology to meet the standards. EPA's standards satisfy this 
requirement, as discussed above. In setting the standards, EPA is 
called upon to weigh and balance various factors, and to exercise 
judgment in setting standards that are a reasonable balance of the 
relevant factors. In this case, EPA has considered many factors, such 
as cost, impacts on emissions (both GHG and non-GHG), impacts on oil 
conservation, impacts on noise, energy, safety, and other factors, and 
has, where practicable, quantified the costs and benefits of the rule. 
In summary, given the technical feasibility of the standard, the 
moderate cost per vehicle in light of the savings in fuel costs over 
the life time of the vehicle, the very significant reductions in 
emissions and in oil usage, and the significantly greater quantified 
benefits compared to quantified costs, EPA is confident that the 
standards are an appropriate and reasonable balance of the factors to 
consider under section 202(a). See Husqvarna AB v. EPA, 254 F. 3d 195, 
200 (DC 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); see also Hercules Inc. v. EPA, 598 F. 2d 91, 106 (DC 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 (DC Cir. 2002) (same).
    EPA recognizes that the vast majority of technologies which we are 
considering for purposes of setting standards under section 202(a) are 
commercially available and already being utilized to a limited extent 
across the fleet. The vast majority of the emission reductions, which 
would result from this rule, would result from the increased use of 
these technologies. EPA also recognizes that this rule would enhance 
the development and limited use of more advanced technologies, such as 
PHEVs and EVs. In this technological context, there is no clear cut 
line that indicates that only one projection of technology penetration 
could potentially be considered feasible for purposes of section 
202(a), or only one standard that could potentially be considered a 
reasonable balancing of the factors relevant under section 202(a). EPA 
therefore evaluated two sets of alternative standards, one more 
stringent than the promulgated standards and one less stringent.
    The alternatives are 4% per year increase in standards which would 
be less stringent and a 6% per year increase in the standards which 
would be more stringent. EPA is not adopting either of these. As 
discussed in Section III.D.7, the 4% per year forgoes CO2 
reductions which can be achieved at reasonable cost and are achievable 
by the industry within the rule's timeframe. The 6% per year 
alternative requires a significant increase in the projected required 
technology penetration which appears inappropriate in this timeframe 
due to the limited available lead time and the current difficult 
financial condition of the automotive industry. (See Section III.D.7 
for a detailed discussion of why EPA is not adopting either of the 
alternatives.) EPA also believes that the no backsliding standards it 
is adopting

[[Page 25405]]

for N2O and CH4 are appropriate under section 
202(a).

B. GHG Standards for Light-Duty Vehicles, Light-Duty Trucks, and 
Medium-Duty Passenger Vehicles

    EPA is finalizing new emission standards to control greenhouse 
gases (GHGs) from light-duty vehicles. First, EPA is finalizing an 
emission standard for carbon dioxide (CO2) on a gram per 
mile (g/mile) basis that will apply to a manufacturer's fleet of cars, 
and a separate standard that will apply to a manufacturer's fleet of 
trucks. CO2 is the primary greenhouse gas resulting from the 
combustion of vehicular fuels, and the amount of CO2 emitted 
is directly correlated to the amount of fuel consumed. Second, EPA is 
providing auto manufacturers with the opportunity to earn credits 
toward the fleet-wide average CO2 standards for improvements 
to air conditioning systems, including both hydrofluorocarbon (HFC) 
refrigerant losses (i.e., system leakage) and indirect CO2 
emissions related to the increased load on the engine. Third, EPA is 
finalizing separate emissions standards for two other GHGs: Methane 
(CH4) and nitrous oxide (N20). CH4 and 
N2O emissions relate closely to the design and efficient use 
of emission control hardware (i.e., catalytic converters). The 
standards for CH4 and N2O will be set as a cap 
that will limit emissions increases and prevent backsliding from 
current emission levels. The final standards described below will apply 
to passenger cars, light-duty trucks, and medium-duty passenger 
vehicles (MDPVs). As an overall group, they are referred to in this 
preamble as light vehicles or simply as vehicles. In this preamble 
section passenger cars may be referred to simply as ``cars'', and 
light-duty trucks and MDPVs as ``light trucks'' or ``trucks.'' \168\
---------------------------------------------------------------------------

    \168\ As described in Section III.B.2., GHG emissions standards 
will use the same vehicle category definitions as are used in the 
CAFE program.
---------------------------------------------------------------------------

    EPA's program includes a number of credit opportunities and other 
flexibilities to help manufacturers comply, especially in the early 
years of the program. EPA is establishing a system of averaging, 
banking, and trading of credits integral to the fleet averaging 
approach, based on manufacturer fleet average CO2 
performance, as discussed in Section III.B.4. This approach is similar 
to averaging, banking, and trading (ABT) programs EPA has established 
in other programs and is also similar to provisions in the CAFE 
program. In addition to traditional ABT credits based on the fleet 
emissions average, EPA is also including A/C credits as an aspect of 
the standards, as mentioned above. EPA is also including several 
additional credit provisions that apply only in the initial model years 
of the program. These include flex fuel vehicle credits, incentives for 
the early commercialization of certain advanced technology vehicles, 
credits for new and innovative ``off-cycle'' technologies that are not 
captured by the current test procedures, and generation of credits 
prior to model year 2012. The A/C credits and additional credit 
opportunities are described in Section III.C. These credit programs 
will provide flexibility to manufacturers, which may be especially 
important during the early transition years of the program. EPA will 
also allow a manufacturer to carry a credit deficit into the future for 
a limited number of model years. A parallel provision, referred to as 
credit carry-back, will be part of the CAFE program. Finally, EPA is 
finalizing an optional compliance flexibility, the Temporary Leadtime 
Allowance Alternative Standard program, for intermediate volume 
manufacturers, and is deferring standards for the smallest 
manufacturers, as discussed in Sections III.B.5 and 6 below.
1. What fleet-wide emissions levels correspond to the CO2 
standards?
    The attribute-based CO2 standards are projected to 
achieve a national fleet-wide average, covering both light cars and 
trucks, of 250 grams/mile of CO2 in model year (MY) 2016. 
This includes CO2-equivalent emission reductions from A/C 
improvements, reflected as credits in the standard. The standards will 
begin with MY 2012, with a generally linear increase in stringency from 
MY 2012 through MY 2016. EPA will have separate standards for cars and 
light trucks. The tables in this section below provide overall fleet 
average levels that are projected for both cars and light trucks over 
the phase-in period which is estimated to correspond with the 
standards. The actual fleet-wide average g/mi level that will be 
achieved in any year for cars and trucks will depend on the actual 
production for that year, as well as the use of the various credit and 
averaging, banking, and trading provisions. For example, in any year, 
manufacturers may generate credits from cars and use them for 
compliance with the truck standard. Such transfer of credits between 
cars and trucks is not reflected in the table below. In Section III.F, 
EPA discusses the year-by-year estimate of emissions reductions that 
are projected to be achieved by the standards.
    In general, the schedule of standards acts as a phase-in to the MY 
2016 standards, and reflects consideration of the appropriate lead-time 
for each manufacturer to implement the requisite emission reductions 
technology across its product line.\169\ Note that 2016 is the final 
model year in which standards become more stringent. The 2016 
CO2 standards will remain in place for 2017 and later model 
years, until revised by EPA in a future rulemaking.
---------------------------------------------------------------------------

    \169\ See CAA section 202(a)(2).
---------------------------------------------------------------------------

    EPA estimates that, on a combined fleet-wide national basis, the 
2016 MY standards will achieve a level of 250 g/mile CO2, 
including CO2-equivalent credits from A/C related 
reductions. The derivation of the 250 g/mile estimate is described in 
Section III.B.2.
    EPA has estimated the overall fleet-wide CO2-equivalent 
emission levels that correspond with the attribute-based standards, 
based on the projections of the composition of each manufacturer's 
fleet in each year of the program. Tables III.B.1-1 and III.B.1-2 
provides these estimates for each manufacturer.\170\
---------------------------------------------------------------------------

    \170\ These levels do not include the effect of flexible fuel 
credits, transfer of credits between cars and trucks, temporary lead 
time allowance, or any other credits.
---------------------------------------------------------------------------

    As a result of public comments and updated economic and future 
fleet projections, the attribute based curves have been updated for 
this final rule, as discussed in detail in Section II.B of this 
preamble and Chapter 2 of the Joint TSD. This update in turn affects 
costs, benefits, and other impacts of the final standards--thus EPA's 
overall projection of the impacts of the final rule standards have been 
updated and the results are different than for the NPRM, though in 
general not by a large degree.

[[Page 25406]]

         Table III.B.1-1--Estimated Fleet CO2-Equivalent Levels Corresponding to the Standards for Cars
                                                    [g/mile]
----------------------------------------------------------------------------------------------------------------
                                                                    Model year
          Manufacturer           -------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             266             259             250             239             228
Chrysler........................             269             262             254             243             232
Daimler.........................             274             267             259             249             238
Ford............................             267             259             251             240             229
General Motors..................             268             261             252             241             230
Honda...........................             260             252             244             233             222
Hyundai.........................             260             254             246             233             222
Kia.............................             263             255             247             235             224
Mazda...........................             260             252             243             232             221
Mitsubishi......................             257             249             241             230             219
Nissan..........................             263             256             248             237             226
Porsche.........................             244             237             228             217             206
Subaru..........................             253             246             237             226             215
Suzuki..........................             245             238             230             218             208
Tata............................             288             280             272             261             250
Toyota..........................             259             251             243             232             221
Volkswagen......................             256             249             240             229             219
----------------------------------------------------------------------------------------------------------------

     Table III.B.1-2--Estimated Fleet CO2-Equivalent Levels Corresponding to the Standards for Light Trucks
                                                    [g/mile]
----------------------------------------------------------------------------------------------------------------
                                                                    Model year
          Manufacturer           -------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             330             320             310             297             283
Chrysler........................             342             333             323             309             295
Daimler.........................             343             332             323             308             294
Ford............................             354             344             334             319             305
General Motors..................             364             354             344             330             316
Honda...........................             327             318             309             295             281
Hyundai.........................             325             316             307             292             278
Kia.............................             335             327             318             303             289
Mazda...........................             319             308             299             285             271
Mitsubishi......................             316             306             297             283             269
Nissan..........................             343             334             323             308             294
Porsche.........................             334             325             315             301             287
Subaru..........................             315             305             296             281             267
Suzuki..........................             320             310             300             286             272
Tata............................             321             310             301             287             272
Toyota..........................             342             333             323             308             294
Volkswagen......................             341             331             322             307             293
----------------------------------------------------------------------------------------------------------------

    These estimates were aggregated based on projected production 
volumes into the fleet-wide averages for cars and trucks (Table 
III.B.1-3).\171\
---------------------------------------------------------------------------

    \171\ Due to rounding during calculations, the estimated fleet-
wide CO2-equivalent levels may vary by plus or minus 1 
gram.

       Table III.B.1-3--Estimated Fleet-Wide CO2-Equivalent Levels
                     Corresponding to the Standards
------------------------------------------------------------------------
                                            Cars             Trucks
             Model year              -----------------------------------
                                         CO2 (g/mi)        CO2 (g/mi)
------------------------------------------------------------------------
2012................................               263               346
2013................................               256               337
2014................................               247               326
2015................................               236               312
2016 and later......................               225               298
------------------------------------------------------------------------

    As shown in Table III.B.1-3, fleet-wide CO2-equivalent 
emission levels for cars under the approach are projected to decrease 
from 263 to 225 grams per mile between MY 2012 and MY 2016. Similarly, 
fleet-wide CO2-equivalent

[[Page 25407]]

emission levels for trucks are projected to decrease from 346 to 398 
grams per mile. These numbers do not include the effects of other 
flexibilities and credits in the program. The estimated achieved values 
can be found in Chapter 5 of the Regulatory Impact Analysis (RIA).
    EPA has also estimated the average fleet-wide levels for the 
combined car and truck fleets. These levels are provided in Table 
III.B.1-4. As shown, the overall fleet average CO2 level is 
expected to be 250 g/mile in 2016.

  Table III.B.1-4--Estimated Fleet-Wide Combined CO2-Equivalent Levels
                     Corresponding to the Standards
------------------------------------------------------------------------
                                                           Combined car
                                                             and truck
                       Model year                        ---------------
                                                            CO2 (g/mi)
------------------------------------------------------------------------
2012....................................................             295
2013....................................................             286
2014....................................................             276
2015....................................................             263
2016....................................................             250
------------------------------------------------------------------------

    As noted above, EPA is finalizing standards that will result in 
increasingly stringent levels of CO2 control from MY 2012 
though MY 2016--applying the CO2 footprint curves applicable 
in each model year to the vehicles expected to be sold in each model 
year produces fleet-wide annual reductions in CO2 emissions. 
Comments from the Center for Biological Diversity (CBD) challenged EPA 
to increase the stringency of the standards for all of the years of the 
program, and even argued that 2016 standards should be feasible in 
2012. Other commenters noted the non-linear increase in the standards 
from 2011 (CAFE) to the 2012 GHG standards. As explained in greater 
detail in Section III.D below and the relevant support documents, EPA 
believes that the level of improvement achieves important 
CO2 emissions reductions through the application of feasible 
control technology at reasonable cost, considering the needed lead time 
for this program. EPA further believes that the averaging, banking and 
trading provisions, as well as other credit-generating mechanisms, 
allow manufacturers further flexibilities which reduce the cost of the 
CO2 standards and help to provide adequate lead time. EPA 
believes this approach is justified under section 202(a) of the Clean 
Air Act.
    EPA has analyzed the feasibility under the CAA of achieving the 
CO2 standards, based on projections of what actions 
manufacturers are expected to take to reduce emissions. The results of 
the analysis are discussed in detail in Section III.D below and in the 
RIA. EPA also presents the estimated costs and benefits of the car and 
truck CO2 standards in Section III.H. In developing the 
final rule, EPA has evaluated the kinds of technologies that could be 
utilized by the automobile industry, as well as the associated costs 
for the industry and fuel savings for the consumer, the magnitude of 
the GHG reductions that may be achieved, and other factors relevant 
under the CAA.
    With respect to the lead time and cost of incorporating technology 
improvements that reduce GHG emissions, EPA and NHTSA place important 
weight on the fact that during MYs 2012-2016 manufacturers are expected 
to redesign and upgrade their light-duty vehicle products (and in some 
cases introduce entirely new vehicles not on the market today). Over 
these five model years there will be an opportunity for manufacturers 
to evaluate almost every one of their vehicle model platforms and add 
technology in a cost-effective way to control GHG emissions and improve 
fuel economy. This includes redesign of the air conditioner systems in 
ways that will further reduce GHG emissions. The time-frame and levels 
for the standards, as well as the ability to average, bank and trade 
credits and carry a deficit forward for a limited time, are expected to 
provide manufacturers the time needed to incorporate technology that 
will achieve GHG reductions, and to do this as part of the normal 
vehicle redesign process. This is an important aspect of the final 
rule, as it will avoid the much higher costs that will occur if 
manufacturers needed to add or change technology at times other than 
these scheduled redesigns. This time period will also provide 
manufacturers the opportunity to plan for compliance using a multi-year 
time frame, again in accord with their normal business practice. 
Further details on lead time, redesigns and feasibility can be found in 
Section III-D.
    Consistent with the requirement of CAA section 202(a)(1) that 
standards be applicable to vehicles ``for their useful life,'' EPA is 
finalizing CO2 vehicle standards that will apply for the 
useful life of the vehicle. Under section 202(i) of the Act, which 
authorized the Tier 2 standards, EPA established a useful life period 
of 10 years or 120,000 miles, whichever first occurs, for all Tier 2 
light-duty vehicles and light-duty trucks.\172\ Tier 2 refers to EPA's 
standards for criteria pollutants such as NOX, HC, and CO. 
EPA is finalizing new CO2 standards for the same group of 
vehicles, and therefore the Tier 2 useful life will apply for 
CO2 standards as well. The in-use emission standard will be 
10% higher than the model-level certification emission test results, to 
address issues of production variability and test-to-test variability. 
The in-use standard is discussed in Section III.E.
---------------------------------------------------------------------------

    \172\ See 65 FR 6698 (February 10, 2000).
---------------------------------------------------------------------------

    EPA is requiring manufacturers to measure CO2 for 
certification and compliance purposes using the same test procedures 
currently used by EPA for measuring fuel economy. These procedures are 
the Federal Test Procedure (FTP or ``city'' test) and the Highway Fuel 
Economy Test (HFET or ``highway'' test).\173\ This corresponds with the 
data used to develop the footprint-based CO2 standards, 
since the data on control technology efficiency was also developed in 
reference to these test procedures. Although EPA recently updated the 
test procedures used for fuel economy labeling, to better reflect the 
actual in-use fuel economy achieved by vehicles, EPA is not using these 
test procedures for the CO2 standards in this final rule, 
given the lack of data on control technology effectiveness under these 
procedures.\174\ There were a number of commenters that advocated for a 
change in either the test procedures or the fuel economy calculation 
weighting factors. The U.S. Coalition for Advanced Diesel Cars urged a 
changing of the city/highway weighting factors from their current 
values of 45/55 to 43/57 to be more consistent with the EPA (5-cycle) 
fuel economy labeling rule. EPA has decided that such a change would 
not be appropriate, nor consistent with the technical analyses 
supporting the 5-cycle fuel economy label rulemaking. The city/highway 
weighting of 43/57 was found to be appropriate when the city fuel 
economy is based on a combination of Bags 2 and 3 of the FTP and the 
city portion of the US06 test cycle, and when the highway fuel economy 
is based on a combination of the HFET and the highway portion of the 
US06 cycle. When city and highway fuel economy are based on the FTP and 
HFET cycles, respectively, the appropriate city/highway weighting is 
not 43/57, but very close to 55/45. Therefore, the weighting of the 
city and

[[Page 25408]]

highway fuel economy values contained in this rule is appropriate for 
and consistent with the use of the FTP and HFET cycles to measure city 
and highway fuel economy.
---------------------------------------------------------------------------

    \173\ EPA established the FTP for emissions measurement in the 
early 1970s. In 1976, in response to the Energy Policy and 
Conservation Act (EPCA) statute, EPA extended the use of the FTP to 
fuel economy measurement and added the HFET. The provisions in the 
1976 regulation, effective with the 1977 model year, established 
procedures to calculate fuel economy values both for labeling and 
for CAFE purposes.
    \174\ See 71 FR 77872, December 27, 2006.
---------------------------------------------------------------------------

    The American Council for an Energy-Efficient Economy (ACEEE), 
Cummins, and Sierra Club all suggested using more real-world test 
procedures. It is not feasible at this time to base the final 
CO2 standards on EPA's five-cycle fuel economy formulae. 
Consistent with its name, these formulae require vehicle testing over 
five test cycles, the two cycles associated with the proposed 
CO2 standards, plus the cold temperature FTP, the US06 high 
speed, high acceleration cycle and the SC03 air conditioning test. EPA 
considered employing the five-cycle calculation of fuel economy and GHG 
emissions for this rule, but there were a number of reasons why this 
was not practical. As discussed extensively in the Joint TSD, setting 
the appropriate levels of CO2 standards requires extensive 
knowledge of the CO2 emission control effectiveness over the 
certification test cycles. Such knowledge has been gathered over the 
FTP and HFET cycles for decades, but is severely lacking for the other 
three test cycles. EPA simply lacks the technical basis to project the 
effectiveness of the available technologies over these three test 
cycles and therefore, could not adequately support a rule which set 
CO2 standards based on the five-cycle formulae. The benefits 
of today's rule do presume a strong connection between CO2 
emissions measured over the FTP and HFET cycles and onroad operation. 
Since CO2 emissions determined by the five-cycle formulae 
are believed to correlate reasonably with onroad emissions, this 
implies a strong connection between emissions over the FTP and HFET 
cycles and the five cycle formulae. However, while we believe that this 
correlation is reasonable on average for the vehicle fleet, it may not 
be reasonable on a per vehicle basis, nor for any single manufacturer's 
vehicles. Thus, we believe that it is reasonable to project a direct 
relationship between the percentage change in CO2 emissions 
over the two certification cycles and onroad emissions (a surrogate of 
which is the five-cycle formulae), but not reasonable to base the 
certification of specific vehicles on that untested relationship. 
Furthermore, EPA is allowing for off-cycle credits to encourage 
technologies that may not be not properly captured on the 2-cycle city/
highway test procedure (although these credits could apply toward 
compliance with EPA's standards, not toward compliance with the CAFE 
standards). For future analysis, EPA will consider examining new drive 
cycles and test procedures for fuel economy.\175\
---------------------------------------------------------------------------

    \175\ There were also a number of comments on air conditioner 
test procedures; these will be discussed in Section III.C and the 
RIA.
---------------------------------------------------------------------------

    EPA is finalizing standards that include hydrocarbons (HC) and 
carbon monoxide (CO) in its CO2 emissions calculations on a 
CO2-equivalent basis. It is well accepted that HC and CO are 
typically oxidized to CO2 in the atmosphere in a relatively 
short period of time and so are effectively part of the CO2 
emitted by a vehicle. In terms of standard stringency, accounting for 
the carbon content of tailpipe HC and CO emissions and expressing it as 
CO2-equivalent emissions will add less than one percent to 
the overall CO2-equivalent emissions level. This will also 
ensure consistency with CAFE calculations since HC and CO are included 
in the ``carbon balance'' methodology that EPA uses to determine fuel 
usage as part of calculating vehicle fuel economy levels.
2. What are the CO2 attribute-based standards?
    EPA is finalizing the same vehicle category definitions that are 
used in the CAFE program for the 2011 model year standards.\176\ This 
approach allows EPA's CO2 standards and the CAFE standards 
to be harmonized across all vehicles. In other words, vehicles will be 
subject to either car standards or truck standards under both programs, 
and not car standards under one program and trucks standards under the 
other. The CAFE vehicle category definitions differ slightly from the 
EPA definitions for cars and light trucks used for the Tier 2 program 
and other EPA vehicle programs. However, EPA is not changing the 
vehicle category definitions for any other light-duty mobile source 
programs, except the GHG standards.
---------------------------------------------------------------------------

    \176\ See 49 CFR 523.
---------------------------------------------------------------------------

    EPA is finalizing separate car and truck standards, that is, 
vehicles defined as cars have one set of footprint-based curves for MY 
2012-2016 and vehicles defined as trucks have a different set for MY 
2012-2016. In general, for a given footprint the CO2 g/mi 
target for trucks is less stringent then for a car with the same 
footprint.
    Some commenters requested a single or converging curve for both 
cars and trucks.\177\ EPA is not finalizing a single fleet standard 
where all cars and trucks are measured against the same footprint curve 
for several reasons. First, some vehicles classified as trucks (such as 
pick-up trucks) have certain attributes not common on cars which 
attributes contribute to higher CO2 emissions--notably high 
load carrying capability and/or high towing capability.\178\ Due to 
these differences, it is reasonable to separate the light-duty vehicle 
fleet into two groups. Second, EPA wishes to harmonize key program 
design elements of the GHG standards with NHTSA's CAFE program where it 
is reasonable to do so. NHTSA is required by statute to set separate 
standards for passenger cars and for non-passenger cars. As discussed 
in Section IV, EPCA does not preclude NHTSA from issuing converging 
standards if its analysis indicates that these are the appropriate 
standards under the statute applicable separately to each fleet.
---------------------------------------------------------------------------

    \177\ CBD, ICCT and NESCAUM supported a single curve and the 
students at UC Santa Barbara commented on converging curves.
    \178\ There is a distinction between body-on-frame trucks and 
unibody cars and trucks that make them technically different in a 
number of ways. Also, 2WD vehicles tend to have lower CO2 
emissions than their 4WD counterparts (all other things being 
equal). More discussion of this can be found in the TSD and RIA.
---------------------------------------------------------------------------

    Finally, most of the advantages of a single standard for all light 
duty vehicles are also present in the two-fleet standards finalized 
here. Because EPA is allowing unlimited credit transfer between a 
manufacturer's car and truck fleets, the two fleets can essentially be 
viewed as a single fleet when manufacturers consider compliance 
strategies. Manufacturers can thus choose on which vehicles within 
their fleet to focus GHG reducing technology and then use credit 
transfers as needed to demonstrate compliance, just as they will if 
there was a single fleet standard. The one benefit of a single light-
duty fleet not captured by a two-fleet approach is that a single fleet 
prevents potential ``gaming'' of the car and truck definitions to try 
and design vehicles which are more similar to passenger cars but which 
may meet the regulatory definition of trucks. Although this is of 
concern to EPA, we do not believe at this time that concern is 
sufficient to outweigh the other reasons for finalizing separate car 
and truck fleet standards. However, it is possible that in the future, 
recent trends may continue such that cars may become more truck-like 
and trucks may become more car-like. Therefore, EPA will reconsider 
whether it is appropriate to use converging curves if justified by 
future analysis.
    For model years 2012 and later, EPA is finalizing a series of 
CO2 standards that are described mathematically by a family 
of piecewise linear functions

[[Page 25409]]

(with respect to vehicle footprint).\179\ The form of the function is 
as follows:
---------------------------------------------------------------------------

    \179\ See final regulations at 40 CFR 86.1818-12.

CO2 = a, if x <= l
CO2 = cx + d, if l < x <= h
CO2 = b, if x > h

Where:

CO2 = the CO2 target value for a given 
footprint (in g/mi)
a = the minimum CO2 target value (in g/mi)
b = the maximum CO2 target value (in g/mi)
c = the slope of the linear function (in g/mi per sq ft)
d = is the zero-offset for the line (in g/mi CO2)
x = footprint of the vehicle model (in square feet, rounded to the 
nearest tenth)
l & h are the lower and higher footprint limits, constraints, or the 
boundary (``kinks'') between the flat regions and the intermediate 
sloped line

    EPA's parameter values that define the family of functions for the 
CO2 fleetwide average car and truck standards are as 
follows:

                                                       Table III.B.2-1--Parameter Values for Cars
                                                             [For CO2 gram per mile targets]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               Lower           Upper
                       Model year                                a               b               c               d          constraint      constraint
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012....................................................             244             315            4.72            50.5              41              56
2013....................................................             237             307            4.72            43.3              41              56
2014....................................................             228             299            4.72            34.8              41              56
2015....................................................             217             288            4.72            23.4              41              56
2016 and later..........................................             206             277            4.72            12.7              41              56
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                      Table III.B.2-2--Parameter Values for Trucks
                                                             [For CO2 gram per mile targets]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               Lower           Upper
                       Model year                                a               b               c               d          constraint      constraint
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012....................................................             294             395            4.04           128.6              41              66
2013....................................................             284             385            4.04           118.7              41              66
2014....................................................             275             376            4.04           109.4              41              66
2015....................................................             261             362            4.04            95.1              41              66
2016 and later..........................................             247             348            4.04            81.1              41              66
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The equations can be shown graphically for each vehicle category, 
as shown in Figures III.B.2-1 and III.B.2-2. These standards (or 
functions) decrease from 2012-2016 with a vertical shift.
    The EPA received a number of comments on both the attribute and the 
shape of the curve. For reasons described in Section IIC and Chapter 2 
of the TSD, the EPA feels that footprint is the most appropriate choice 
of attribute for this rule. More background discussion on other 
alternative attributes and curves EPA explored can be found in the EPA 
RIA. EPA recognizes that the CAA does not mandate that EPA use an 
attribute based standard, as compared to NHTSA's obligations under 
EPCA. The EPA believes that a footprint-based program will harmonize 
EPA's program and the CAFE program as a single national program, 
resulting in reduced compliance complexity for manufacturers. EPA's 
reasons for using an attribute based standard are discussed in more 
detail in the Joint TSD. Also described in these other sections are the 
reasons why EPA is finalizing the slopes and the constraints as shown 
above. For future analysis, EPA will consider other options and 
suggestions made by commenters.
    EPA also received public comments from three manufacturers, General 
Motors, Ford Motor Company, and Chrysler, suggesting that the GHG 
program should harmonize with an EPCA provision that allows a 
manufacturer to exclude emergency vehicles from its CAFE fleet by 
providing written notice to NHTSA.\180\ These manufacturers believe 
this provision is necessary because law enforcement vehicles (e.g., 
police cars) must be designed with special performance and features 
necessary for police work--but which tend to raise GHG emissions and 
reduce fuel economy relative to the base vehicle. These commenters 
provided several examples of features unique to these special purpose 
vehicles that negatively impact GHG emissions, such as heavy-duty 
suspensions, unique engine and transmission calibrations, and heavy-
duty components (e.g., batteries, stabilizer bars, engine cooling). 
These manufacturers believe consistency in addressing these vehicles 
between the EPA and NHTSA programs is critical, as a manufacturer may 
be challenged to continue providing the performance needs of the 
Federal, State, and local government purchasers of emergency vehicles.
---------------------------------------------------------------------------

    \180\ 49 U.S.C. 32902(e).
---------------------------------------------------------------------------

    EPA is not finalizing such an emergency vehicle provision in this 
rule, since we believe that it is feasible for manufacturers to apply 
the same types of technologies to the base emergency vehicle as they 
would to other vehicles in their fleet. However, EPA also recognizes 
that, because of the unique ``performance upgrading'' needed to convert 
a base vehicle into one that meets the performance demands of the law 
enforcement community--which tend to reduce GHGs relative to the base 
vehicles--there could be situations where a manufacturer is more 
challenged in meeting the GHG standards than the CAFE standards, simply 
due to inclusion of these higher-emitting vehicles in the GHG program 
fleet. While EPA is not finalizing such an exclusion for emergency 
vehicles today, we do believe it is important to assess this issue in 
the future. EPA plans to assess the unique characteristics of these 
emergency vehicles and whether special provisions for addressing them 
are warranted. EPA plans to undertake this evaluation as part of a 
follow-up rulemaking in the next 18 months (this rulemaking is 
discussed in the context of small

[[Page 25410]]

volume manufacturers in Section III.B.6. below).
BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TR07MY10.014

[[Page 25411]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.015

BILLING CODE 6560-50-C

[[Page 25412]]

3. Overview of How EPA's CO2 Standards Will Be Implemented 
for Individual Manufacturers
    This section provides a brief overview of how EPA will implement 
the CO2 standards. Section III.E explains EPA's approach to 
certification and compliance in detail. As proposed, EPA is finalizing 
two kinds of standards--fleet average standards determined by a 
manufacturer's fleet makeup, and in-use standards that will apply to 
the individual vehicles that make up the manufacturer's fleet. Although 
this is similar in concept to the current light-duty vehicle Tier 2 
program, there are important differences. In explaining EPA's 
CO2 standards, it is useful to summarize how the Tier 2 
program works.
    Under Tier 2, manufacturers select a test vehicle prior to 
certification and test the vehicle and/or its emissions hardware to 
determine both its emissions performance when new and the emissions 
performance expected at the end of its useful life. Based on this 
testing, the vehicle is assigned to one of several specified bins of 
emissions levels, identified in the Tier 2 rule, and this bin level 
becomes the emissions standard for the test group the test vehicle 
represents. All of the vehicles in the group must meet the emissions 
level for that bin throughout their useful life. The emissions level 
assigned to the bin is also used in calculating the manufacturer's 
fleet average emissions performance.
    Since compliance with the Tier 2 fleet average depends on actual 
test group sales volumes and bin levels, it is not possible to 
determine compliance at the time the manufacturer applies for and 
receives a certificate of conformity for a test group. Instead, at 
certification, the manufacturer demonstrates that the vehicles in the 
test group are expected to comply throughout their useful life with the 
emissions bin assigned to that test group, and makes a good faith 
demonstration that its fleet is expected to comply with the Tier 2 
average when the model year is over. EPA issues a certificate for the 
vehicles covered by the test group based on this demonstration, and 
includes a condition in the certificate that if the manufacturer does 
not comply with the fleet average then production vehicles from that 
test group will be treated as not covered by the certificate to the 
extent needed to bring the manufacturer's fleet average into compliance 
with Tier 2.
    EPA is retaining the Tier 2 approach of requiring manufacturers to 
demonstrate in good faith at the time of certification that vehicles in 
a test group will meet applicable standards throughout useful life. EPA 
is also retaining the practice of conditioning certificates upon 
attainment of the fleet average standard. However, there are several 
important differences between a Tier 2 type of program and the 
CO2 standards program. These differences and resulting 
modifications to EPA's certification protocols are summarized below and 
are described in detail in Section III.E.
    EPA will continue to certify test groups as it does for Tier 2, and 
the CO2 emission results for the test vehicle will serve as 
the initial or default standard for all of the vehicles in the test 
group. However, manufacturers will later collect and submit data for 
individual vehicle model types \181\ within each test group, based on 
the extensive fuel economy testing that occurs through the course of 
the model year. This model type data will be used to assign a distinct 
certification level for each model type, thus replacing the initial 
test group data as the compliance value for each model. It is these 
model type values that will be used to calculate the fleet average 
after the end of the model year.\182\ The option to substitute model 
type data for the test group data is at the manufacturer's discretion, 
except they are required, as they are under the CAFE test protocols, to 
submit sufficient vehicle test data to represent no less than 90 
percent of their actual model year production. The test group emissions 
data will continue to apply for any model type that is not covered by 
vehicle test data specific to that model type.
---------------------------------------------------------------------------

    \181\ ``Model type'' is defined in 40 CFR 600.002-08 as ``* * * 
a unique combination of car line, basic engine, and transmission 
class.'' A ``car line'' is essentially a model name, such as 
``Camry,'' ``Malibu,'' or ``F150.'' The fleet average is calculated 
on the basis of model type emissions.
    \182\ The final in-use vehicle standards for each vehicle will 
also be based on the testing used to determine the model type 
values. As discussed in Section III.E.4, an in-use adjustment factor 
will be applied to the vehicle test results to determine the in-use 
standard that will apply during the useful life of the vehicle.
---------------------------------------------------------------------------

    EPA's CO2 standards also differ from Tier 2 in that the 
fleet average calculation for Tier 2 is based on test group bin levels 
and test group sales whereas under the CO2 program the 
CO2 fleet average could be based on a combination of test 
group and model type emissions and model type production. For the new 
CO2 standards, the final regulations use production rather 
than sales in calculating the fleet average in order to closely conform 
with the CAFE program, which is a production-based program.\183\ 
Production as defined in the regulations is relatively easy for 
manufacturers to track, but once the vehicle is delivered to 
dealerships the manufacturer becomes once step removed from the sale to 
the ultimate customer, and it becomes more difficult to track that 
final transaction. There is no environmental impact of using production 
instead of actual sales, and many commenters supported maintaining 
alignment between EPA's program and the CAFE program where possible.
---------------------------------------------------------------------------

    \183\ ``Production'' is defined as ``vehicles produced and 
delivered for sale'' and is not a measure of the number of vehicles 
actually sold.
---------------------------------------------------------------------------

4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    As explained above, EPA is finalizing a fleet average 
CO2 program for passenger cars and light trucks. EPA has 
previously implemented similar averaging programs for a range of motor 
vehicle types and pollutants, from the Tier 2 fleet average for 
NOX to motorcycle hydrocarbon (HC) plus oxides of nitrogen 
(NOX) emissions to NOX and particulate matter 
(PM) emissions from heavy-duty engines.\184\ The program will operate 
much like EPA's existing averaging programs in that manufacturers will 
calculate production-weighted fleet average emissions at the end of the 
model year and compare their fleet average with a fleet average 
emission standard to determine compliance. As in other EPA averaging 
programs, the Agency is also finalizing a comprehensive program for 
averaging, banking, and trading of credits which together will help 
manufacturers in planning and implementing the orderly phase-in of 
emissions control technology in their production, consistent with their 
typical redesign schedules.\185\
---------------------------------------------------------------------------

    \184\ For example, see the Tier 2 light-duty vehicle emission 
standards program (65 FR 6698, February 10, 2000), the 2010 and 
later model year motorcycle emissions program (69 FR 2398, January 
15, 2004), and the 2007 and later model year heavy-duty engine and 
vehicle standards program (66 FR 5001, January 18, 2001).
    \185\ See final regulations at 40 CFR 86.1865-12.
---------------------------------------------------------------------------

    Averaging, Banking, and Trading (ABT) of emissions credits has been 
an important part of many mobile source programs under CAA Title II, 
both for fuels programs as well as for engine and vehicle programs. ABT 
is important because it can help to address many issues of 
technological feasibility and lead-time, as well as considerations of 
cost. ABT is an integral part of the standard setting itself, and is 
not just an add-on to help reduce costs. In many cases, ABT resolves 
issues of lead-time

[[Page 25413]]

or technical feasibility, allowing EPA to set a standard that is either 
numerically more stringent or goes into effect earlier than could have 
been justified otherwise. This provides important environmental 
benefits and at the same time it increases flexibility and reduces 
costs for the regulated industry. A wide range of commenters expressed 
general support for the ABT provisions. Some commenters noted issues 
regarding specific provisions of the ABT program, which will be 
discussed in the appropriate context below. Several commenters 
requested that EPA publicly release manufacturer-specific ABT data to 
improve the transparency of credit transactions. These comments are 
addressed in Section III.E.
    This section discusses generation of credits by achieving a fleet 
average CO2 level that is lower than the manufacturer's 
CO2 fleet average standard. The final rule includes a 
variety of additional ways credits may be generated by manufacturers. 
Section III.C describes these additional opportunities to generate 
credits in detail. Manufacturers may earn credits through A/C system 
improvements beyond a specified baseline. Credits can also be generated 
by producing alternative fuel vehicles, by producing advanced 
technology vehicles including electric vehicles, plug-in hybrids, and 
fuel cell vehicles, and by using technologies that improve off-cycle 
emissions. In addition, early credits can be generated prior to the 
program's MY 2012 start date. The credits will be used to determine a 
manufacturer's compliance at the end of the model year. These credit 
generating opportunities are described below in Section III.C.
    As explained earlier, manufacturers will determine the fleet 
average standard that applies to their car fleet and the standard for 
their truck fleet from the applicable attribute-based curve. A 
manufacturer's credit or debit balance will be determined by comparing 
their fleet average with the manufacturer's CO2 standard for 
that model year. The standard will be calculated from footprint values 
on the attribute curve and actual production levels of vehicles at each 
footprint. A manufacturer will generate credits if its car or truck 
fleet achieves a fleet average CO2 level lower than its 
standard and will generate debits if its fleet average CO2 
level is above that standard. At the end of the model year, each 
manufacturer will calculate a production-weighted fleet average for 
each averaging set (cars and trucks). A manufacturer's car or truck 
fleet that achieves a fleet average CO2 level lower than its 
standard will generate credits, and if its fleet average CO2 
level is above that standard its fleet will generate debits.
    The regulations will account for the difference in expected 
lifetime vehicle miles traveled (VMT) between cars and trucks in order 
to preserve CO2 reductions when credits are transferred 
between cars and trucks. As directed by EISA, NHTSA accomplishes this 
in the CAFE program by using an adjustment factor that is applied to 
credits when they are transferred between car and truck compliance 
categories. The CAFE adjustment factor accounts for two different 
influences that can cause the transfer of car and truck credits 
(expressed in tenths of a mpg), if left unadjusted, to potentially 
negate fuel reductions. First, mpg is not linear with fuel consumption, 
i.e., a 1 mpg improvement above a standard will imply a different 
amount of actual fuel consumed depending on the level of the standard. 
Second, NHTSA's conversion corrects for the fact that the typical 
lifetime miles for cars is less than that for trucks, meaning that 
credits earned for cars and trucks are not necessarily equal. NHTSA's 
adjustment factor essentially converts credits into vehicle lifetime 
gallons to ensure preservation of fuel savings and the transfer credits 
on an equal basis, and then converts back to the statutorily-required 
credit units of tenths of a mile per gallon. To convert to gallons 
NHTSA's conversion must take into account the expected lifetime mileage 
for cars and trucks. Because EPA's standards are expressed on a 
CO2 gram per mile basis, which is linear with fuel 
consumption, EPA's credit calculations do not need to account for the 
first issue noted above. However, EPA is accounting for the second 
issue by expressing credits when they are generated in total lifetime 
Megagrams (metric tons), rather than through the use of conversion 
factors that would apply at certain times. In this way credits may be 
freely exchanged between car and truck compliance categories without 
the need for adjustment. Additional detail regarding this approach, 
including a discussion of the vehicle lifetime mileage estimates for 
cars and trucks can be found in Section III.E.5. A discussion of the 
derivation of the estimated vehicle lifetime miles traveled can be 
found in Chapter 4 of the Joint Technical Support Document.
    A manufacturer that generates credits in a given year and vehicle 
category may use those credits in essentially four ways, although with 
some limitations. These provisions are very similar to those of other 
EPA averaging, banking, and trading programs. These provisions have the 
potential to reduce costs and compliance burden, and support the 
feasibility of the standards in terms of lead time and orderly redesign 
by a manufacturer, thus promoting and not reducing the environmental 
benefits of the program.
    First, EPA proposed that the manufacturer must use any credits 
earned to offset any deficit that had accrued in the current year or in 
a prior model year that had been carried over to the current model 
year. NRDC commented that such a provision is necessary to prevent 
credit ``shell games'' from delaying the adoption of new technologies. 
EPA's Tier 2 program includes such a restriction, and EPA is applying 
an identical restriction to the GHG program. Simply stated, a 
manufacturer may not bank (or carry forward) credits if that 
manufacturer is also carrying a deficit. In such a case, the 
manufacturer is obligated to use any current model year credits to 
offset that deficit. Using current model year credits to offset a prior 
model year deficit is referred to in the CAFE program as credit carry-
back. EPA's deficit carry-forward, or credit carry-back provisions are 
described further, below.
    Second, after satisfying any needs to offset pre-existing deficits, 
remaining credits may be banked, or saved for use in future years. 
Credits generated in this program will be available to the manufacturer 
for use in any of the five model years after the model year in which 
they were generated, consistent with the CAFE program under EISA. This 
is also referred to as a credit carry-forward provision.
    EPA received a number of comments regarding the credit carry-back 
and carry-forward provisions. Many supported the proposed consistency 
of these provisions with EISA and the flexibility provided by these 
provisions, and several offered qualified or tentative support. For 
example, NRDC encouraged EPA to consider further restrictions in the 
2017 and later model years. Public Citizen expressed concern regarding 
the complexity of the program and how these provisions might obscure a 
straightforward determination of compliance in any given model year. At 
least two automobile manufacturers suggested modeling the program after 
California, which allows credits to be carried forward for three 
additional years following a discounting schedule.
    For other new emission control programs, EPA has sometimes 
initially restricted credit life to allow time for the Agency to assess 
whether the credit program is functioning as intended. When EPA first 
offered averaging and

[[Page 25414]]

banking provisions in its light-duty emissions control program (the 
National Low Emission Vehicle Program), credit life was restricted to 
three years. The same is true of EPA's early averaging and banking 
program for heavy-duty engines. As these programs matured and were 
subsequently revised, EPA became confident that the programs were 
functioning as intended and that the standards were sufficiently 
stringent to remove the restrictions on credit life. EPA is therefore 
acting consistently with our past practice in finalizing reasonable 
restrictions on credit life in this new program. The Agency believes 
that a credit life of five years represents an appropriate balance 
between promoting orderly redesign and upgrade of the emissions control 
technology in the manufacturer's fleet and the policy goal of 
preventing large numbers of credits accumulated early in the program 
from interfering with the incentive to develop and transition to other 
more advanced emissions control technologies. As discussed below in 
Section III.C, early credits generated by a manufacturer are also be 
subject to the five year credit carry-forward restriction based on the 
year in which they are generated. This limits the effect of the early 
credits on the long-term emissions reductions anticipated to result 
from the new standards.
    Third, the new program enables manufacturers to transfer credits 
between the two averaging sets, passenger cars and trucks, within a 
manufacturer. For example, credits accrued by over-compliance with a 
manufacturer's car fleet average standard may be used to offset debits 
accrued due to that manufacturer's not meeting the truck fleet average 
standard in a given year. EPA believes that such cross-category use of 
credits by a manufacturer provides important additional flexibility in 
the transition to emissions control technology without affecting 
overall emission reductions. Comments regarding the credit transfer 
provisions expressed general support, noting that it does not matter to 
the environment whether a gram of greenhouse gas is generated from a 
car or a truck. Additional comments regarding EPA's streamlined 
megagram approach and method of accounting for expected vehicle 
lifetime miles traveled are summarized in Section III.E.
    Finally, accumulated credits may be traded to another vehicle 
manufacturer. As with intra-company credit use, such inter-company 
credit trading provides flexibility in the transition to emissions 
control technology without affecting overall emission reductions. 
Trading credits to another vehicle manufacturer could be a 
straightforward process between the two manufacturers, but could also 
involve third parties that could serve as credit brokers. Brokers may 
not own the credits at any time. These sorts of exchanges are typically 
allowed under EPA's current emission credit programs, e.g., the Tier 2 
light-duty vehicle NOX fleet average standard and the heavy-
duty engine NOX fleet average standards, although 
manufacturers have seldom made such exchanges. Comments generally 
reflected support for the credit trading flexibility, although some 
questioned the extent to which trading might actually occur. As noted 
above, comments regarding program transparency are addressed in Section 
III.E.
    If a manufacturer has accrued a deficit at the end of a model 
year--that is, its fleet average level failed to meet the required 
fleet average standard--the manufacturer may carry that deficit forward 
(also referred to credit carry-back) for a total of three model years 
after the model year in which that deficit was generated. EPA continues 
to believe that three years is an appropriate amount of time that gives 
the manufacturers adequate time to respond to a deficit situation but 
does not create a lengthy period of prolonged non-compliance with the 
fleet average standards.\186\ As noted above, such a deficit carry-
forward may only occur after the manufacturer has applied any banked 
credits or credits from another averaging set. If a deficit still 
remains after the manufacturer has applied all available credits, and 
the manufacturer did not obtain credits elsewhere, the deficit may be 
carried forward for up to three model years. No deficit may be carried 
into the fourth model year after the model year in which the deficit 
occurred. Any deficit from the first model year that remains after the 
third model year will constitute a violation of the condition on the 
certificate, which will constitute a violation of the Clean Air Act and 
will be subject to enforcement action.
---------------------------------------------------------------------------

    \186\ EPA emission control programs that incorporate ABT 
provisions (e.g., the Tier 2 program and the Mobile Source Air 
Toxics program) have provided this three-year deficit carry-forward 
provision for this reason. See 65 FR 6745 (February 10, 2000), and 
71 FR 8427 (February 26, 2007).
---------------------------------------------------------------------------

    The averaging, banking, and trading provisions are generally 
consistent with those included in the CAFE program, with a few notable 
exceptions. As with EPA's approach, CAFE allows five year carry-forward 
of credits and three year carry-back. Under CAFE, transfers of credits 
across a manufacturer's car and truck averaging sets are also allowed, 
but with limits established by EISA on the use of transferred credits. 
The amount of transferred credits that can be used in a year is 
limited, and transferred credits may not be used to meet the CAFE 
minimum domestic passenger car standard. CAFE allows credit trading, 
but again, traded credits cannot be used to meet the minimum domestic 
passenger car standard. EPA did not propose, and is not finalizing, 
these constraints on the use of transferred credits.
    Additional details regarding the averaging, banking, and trading 
provisions and how EPA will implement these provisions can be found in 
Section III.E.
5. CO2 Temporary Lead-Time Allowance Alternative Standards
    EPA proposed adopting a limited and narrowly prescribed option, 
called the Temporary Lead-time Allowance Alternative Standards (TLAAS), 
to provide additional lead time for a certain subset of manufacturers. 
As noted in the proposal, this option was designed to address two 
different situations where we project that more lead time is needed, 
based on the level of emissions control technology and emissions 
control performance currently exhibited by certain vehicles. One 
situation involves manufacturers who have traditionally paid CAFE fines 
instead of complying with the CAFE fleet average, and as a result at 
least part of their vehicle production currently has significantly 
higher CO2 and lower fuel economy levels than the industry 
average. More lead time is needed in the program's initial years to 
upgrade these vehicles to meet the aggressive CO2 emissions 
performance levels required by the final rule. The other situation 
involves manufacturers who have a limited line of vehicles and are 
therefore unable to average emissions performance across a full line of 
production. For example, some smaller volume manufacturers produce only 
vehicles with emissions above the corresponding CO2 
footprint target, and do not have other types of vehicles (that exceed 
their compliance targets) in their production mix with which to 
average. Often, these manufacturers also pay fines under the CAFE 
program rather than meeting the applicable CAFE standard. Because 
voluntary non-compliance through payment of civil penalties is 
impermissible for the GHG standards under the CAA, both of these types 
of manufacturers need additional lead time to upgrade vehicles and meet 
the standards. EPA proposed that this subset of manufacturers be 
allowed to

[[Page 25415]]

produce up to 100,000 vehicles over model years 2012-2015 that would be 
subject to a somewhat less stringent CO2 standard of 1.25 
times the standard that would otherwise apply to those vehicles. Only 
manufacturers with total U.S. sales of less than 400,000 vehicles per 
year in MY 2009 would be eligible for this allowance. Those 
manufacturers would have to exhaust designated program flexibilities in 
order to be eligible, and credit generating and trading opportunities 
for the eligible vehicles would be restricted. See 74 FR 49522-224.
    EPA is finalizing the optional TLAAS provisions, with certain 
limited modifications, so that these manufacturers can have sufficient 
lead time to meet the tougher MY 2016 GHG standards, while preserving 
consumer choice of vehicles during this time.\187\ EPA is finalizing 
modified provisions to address the unique lead-time issues of smaller 
volume manufacturers. One provision involves additional flexibility 
under the TLAAS program for manufacturers below 50,000 U.S. vehicle 
sales, as discussed further in Section III.B.5.b below. Another 
provision defers the CO2 standards for the smallest volume 
manufacturers, those below 5,000 U.S. vehicle sales, as discussed in 
Section III.B.6.
---------------------------------------------------------------------------

    \187\ See final regulations at 40 CFR 86.1818-12(e).
---------------------------------------------------------------------------

    Comments from several manufacturers strongly supported the TLAAS 
program as critical to provide the lead time needed for manufacturers 
to meet the standards. Volkswagen commented that TLAAS is an important 
aspect of EPA's proposal and that it responds to the needs of some 
smaller manufacturers for additional lead time and flexibility under 
the CAA. Daimler Automotive Group commented that TLAAS is a critical 
element of the program and falls squarely within EPA's discretion to 
provide appropriate lead time to limited-line low-volume manufacturers. 
BMW also commented that TLAAS is needed because most of the companies 
with limited lines will have to meet a more stringent fleet standard by 
2016 than full-line manufacturers because they sell ``feature-dense'' 
vehicles (as opposed to light-weight large wheel-base vehicles) and no 
pick-up trucks. BMW commented that their MY 2016 footprint-based 
standard is projected to be 4 percent more stringent than the fleet 
average standard of 250 g/mile. The Alliance of Automobile 
Manufacturers supported the flexibilities proposed by EPA, including 
TLAAS. As discussed in detail below, EPA received extensive comments 
from many smaller volume manufacturers that the proposed TLAAS program 
was insufficient to address lead time and feasibility issues they will 
face under the program.
    In contrast, EPA also received comments from the Center for 
Biological Diversity opposing the TLAAS program, commenting that an 
exception for high performance vehicles is not allowed under EPCA or 
the CAA and that it rewards manufacturers that pay penalties under CAFE 
and penalizes those that have complied with CAFE. This commenter 
suggests that manufacturers could decrease vehicle mass or power output 
of engines, purchase credits from another manufacturer, or earn off-
cycle credits. EPA responds to these comments below.
    After carefully considering the public comments, EPA continues to 
believe that the TLAAS program is essential in providing necessary lead 
time and flexibility to eligible manufacturers in the early years of 
the standards. First, EPA believes that it is acting well within its 
legal authority in adopting the various TLAAS provisions. EPA is 
required to provide sufficient lead time for industry as a whole for 
standards under section 202(a)(1), which mandates that standards are to 
take effect only ``after providing 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, although section 202(a)(1) does 
not explicitly authorize this or any other specific lead time 
provision, it affords ample leeway for EPA to craft provisions designed 
to provide adequate lead time, and to tailor those provisions as 
appropriate. We show below that the types of technology penetrations 
required for TLAAS-eligible vehicles in the program's earlier years 
raise critical issues as to adequacy of lead time. As discussed in the 
EPA feasibility analysis provided in Section III.D.6 and III.D.7 
several manufacturers eligible for TLAAS are projected to face a 
compliance shortfall in MY 2016 without the TLAAS program, even with 
the full application of technologies assumed by the OMEGA Model, 
including hybrid use of up to 15 percent. These include BMW, Jaguar 
Land Rover, Daimler, Porsche, and Volkswagen In addition, the smaller 
volume manufacturers of this group (i.e., Jaguar Land Rover and 
Porsche) face the greatest shortfall (see Table III.D.6-4). Even with 
TLAAS, these manufacturers will need to take technology steps to comply 
with standards above and beyond those of other manufacturers. These 
manufacturers have relatively few models with high baseline emissions 
and this flexibility allows them additional lead time to adapt to a 
longer term strategy of meeting the final standards within their 
vehicle redesign cycles.
    Second, EPA has carefully evaluated other means of eligible 
manufacturers to meet the standards, such as utilizing available credit 
opportunities. Indeed, eligibility for the TLAAS, and for temporary 
deferral of regulation for very small volume manufacturers, is 
conditioned on first exhausting the various programmatic flexibilities 
including credit utilization. At the same time, a basic reason certain 
manufacturers are faced with special lead time difficulties is their 
inability to generate credits which can be then be averaged across 
their fleet because of limited product lines. And although purchasing 
credits is an option under the program, there are no guarantees that 
credits will be available. Historic practice in fact suggests that 
manufacturers do not sell credits to competitors. While some of the 
smaller manufacturers covered by the TLAAS program may be in a position 
to obtain credits, they are not likely to be available for the TLAAS 
manufacturers across the board in the volume needed to comply without 
the TLAAS provisions. At the same time the TLAAS provisions have been 
structured such that any credits that do become available would likely 
be used before a manufacturer would turn to the more restricted and 
limiting TLAAS provisions.
    As discussed in Section III.C., off-cycle credits are available if 
manufacturers are able to employ new and innovative technologies not 
already in widespread use, which provide real-world emissions 
reductions not captured on the current test cycles. Further, these 
credits are eligible only for technologies that are newly introduced on 
just a few vehicle models, and are not yet in widespread use across the 
fleet. The magnitude of these credits are highly uncertain because they 
are based on new technologies, and EPA is not aware of any such 
technologies that would provide enough credits to bring these 
manufacturers into compliance without TLAAS lead time flexibility. 
Manufacturers first must develop these technologies and then 
demonstrate their emissions reductions capabilities, which will require 
lead time. Moreover, the technologies mentioned in the proposal which 
are the most likely to be eligible based on present knowledge, 
including solar panels and active

[[Page 25416]]

aerodynamics, are likely to provide only small incremental emissions 
reductions.
    We agree with the comment that reducing vehicle mass or power are 
potential methods for reducing emissions that should be employed by 
TLAAS-eligible manufacturers to help them meet standards. However, 
based on our assessment of the lead time needed for these manufacturers 
to comply with the standards, especially given their more limited 
product offerings and higher baseline emissions, we believe that 
additional time is needed for them to come into compliance. EPA can 
permissibly consider the TLAAS and other manufacturers' lead time, 
cost, and feasibility issues in developing the primary standards and 
has discretion in setting the overall stringency of the standards to 
account for these factors. Natural Resources Defense Council v. Thomas, 
805 F. 2d 410, 421 (DC Cir. 1986) (even when implementing technology-
forcing provisions of Title II, EPA may base standards on an industry-
wide capability ``taking into account the broad spectrum of 
technological capabilities as well as cost and other factors'' across 
the industry). EPA is not legally required to set standards that drive 
these manufacturers or their products out of the market, nor is EPA 
legally required to preserve a certain product line or vehicle 
characteristic. Instead EPA has broad discretion under section 
202(a)(1) to set standards that reasonably balance lead time needs 
across the industry as a whole and vehicle availability. In this 
rulemaking, EPA has consistently emphasized the importance of obtaining 
very significant reductions in emissions of GHGs from the industry as a 
whole, and obtaining those reductions through regulatory approaches 
that avoid limiting the ability of manufacturers to provide model 
availability and choice for consumers. The primary mechanism to achieve 
this is the use of a footprint attribute curve in setting the 
increasingly stringent model year standards. The TLAAS provisions are a 
temporary and strictly limited modification to these attribute 
standards allowing the TLAAS manufacturers lead time to upgrade their 
product lines to meet the 2016 GHG standards. EPA has made a reasonable 
choice here to preserve the overall stringency of the program, and to 
afford increased flexibility in the program's early years to a limited 
class of vehicles to assure adequate lead time for all manufacturers to 
meet the strictest of the standards by MY 2016.
    As described below, EPA also carefully considered the comments of 
smaller volume manufacturers and believes additional lead time is 
needed. Therefore, EPA is finalizing the TLAAS program, similar to that 
proposed, and is also finalizing an additional TLAAS option for 
manufacturers with annual U.S. sales under 50,000 vehicles. EPA is also 
deferring standards for manufacturers with annual sales of less than 
5,000 vehicles. These new TLAAS provisions and the small volume 
manufacturer deferment are discussed in detail below and in Section 
III.B.6.
a. Base TLAAS Program
    As proposed, EPA is establishing the TLAAS program for a specified 
subset of manufacturers. This alternative standard is an option only 
for manufacturers with total U.S. sales of less than 400,000 vehicles 
per year, using 2009 model year final sales numbers to determine 
eligibility for these alternative standards. For manufacturers with 
annual U.S. sales of 50,000 or more but less than 400,000 vehicles, EPA 
is finalizing the TLAAS program largely as proposed. EPA proposed that 
under the TLAAS, qualifying manufacturers would be allowed to produce 
up to 100,000 vehicles that would be subject to a somewhat less 
stringent CO2 standard of 1.25 times the standard that would 
otherwise apply to those vehicles. This 100,000 volume is not an annual 
limit, but is an absolute limit for the total number of vehicles which 
can use the TLAAS program over the model years 2012-2015. Any 
additional production would be subject to the same standards as any 
other manufacturer. EPA is retaining this limit for manufacturers with 
baseline MY 2009 sales of 50,000 but less than 400,000. In addition, as 
discussed further below, EPA is finalizing a variety of restrictions on 
the use of the TLAAS program, to ensure that only manufacturers who 
need more lead time for the kinds of reasons noted above are likely to 
use the program.
    Volvo and Saab commented that basing eligibility strictly on MY 
2009 sales would be problematic for these companies, which are being 
spun-off from larger manufacturer in the MY 2009 time frame due to the 
upheaval in the auto industry over the past few years. These commenters 
offered a variety of suggestions including using MY 2010 as the 
eligibility cut-off instead of MY 2009, reassessing eligibility on a 
year-by-year basis as corporate relationships change, or allowing 
companies separated from a larger parent company by the end of 2010 to 
use their MY 2009 branded U.S. sales to qualify for TLAAS. In response 
to these concerns, EPA recognizes that these companies currently being 
sold by larger manufacturers will share the same characteristics of the 
manufacturers for which the TLAAS program was designed. As newly 
independent companies, these firms will face the challenges of a 
narrower fleet of vehicles across which to average, and may potentially 
be in a situation, at least in the first few years, of paying fines 
under CAFE. Lead time concerns in the program's initial years are in 
fact particularly acute for these manufacturers since they will be 
newly independent, and thus would have even less of an opportunity to 
modify their vehicles to meet the standards. Therefore, EPA is 
finalizing an approach that allows manufacturers with U.S. ``branded 
sales'' in MY 2009 under the umbrella of a larger manufacturer that 
become independent by the end of calendar year 2010 to use their MY 
2009 branded sales to qualify for TLAAS eligibility. In other words, a 
manufacturer will be eligible for TLAAS if it produced vehicles for the 
U.S. market in MY 2009, its branded sales of U.S. vehicles were less 
than 400,000 in MY 2009 but whose vehicles were sold as part of a 
larger manufacturer, and it becomes independent by the end of calendar 
year 2010, if the new entity has sales below 400,000 vehicles.
    Manufacturers with no U.S. sales in MY 2009 are not eligible to 
utilize the TLAAS program. EPA does not support the commenter's 
suggestion of a year-by-year eligibility determination because it opens 
up the TLAAS program to an unknown universe of potential eligible 
manufacturers, with the potential for gaming. EPA does not believe the 
TLAAS program should be available to new entrants to the U.S. market 
since these manufacturers are not transitioning from the CAFE regime 
which allows fine paying as a means of compliance to a CAA regime which 
does not, and hence do not present the same types of lead time issues. 
Manufacturers entering the U.S. market for the first time thus will be 
fully subject to the GHG fleet-average standards.
    As proposed, manufacturers qualifying for TLAAS will be allowed to 
meet slightly less stringent standards for a limited number of 
vehicles. An eligible manufacturer could have a total of up to 100,000 
units of cars or trucks combined over model years 2012-2015 which would 
be subject to a standard 1.25 times the standard that would otherwise 
apply to those vehicles under the primary program. In other words, the 
footprint curves upon which the individual manufacturer standards for 
the TLAAS fleets are based would be

[[Page 25417]]

less stringent by a factor of 1.25 for up to 100,000 of an eligible 
manufacturer's vehicles for model years 2012-2015. EPA believes that 
100,000 units over four model years achieves an appropriate balance, as 
the emissions impact is quite small, but does provide companies with 
necessary lead time during MY 2012-2015. For example, for a 
manufacturer producing 400,000 vehicles per year, this would be a total 
of up to 100,000 vehicles out of a total production of up to 1.6 
million vehicles over the four year period, or about 6 percent of total 
production.
    Finally, for manufacturers of 50,000 but less than 400,000 U.S. 
vehicles sales during 2009, the program expires at the end of MY 2015 
as proposed. EPA continues to believe the program reasonably addresses 
a real world lead time constraint for these manufacturers, and does so 
in a way that balances the need for more lead time with the need to 
minimize any resulting loss in potential emissions reductions. In MY 
2016, the TLAAS option thus ends for all but the smallest manufacturers 
opting for TLAAS, and manufacturers must comply with the same 
CO2 standards as non-TLAAS manufacturers; under the CAFE 
program companies would continue to be allowed to pay civil penalties 
in lieu of complying with the CAFE standards. However, because 
companies must meet both the CAFE standards and the EPA CO2 
standards, the National Program will have the practical impact of 
providing a level playing field for almost all except the smallest 
companies beginning in MY 2016. This option, even with the 
modifications being adopted, thereby results in more fuel savings and 
CO2 reductions than would be the case under the CAFE program 
by itself.
    EPA proposed that manufacturers meeting the cut-point of below 
400,000 sales for MY 2009 but whose U.S. sales grew above 400,000 in 
any subsequent model years would remain eligible for the TLAAS program. 
The total sales number applies at the corporate level, so if a 
corporation owns several vehicle brands the aggregate sales for the 
corporation must be used. These provisions would help prevent gaming of 
the provisions through corporate restructuring. Corporate ownership or 
control relationships would be based on determinations made under CAFE 
for model year 2009 (except in the case of a manufacturer being sold by 
a larger manufacturer by the end of calendar year 2010, as discussed 
above). In other words, corporations grouped together for purposes of 
meeting CAFE standards in MY 2009, must be grouped together for 
determining whether or not they are eligible under the 400,000 vehicle 
cut point. EPA is finalizing these provisions with the following 
modifications. EPA recognizes the dynamic corporate restructuring 
occurring in the auto industry and believes it is important to 
structure additional provisions to ensure there is no ability to game 
the TLAAS provisions and to ensure no unintended loss of feasible 
environmental benefits. Therefore, EPA is finalizing a provision that 
if two or more TLAAS eligible companies are later merged, with one 
company having at least 50% or more ownership of the other, or if the 
companies are combined for the purposes of EPA certification and 
compliance, the TLAAS allotment is not additive. The merged company 
will only be allowed the allotment for what is considered the parent 
company under the new corporate structure. Further, if the newly formed 
company would have exceeded the 400,000 vehicle cut point based on 
combined MY 2009 sales, the new entity is not eligible for TLAAS in the 
model year following the merger. EPA believes that such mergers and 
acquisitions would give the parent company additional opportunities to 
average across its fleet, eliminating one of the primary needs for the 
TLAAS program. This provision will not be retroactive and will not 
affect the TLAAS program in the year of the merger or for previous 
model years. EPA believes these additional provisions are essential to 
ensure the integrity of the TLAAS program by ensuring that it does not 
become available to large manufacturers through mergers and 
acquisitions.
    As proposed, the TLAAS vehicles will be separate car and truck 
fleets for that model year and subject to the less stringent footprint-
based standards of 1.25 times the primary fleet average that would 
otherwise apply. The manufacturer will determine what vehicles are 
assigned to these separate averaging sets for each model year. As 
proposed, credits from the primary fleet average program can be 
transferred and used in the TLAAS program. Credits generated within the 
TLAAS program may also be transferred between the TLAAS car and truck 
averaging sets (but not to the primary fleet as explained below) for 
use through MY 2015 when the TLAAS ends.
    EPA is finalizing a number of restrictions on credit trading within 
the TLAAS program, as proposed. EPA is concerned that if credit use in 
the TLAAS program were unrestricted, some manufacturers would be able 
to place relatively clean vehicles in the TLAAS fleet, and generate 
credits for the primary program fleet. First, credits generated under 
TLAAS may not be transferred or traded to the primary program. 
Therefore, any unused credits under TLAAS expire after model year 2015 
(or 2016 for manufacturers with annual sales less than 50,000 
vehicles). EPA believes that this is necessary to limit the program to 
situations where it is needed and to prevent the allowance from being 
inappropriately transferred to the long-term primary program where it 
is not needed. EPA continues to believe this provision is necessary to 
prevent credits from being earned simply by removing some high-emitting 
vehicles from the primary fleet. Absent this restriction, manufacturers 
would be able to choose to use the TLAAS for these vehicles and also be 
able to earn credits under the primary program that could be banked or 
traded under the primary program without restriction. Second, EPA is 
finalizing two additional restrictions on the use of TLAAS by requiring 
that for any of the 2012-2015 model years for which an eligible 
manufacturer would like to use the TLAAS, the manufacturer must use two 
of the available flexibilities in the GHG program first in order to try 
and comply with the primary standard before accessing the TLAAS--i.e., 
TLAAS eligibility is not available to those manufacturers with other 
readily-available means of compliance. Specifically, before using the 
TLAAS a manufacturer must: (1) Use any banked emission credits from 
previous model years; and, (2) use any available credits from the 
companies' car or truck fleet for the specific model year (i.e., use 
credit transfer from cars to trucks or from trucks to cars). That is, 
before using the TLAAS for either the car fleet or the truck fleet, the 
company must make use of any available intra-manufacturer credit 
transfers first. Finally, EPA is restricting the use of banking and 
trading between companies of credits in the primary program in years in 
which the TLAAS is being used. No such restriction is in place for 
years when the TLAAS is not being used.
    EPA received several comments in support of these credit 
restrictions for the TLAAS program. On the negative side, one 
manufacturer commented that the restrictions were not necessary, saying 
that the restrictions are counter to providing manufacturers with 
flexibility and that the emissions impacts estimated by EPA due to the 
full use of the program are small. However, EPA continues to believe 
that the restrictions are appropriate to prevent the potential gaming 
described above, and to ensure that the TLAAS

[[Page 25418]]

program is used only by those manufacturers that have exhausted all 
other readily available compliance mechanisms and consequently have 
legitimate lead time issues.
    One manufacturer commented that the program is restrictive due to 
the requirement that manufacturers must decide prior to the start of 
the model year whether or not and how to use the TLAAS program. EPA did 
not intend for manufactures to have to make this determination prior to 
the start of the model year. EPA expects that manufacturers will 
provide a best estimate of their plans to use the TLAAS program during 
certification based on projected model year sales, as part of their pre 
model year report projecting their overall plan for compliance (as 
required by Sec.  600.514-12 of the regulations). Manufacturers must 
determine the program's actual use at the end of the model year during 
the process of demonstrating year-end compliance. EPA recognizes that 
depending on actual sales for a given model year, a manufacturer's use 
of TLAAS may change from the projections used in the pre-model year 
report.
b. Additional TLAAS Flexibility for Manufacturers With MY 2009 Sales of 
Less Than 50,000 Vehicles
    EPA received extensive comments that the TLAAS program would not 
provide sufficient lead time and flexibility for companies with sales 
of significantly less than 400,000 vehicles. Jaguar Land Rover, which 
separated from Ford in 2008, commented that it sells products only in 
the middle and large vehicle segments and that its total product range 
remains significantly more limited in terms of segments in comparison 
with its main competitors which typically have approximately 75% of 
their passenger car fleet in the small and middle segments. Jaguar Land 
Rover also commented that it has already committed $1.3 billion of 
investment to reducing CO2 from its vehicle fleet and that 
this investment is already delivering a range of technologies to 
improve the fuel economy and CO2 performance of its existing 
vehicles. Jaguar Land Rover submitted confidential business information 
regarding their future product plans and emissions performance 
capabilities of their vehicles which documents their assertions.
    Porsche commented that their passenger car footprint-based standard 
is the most stringent of any manufacturer and this, combined with their 
high baseline emissions level, means that it would need to reduce 
emissions by about 10 percent per year over the 2012-2016 time-frame. 
Porsche commented that such reductions were not feasible. They 
commented that their competitors will be able to continue to offer 
their full line of products because the competitors have a wider range 
of products with which to average. Porsche further commented that their 
product development cycles are longer than larger competitors. Porsche 
recommended for small limited line niche manufacturers that EPA require 
an annual 5 percent reduction in emissions from baseline up to a total 
reduction of 25 percent, or to modify the TLAAS program to require such 
reductions. Porsche noted that this percent reduction would be in line 
with the average emissions reductions required for larger 
manufacturers.
    EPA also received comments from several very small volume 
manufacturers that, even with the TLAAS program, the proposed standards 
are not feasible for them, certainly not in the MY 2012-2016 MY time 
frame. These manufacturers included Aston Martin, McLaren, Lotus, and 
Ferrari. Their comments consistently focused on the need for separate, 
less stringent standards for small volume manufacturers. The 
manufacturers commented that they are willing to make progress in 
reducing emissions, but that separate, less-stringent small volume 
manufacturer standards are needed for them to remain in the U.S. 
market. The commenters note that their product line consists entirely 
of high end sports cars. Most of these manufacturers have only a few 
vehicle models, have annual sales on the order of a few hundred to a 
few thousand vehicles, and several have average baseline CO2 
emissions in excess of 500 g/mile--nearly twice the industry average. 
McLaren commented that its vehicle model to be introduced in MY 2011 
will have class leading CO2 performance but that it would 
not be able to offer the vehicle in the U.S. market because it does not 
have other vehicle models with which to average. Similarly, Aston 
Martin commented that it is of utmost importance that it is not 
required to reduce emissions significantly more than equivalent 
vehicles from larger manufacturers, which would render them 
uncompetitive due purely to the size of its business. Manufacturers 
also noted that they launch new products less frequently than larger 
manufacturers (e.g., Ferrari noted that their production period for 
models is 7-8 years), and that suppliers serve large manufacturers 
first because they can buy in larger volumes. Some manufacturers also 
noted that they would be willing to purchase credits at a reasonable 
price, but they believed that credit availability from other 
manufacturers was highly unlikely due to the competitive nature of the 
auto industry. Several of these manufacturers provided confidential 
business information indicating their preliminary plans for reducing 
GHG emissions across their product lines through MY 2016 and beyond.
    The Association of International Automobile Manufacturers (AIAM) 
also commented that, because of their essential features, vehicles 
produced by small volume manufacturers would not be able to meet the 
proposed greenhouse gas standards. AIAM commented that ``while it is 
possible that these small volume manufacturers (SVMs) might be able to 
comply with greenhouse gas standards by purchasing credits from other 
manufacturers, this is far too speculative a solution. The market for 
credits is unpredictable at this point. Other than exiting the U.S. 
market, therefore, the only other possible solution for an independent 
SVM would be to sell an equity interest in the company to a larger, 
full-line manufacturer, so that the emissions of the luxury vehicles 
could be averaged in with the much larger volume of other vehicles 
produced by the major manufacturer. This cannot possibly be the outcome 
EPA intends, especially when measured against the minimal, if any, 
environmental benefit that would result.'' AIAM commented further that 
``there is ample legal authority for EPA to provide SVMs a more 
generous lead-time allowance or an alternative standard. Indeed, EPA 
recognizes such authority in the proposal for a small entity exemption 
(for those companies defined under the Small Business Administration's 
regulations), see 74 FR at 49574, and in the TLAAS. These provisions 
are consistent with previous EPA rulemaking under the Clean Air Act 
which offer relief to SVMs.'' AIAM recommended deferring standards for 
SVMs to a future rulemaking, providing EPA with adequate time to assess 
relevant product plans and technology feasibility information from 
SVMs, conduct the necessary reviews and modeling that may be needed, 
and consult with the stakeholders.
    These commenters noted that standards for the smallest 
manufacturers were deferred in the California program until MY 2016 and 
that California's program would have established standards for small 
volume manufacturers in MY 2016 at a level that would be 
technologically feasible.

[[Page 25419]]

The commenters also suggested that California's approach is similar to 
the approach being taken by EPA for small business entities. Further, 
these commenters noted that in Tier 2 and other light-duty vehicle 
programs, EPA has allowed small volume manufacturers (SVMs) until the 
end of the phase-in period to comply with standards. The commenters 
recommended that EPA should defer standards for SVMs, and conduct a 
future rulemaking to establish appropriate standards for SVMs starting 
in model year 2016. Alternatively, some manufacturers recommended 
establishing much less stringent standards for SVMs as part of the 
current rulemaking.
    In summary, the manufacturers commented that their range of 
products was insufficient to allow them to meet the standards in the 
time provided, even with the proposed TLAAS program. Many of these 
manufacturers have baseline emissions significantly higher than their 
larger-volume competitors, and thus the CO2 reductions 
required from baseline under the program are larger for many of these 
companies than for other companies. Although they are investing 
substantial resources to reduce CO2 emissions, they believe 
that they will not be able to achieve the standards under the proposed 
approach.
    EPA also received comments urging us not to expand the TLAAS 
program. The commenters are concerned about the loss of benefits that 
would occur with any expansion.
    EPA has considered the comments carefully and concludes that 
additional flexibility is needed for these companies. After assessing 
the issues raised by commenters, EPA believes there are two groups of 
manufacturers that need additional lead time. The first group includes 
manufacturers with annual U.S. sales of less than 5,000 vehicles per 
year. Standards for these small volume manufacturers are being deferred 
until a future rulemaking in the 2012 timeframe, as discussed in 
Section III.B.6, below. This will allow EPA to determine the 
appropriate level of standards for these manufacturers, as well as the 
small business entities, at a later time. The second group includes 
manufacturers with MY 2009 U.S. sales of less than 50,000 vehicles but 
above the 5,000 vehicle threshold being established for small volume 
manufacturers. EPA has selected a cut point of 50,000 vehicles in order 
to limit the additional flexibility to only the smaller manufacturers 
with much more limited product lines over which to average. EPA has 
tailored these provisions as narrowly as possible to provide additional 
lead time only as needed by these smaller manufacturers. We estimate 
that the TLAAS program, including the changes below will result in a 
total decrease in overall emissions reductions of about one percent of 
the total projected GHG program emission benefits. These estimates are 
provided in RIA Chapter 5 Appendix A.
    For some of the companies, the reduction from baseline 
CO2 emissions required to meet the standards is clearly 
greater than for other TLAAS-eligible manufacturers. Compared with 
other TLAAS-eligible manufacturers, these companies also have more 
limited fleets across which to average the standards. Some companies 
have only a few vehicle models all of a similar utility, and thus their 
averaging abilities are extremely limited posing lead time issues of 
greater severity than other TLAAS-eligible manufacturers. EPA's 
feasibility analysis provided in Section III.D., shows that these 
companies face a compliance shortfall significantly greater than other 
TLAAS companies (see Table III.D.6-4). This shortfall is primarily due 
to their narrow product lines and more limited ability to average 
across their vehicle fleets. In addition, with fewer models with which 
to average, there is a higher likelihood that phase-in requirements may 
conflict with normal product redesign cycles.
    Therefore, for manufacturers with MY 2009 U.S. sales of less than 
50,000 vehicles, EPA is finalizing additional TLAAS compliance 
flexibility through model year 2016. These manufacturers will be 
allowed to place up to 200,000 vehicles in the TLAAS program in MY 
2012-2015 and an additional 50,000 vehicles in MY 2016. To be eligible 
for the additional allotment above the base TLAAS level of 100,000 
vehicles, manufacturers must annually demonstrate that they have 
diligently made a good faith effort to purchase credits from other 
manufacturers in order to comply with the base TLAAS program, but that 
sufficient credits were not available. Manufacturers must secure 
credits to the extent they are reasonably available from other 
manufacturers to offset the difference between their emissions 
reductions obligations under the base TLAAS program and the expanded 
TLAAS program. Manufacturers must document their efforts to purchase 
credits as part of their end of year compliance report. All other 
aspects of the TLAAS program including the 1.25x adjustment to the 
standards and the credits provision restrictions remain the same as 
described above for the same reasons. This will still require the 
manufacturers to reduce emissions significantly in the 2012-2016 time-
frame and to meet the final emissions standards in MY 2017. The 
standards remain very challenging for these manufacturers but these 
additional provisions will allow them the necessary lead time for 
implementing their strategy for compliance with the final, most 
stringent standards.
    The eligibility limit of 50,000 vehicles will be treated in a 
similar way as the 400,000 vehicle eligibility limit is treated, as 
described above. Manufacturers with model year 2009 U.S. sales of less 
than 50,000 vehicles are eligible for the expanded TLAAS flexibility. 
Manufacturers whose sales grow in later years above 50,000 vehicles 
without merger or acquisition will continue to be eligible for the 
expanded TLAAS program. However, manufacturers that exceed the 50,000 
vehicle limit through mergers or acquisitions will not be eligible for 
the expanded TLAAS program in the model year following the merger or 
acquisition, but may continue to be eligible for the base TLAAS program 
if the MY 2009 sales of the new company would have been below the 
400,000 vehicle eligibility cut point. The use of TLAAS by all the 
entities within the company in years prior to the merger must be 
counted against the 100,000 vehicle limit of the base program. If the 
100,000 vehicle limit has been exceeded, the company is no longer 
eligible for TLAAS.
6. Deferment of CO2 Standards for Small Volume Manufacturers 
With Annual Sales Less Than 5,000 Vehicles
    In the proposal, in the context of the TLAAS program, EPA 
recognized that there would be a wide range of companies within the 
eligible manufacturers with sales less than 400,000 vehicles in model 
year 2009. As noted in the proposal, some of these companies, while 
having relatively small U.S. sales volumes, are large global automotive 
firms, including companies such as Mercedes and Volkswagen. Other 
companies are significantly smaller niche firms, with sales volumes 
closer to 10,000 vehicles per year worldwide, such as Aston Martin. EPA 
anticipated that there is a small number of such smaller volume 
manufacturers, which may face greater challenges in meeting the 
standards due to their limited product lines across which to average. 
EPA requested comment on whether the proposed TLAAS program would 
provide sufficient lead-time for these smaller firms to incorporate the 
technology needed to comply with the proposed GHG standards. See 74 FR 
at 49524.

[[Page 25420]]

    EPA received comments from several very small volume manufacturers 
that the TLAAS program would not provide sufficient lead time, as 
described above. EPA agrees with comments that the standards would be 
extremely challenging and potentially infeasible for these small volume 
manufacturers, absent credits from other manufacturers, and that credit 
availability at this point is highly uncertain--although these 
companies are planning to introduce significant GHG-reducing 
technologies to their product lines, they are still highly unlikely to 
meet the standards by MY 2016. Because the products produced by these 
manufacturers are so unique, these manufacturers were not included in 
EPA's OMEGA modeling assessment of the technology feasibility and costs 
to meet the proposed standards. As noted above, these manufacturers 
have only a few models and have very high baseline emissions. TLAAS 
manufacturers are projected to be required to reduce emissions by up to 
39%, whereas SVMs in many cases would need to cut their emissions by 
more than half to comply with MY 2016 standards.
    Given the unique feasibility issues raised for these manufacturers, 
EPA is deferring establishing CO2 standards for 
manufacturers with U.S. sales of less than 5,000 vehicles.\188\ This 
will provide EPA more time to consider the unique challenges faced by 
these manufacturers. EPA expects to conduct this rulemaking in the 2012 
timeframe. The deferment only applies to CO2 standards and 
SVMs must meet N2O and CH4 standards. EPA plans 
to set standards for these manufacturers as part of a future rulemaking 
in the next 18 months. This future rulemaking will allow EPA to fully 
examine the technologies and emissions levels of vehicles offered by 
small manufacturers and to determine the potential emissions control 
capabilities, costs, and necessary lead time. This timing may also 
allow a credits market to develop, so that EPA may consider the 
availability of credits during the rulemaking process. See State of 
Mass. v. EPA, 549 U.S. at 533 (EPA retains discretion as to timing of 
any regulations addressing vehicular GHG emissions under section 
202(a)(1)). We expect that standards would begin to be implemented in 
the MY 2016 timeframe. This approach is consistent with that envisioned 
by California for these manufacturers. EPA estimates that eligible 
small volume manufacturers currently comprise less than 0.1 percent of 
the total light-duty vehicle sales in the U.S., and therefore the 
deferment will have a very small impact on the GHG emissions reductions 
from the standards.
---------------------------------------------------------------------------

    \188\ See final regulations at 40 CFR 86.1801-12(k).
---------------------------------------------------------------------------

    In addition to the 5,000 vehicle per year cut point, to be eligible 
for deferment each year, manufacturers must also demonstrate due 
diligence in attempting to secure credits from other manufacturers. 
Manufacturers must make a good faith effort to secure credits to the 
extent they are reasonably available from other manufacturers to offset 
the difference between their baseline emissions and what their 
obligations would be under the TLAAS program starting in MY 2012.
    Eligibility will be determined somewhat differently compared to the 
TLAAS program. Manufacturers with either MY 2008 or MY 2009 U.S. sales 
of less than 5,000 vehicles will be initially eligible. This includes 
``branded sales'' for companies that sold vehicles under a larger 
manufacturer but has become independent by the end of calendar year 
2010. EPA is including MY 2008 as well as MY 2009 because some 
manufacturers in this market segment have such limited sales that they 
often drop in and out of the market from year to year.
    In determining eligibility, manufacturers must be aggregated 
according to the provisions of 40 CFR 86.1838-01(b)(3), which requires 
the sales of different firms to be aggregated in various situations, 
including where one firm has a 10% or more equity ownership of another 
firm, or where a third party has a 10% or more equity ownership of two 
or more firms. EPA received public comment from a manufacturer 
requesting that EPA should allow a manufacturer to apply to EPA to 
establish small volume manufacturer status based on the independence of 
its research, development, testing, design, and manufacturing from 
another firm that may have an ownership interest in that manufacturer. 
EPA has reviewed this comment, but is not finalizing such a provision 
at this time. EPA believes that this issue likely presents some 
competitive issues, which we would like to be fully considered through 
the public comment process. Therefore, EPA plans to consider this issue 
and seek public comments in our proposal for small volume manufacturer 
CO2 standards, which we expect to complete within 18 months.
    To remain eligible for the deferral from standards, the rolling 
average of three consecutive model years of sales must remain below 
5,000 vehicles. EPA is establishing the 5,000 vehicle threshold to 
allow for some sales growth by SVMs, as SVMs typically have annual 
sales of below 2,000 vehicles. However, EPA wants to ensure that 
standards for as few vehicles as possible are deferred and therefore 
believes it is appropriate that manufacturers with U.S. sales growing 
to above 5,000 vehicles per year be required to comply with standards 
(including TLAAS, as applicable). Manufacturers with unusually strong 
sales in a given year would still likely remain eligible, based on the 
three year rolling average. However, if a manufacturer takes steps to 
expand in the U.S. market on a permanent basis such that they 
consistently sell more than 5,000 vehicles per year, they must meet the 
TLAAS standards. EPA believes a manufacturer will be able to consider 
these provisions, along with other factors, in its planning to 
significantly expand in the U.S. market.
    For manufacturers exceeding the 5,000 vehicle rolling average 
through mergers or acquisitions of other manufacturers, those 
manufacturers will lose eligibility in the MY immediately following the 
last year of the rolling average. For manufacturers exceeding this 
level through sales growth, but remaining below a 50,000 vehicle 
threshold, the manufacturer will lose eligibility for the deferred 
standards in the second model year following the last year of the 
rolling average. For example, if the rolling average of MYs 2009-2011 
exceeded 5,000 vehicles but was below 50,000 vehicles, the manufacturer 
would not be eligible for the deferred standards in MY 2013. For 
manufacturers with a 3-year rolling average exceeding 50,000 vehicles, 
the manufacturer would lose eligibility in the MY immediately following 
the last model year in the rolling average. For example, if the rolling 
average of MYs 2009-2011 exceeded 50,000 vehicles, the manufacturer 
would not be eligible for the deferred standards in MY 2012. Such 
manufacturers may continue to be eligible for TLAAS, or the expanded 
TLAAS program, per the provisions described above. EPA believes these 
provisions are needed to ensure that the SVM deferment remains targeted 
to true small volume manufacturers and does not become available to 
larger manufacturers through mergers or acquisitions. EPA is including 
the 50,000 vehicle criteria to differentiate between manufacturers that 
may slowly gain more sales and manufacturers that have taken major 
steps to significantly increase their presence in the U.S. market, such 
as by introducing new vehicle models. EPA believes manufacturers 
selling more than 50,000

[[Page 25421]]

vehicles should not be able to take advantage of the deferment, as they 
should be able to meet the applicable TLAAS standards through averaging 
across their larger product line.
    EPA is requiring that potential SVMs submit a declaration to EPA 
containing a detailed written description of how the manufacturer 
qualifies as a small volume manufacturer. The declaration must contain 
eligibility information including MY 2008 and 2009 U.S. sales, the last 
three completed MYs sales information, detailed information regarding 
ownership relationships with other manufacturers, and documentation of 
efforts to purchase credits from other manufacturers. Because such 
manufacturers are not automatically exempted from other EPA regulations 
for light-duty vehicles and light-duty trucks, entities are subject to 
the greenhouse gas control requirements in this program until such a 
declaration has been submitted and approved by EPA. The declaration 
must be submitted annually at the time of vehicle emissions 
certification under the EPA Tier 2 program, beginning in MY 2012.
7. Nitrous Oxide and Methane Standards
    In addition to fleet-average CO2 standards, as proposed, 
EPA is establishing separate per-vehicle standards for nitrous oxide 
(N2O) and methane (CH4) emissions.\189\ The 
agency's intention is to set emissions standards that act to cap 
emissions to ensure that future vehicles do not increase their 
N2O and CH4 emissions above levels typical of 
today's vehicles. EPA proposed to cap N2O at a level of 
0.010 g/mi and to cap CH4 at a level of 0.03 g/mi. Both of 
these compounds are more potent contributors to global warming than 
CO2; N2O has a global warming potential, or GWP, 
of 298 and CH4 has a GWP of 25.\190\
---------------------------------------------------------------------------

    \189\ See final regulations at 40 CFR 86.1818-12(f).
    \190\ The global warming potentials (GWP) used in this rule are 
consistent with the Intergovernmental Panel on Climate Change (IPCC) 
Fourth Assessment Report (AR4).
---------------------------------------------------------------------------

    EPA received many comments on the proposed N2O and 
CH4 standards. A range of stakeholders supported the 
proposed approach of ``cap'' standards and the proposed emission 
levels, including most states and environmental organizations that 
addressed this topic, and the Manufacturers of Emissions Control 
Association. These commenters stated that EPA needs to address all 
mobile GHGs under the Clean Air Act, and N2O and 
CH4 are both more potent contributors to global warming than 
CO2. The Center for Biological Diversity commented that in 
light of the potency of these GHGs, EPA should develop standards which 
reduce emissions over current levels and that EPA had not analyzed 
either the technologies or the costs of doing so. EPA discusses these 
comments and our responses below and in the Response to Comments 
Document.
    Auto manufacturers generally did not support standards for these 
GHGs, stating that the levels of these GHGs from current vehicles are 
too small to warrant standards at this time. These commenters also 
stated that if EPA were to proceed with ``cap'' standards, the 
stringency of the proposed levels could restrict the introduction of 
some new technologies. Commenters specifically raised this concern with 
the examples of diesel and lean-burn gasoline for N2O, or 
natural gas and ethanol fueled vehicles for CH4. Only one 
manufacturer, Volkswagen, submitted actual test data to support these 
claims; very limited emission data on two concept vehicles--a CNG 
vehicle and a flexible-fuel vehicle--indicated measured emission levels 
near or above the proposed standards, but included no indication of 
whether any technological steps had been taken to reduce emissions 
below the cap levels. Many commenters support an approach of 
establishing a CO2-equivalent standard, where N2O 
and CH4 could be averaged with CO2 emissions to 
result in an overall CO2-equivalent compliance value, 
similar to the approach California has used for its GHG standards \191\ 
Under such an approach, the auto industry commenters supported using a 
default value for N2O emissions in lieu of a measured test 
value. Several auto manufacturers also had concerns that a new 
requirement to measure N2O would require significant 
equipment and facility upgrades and would create testing challenges 
with new measurement equipment with which they have little experience.
---------------------------------------------------------------------------

    \191\ California Environmental Protection Agency Air Resources 
Board, Staff Report: Initial Statement of Reasons for Proposed 
Rulemaking Public Hearing To Consider Adoption of Regulations To 
Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 
2004.
---------------------------------------------------------------------------

    EPA has considered these comments and is finalizing the cap 
standards for N2O and CH4 as proposed. EPA agrees 
with the NGO, State, and other commenters that light-duty vehicle 
emissions are small but important contributors to the U.S. 
N2O and CH4 inventories, and that in the absence 
of a limitation, the potential for significant emission increases 
exists with the evolution of new vehicle and engine technologies. 
(Indeed, the industry commenters concede as much in stating that they 
are contemplating introducing vehicle technologies that could result in 
emissions exceeding the cap standard levels). EPA also believes that in 
most cases N2O and CH4 emissions from light-duty 
vehicles will remain well below the cap standards. Therefore, we are 
setting cap standards for these GHGs at the proposed levels. However, 
as described below, the agency is incorporating several provisions 
intended to address industry concerns about technological feasibility 
and leadtime, including an optional CO2-equivalent approach 
and, for N2O, more leadtime before testing will be required 
to demonstrate compliance with the emissions standard (in interim, 
manufacturers may certify based on a compliance statement based on good 
engineering judgment).
a. Nitrous Oxide (N2O) Exhaust Emission Standard
    As stated above, N2O is a global warming gas with a high 
global warming potential.\192\ It accounts for about 2.3% of the 
current greenhouse gas emissions from cars and light trucks.\193\ EPA 
is setting a per-vehicle N2O emission standard of 0.010 g/
mi, measured over the traditional FTP vehicle laboratory test cycles. 
The standard will become effective in model year 2012 for all light-
duty cars and trucks. The standard is designed to prevent increases in 
N2O emissions from current levels; i.e., it is a no-
backsliding standard.
---------------------------------------------------------------------------

    \192\ N2O has a GWP of 298 according to the IPCC 
Fourth Assessment Report (AR4).
    \193\ See RIA Chapter 2.
---------------------------------------------------------------------------

    N2O is emitted from gasoline and diesel vehicles mainly 
during specific catalyst temperature conditions conducive to 
N2O formation. Specifically, N2O can be generated 
during periods of emission hardware warm-up when rising catalyst 
temperatures pass through the temperature window when N2O 
formation potential is possible. For current Tier 2 compatible gasoline 
engines with conventional three-way catalyst technology, N2O 
is not generally produced in significant amounts because the time the 
catalyst spends at the critical temperatures during warm-up is short. 
This is largely due to the need to quickly reach the higher 
temperatures necessary for high catalyst efficiency to achieve emission 
compliance for criteria pollutants. As several auto manufacturer 
comments noted, N2O is a more significant concern with 
diesel vehicles, and potentially future gasoline lean-burn engines, 
equipped with advanced catalytic NOX

[[Page 25422]]

emissions control systems. In the absence of N2O emission 
standards, these systems could be designed in a way that emphasizes 
efficient NOX control while at the same time allowing the 
formation of significant quantities of N2O. Excess oxygen 
present in the exhaust during lean-burn conditions in diesel or lean-
burn gasoline engines equipped with these advanced systems can favor 
N2O formation if catalyst temperatures are not carefully 
controlled. Without specific attention to controlling N2O 
emissions in the development of such new NOX control 
systems, vehicles could have N2O emissions many times 
greater than are emitted by current gasoline vehicles.
    EPA is setting an N2O emission standard that the agency 
believes will be met by current-technology gasoline vehicles at 
essentially no cost. As just noted, N2O formation in current 
catalyst systems occurs, but the emission levels are relatively low, 
because the time the catalyst spends at the critical temperatures 
during warm-up when N2O can form is short. At the same time, 
EPA believes that the standard will ensure that the design of advanced 
NOX control systems, especially for future diesel and lean-
burn gasoline vehicles, will control N2O emission levels. 
While current NOX control approaches used on current Tier 2 
diesel vehicles do not tend to favor the formation of N2O 
emissions, EPA believes that this N2O standard will 
discourage new emission control designs that achieve criteria emissions 
compliance at the cost of increased N2O emissions. Thus, the 
standard will cap N2O emission levels, with the expectation 
that current gasoline and diesel vehicle control approaches that comply 
with the Tier 2 vehicle emission standards for NOX will not 
increase their emission levels, and that the cap will ensure that 
future vehicle designs will be appropriately controlled for 
N2O emissions.
    The level of the N2O standard is approximately two times 
the average N2O level of current gasoline passenger cars and 
light-duty trucks that meet the Tier 2 NOX standards. EPA 
has not previously regulated N2O emissions, and available 
data on current vehicles is limited. However, EPA derived the standard 
from a combination of emission factor values used in modeling light 
duty vehicle emissions and limited recent EPA test 
data.194 195 Because the standard represents a level 100 
percent higher than the average current N2O level, we 
continue to believe that most if not all Tier 2 compliant gasoline and 
diesel vehicles will easily be able to meet the standards. 
Manufacturers typically use design targets for NOX emission 
levels of about 50% of the standard, to account for in-use emissions 
deterioration and normal testing and production variability, and EPA 
expects that manufacturers will use a similar approach for 
N2O emission compliance. EPA did not propose and is not 
finalizing a more stringent standard for current vehicles because we 
believe that the stringent Tier 2 program and the associated 
NOX fleet average requirement already result in significant 
N2O control, and the agency does not expect current 
N2O levels to rise for these vehicles. Moreover, EPA 
believes that the CO2 standards will be challenging for the 
industry and that these standards should be the industry's chief focus 
in this first phase of vehicular GHG emission controls. See 
Massachusetts v. EPA, 549 U.S. at 533 (EPA has significant discretion 
as to timing of GHG regulations); see also Sierra Club v. EPA, 325 F. 
3d 374, 379 (DC Cir. 2003) (upholding anti-backsliding standards for 
air toxics under technology-forcing section 202 (l) because it is 
reasonable for EPA to assess the effects of its other regulations on 
the motor vehicle sector before aggressively regulating emissions of 
toxic vehicular air pollutants.
---------------------------------------------------------------------------

    \194\ Memo to docket ``Derivation of Proposed N2O and 
CH4 Cap Standards,'' Tad Wysor, EPA, November 19, 2009. 
Docket EPA-HQ-OAR-2009-0472-6801.
    \195\ Memo to docket ``EPA NVFEL N2O Test Data,'' 
Tony Fernandez, EPA.
---------------------------------------------------------------------------

    Diesel cars and light trucks with advanced emission control 
technology are in the early stages of development and 
commercialization. As this segment of the vehicle market develops, the 
N2O standard will likely require these manufacturers to 
incorporate control strategies that minimize N2O formation. 
Available approaches include using electronic controls to limit 
catalyst conditions that might favor N2O formation and 
consider different catalyst formulations. While some of these 
approaches may have modest associated costs, EPA believes that they 
will be small compared to the overall costs of the advanced 
NOX control technologies already required to meet Tier 2 
standards.
    In the proposal, EPA sought comment on an approach of expressing 
N2O and CH4 in common terms of CO2-
equivalent emissions and combining them into a single standard along 
with CO2 emissions. 74 FR at 49524. California's ``Pavley'' 
program adopted such a CO2-equivalent emissions standards 
approach to GHG emissions.\196\ EPA was primarily concerned that such 
an approach could undermine the stringency of the CO2 
standards, as the proposed standards were designed to ``cap'' 
N2O and CH4 emissions, rather than reflecting a 
level either that is the industry fleet-wide average or that would 
effect reductions in these GHGs.
---------------------------------------------------------------------------

    \196\ California Environmental Protection Agency Air Resources 
Board, Staff Report: Initial Statement of Reasons for Proposed 
Rulemaking Public Hearing To Consider Adoption of Regulations To 
Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 
2004.
---------------------------------------------------------------------------

    As noted above, several auto manufacturers expressed interest in 
such a CO2-equivalent approach, due to concerns that the 
caps could be limiting for some advanced technology vehicles. While we 
continue to believe that the vast majority of light-duty vehicles will 
be able to easily meet the standards, we acknowledge that advanced 
diesel or lean-burn gasoline vehicles of the future may face slightly 
greater challenges. Therefore, after considering these comments, EPA is 
finalizing an optional compliance approach to provide flexibility for 
any advanced technologies that may have challenges in meeting the 
N2O or CH4 cap standards.
    In lieu of complying with the separate N2O and 
CH4 cap standards, a manufacturer may choose to comply with 
a CO2-equivalent standard. A manufacturer choosing this 
option will convert its N2O and CH4 test results 
(or, as described below, a default N2O value for MY 2012-
2014) into CO2-equivalent values and add this sum to their 
CO2 emissions. This CO2-equivalent value will 
still need to comply with the manufacturer's footprint-based 
CO2 target level. In other words, a manufacturer could 
offset any N2O emissions (or any CH4 emissions) 
by taking steps to further reduce CO2. A manufacturer 
choosing this option will need to apply this approach to all of the 
test groups in its fleet. This approach is more environmentally 
protective overall than the cap standard approach, since the 
manufacturer will need to reduce its CO2 emissions to offset 
the higher N2O (or CH4) levels, but will not be 
allowed to increase CO2 above its footprint target level by 
reducing N2O (or CH4).
    The compliance level in g/mi for the optional CO2-
equivalent approach for gasoline vehicles is calculated as 
CO2 + (CWF/0.273 x NMHC) + (1.571 x CO) + (298 x 
N2O) + (25 x CH4).\197\ The N2O and 
CH4 values are the measured emission values for these GHGs, 
except N2O in model years 2012 through 2014. For these model 
years, manufacturers may use a default N2O value of 0.010

[[Page 25423]]

g/mi, the same value as the N2O cap standard. For MY 2015 
and later, the manufacturer would need to provide actual test data on 
the emission data vehicle for each test group. (That is, N2O 
data would not be required for each model type, since EPA believes that 
there will likely be little N2O variability among model 
types within a test group.) EPA believes that its selection of 0.010 g/
mi as the N2O default value is an appropriately protective 
level, on the high end of current technologies, as further discussed 
below. Consistent with the other elements of the equation, 
N2O and CH4 must be included at full useful life 
deteriorated values. This requires testing using the highway test cycle 
in addition to the FTP during the manufacturer's deterioration factor 
(DF) development program. However, EPA recognizes that manufacturers 
may not be able to develop DFs for N2O and CH4 
for all their vehicles in the 2012 model year, and thus EPA is allowing 
the use of alternative values through the 2014 model year. For 
N2O the alternative value is the DF developed for 
NOX emissions, and for CH4 the alternative value 
is the DF developed for NMOG emissions. Finally, for manufacturers 
using this option, the CO2-equivalent emission level would 
also be the basis for any credits that the manufacturer might generate.
---------------------------------------------------------------------------

    \197\ This equation will differ depending upon the fuel; see the 
final regulations for equations for other fuels.
---------------------------------------------------------------------------

    Manufacturers expressed concerns about their ability to acquire and 
install N2O analytical equipment. However, the agency 
continues to believe that such burdens, while not trivial, will also 
not be excessive. While many manufacturers do not appear to have 
invested yet in adding N2O measurement equipment to their 
test facilities, EPA is not aware of any information to indicate that 
that suppliers will have difficulty providing sufficient hardware, or 
that such equipment is unusually expensive or complex compared to 
existing measurement hardware. EPA allows N2O measurement 
using any of four methods, all of which are commercially available 
today. The costs of certification and other indirect costs of this rule 
are accounted for in the Indirect Cost Multipliers, discussed in 
Section III.H below.
    Still, given the short lead-time for this rule and the newness of 
N2O testing to this industry, EPA proposed that 
manufacturers be able to apply for a certificate of conformity with the 
N2O standard for model year 2012 provided that they supply a 
compliance statement based on good engineering judgment. Under the 
proposal, beginning in MY 2013, manufacturers would have needed to base 
certification on actual N2O testing data. This approach was 
intended to reasonably ensure that the emission standards are being 
met, while allowing manufacturers lead-time to purchase new 
N2O emissions measurement equipment, modify certification 
test facilities, and begin N2O testing. After consideration 
of the comments, EPA agrees with manufacturers that one year of 
additional lead-time to begin actual N2O measurement across 
their vehicle fleets may still be insufficient for manufacturers to 
efficiently make the necessary facility changes and equipment 
purchases. Therefore, EPA is extending the ability to certify based on 
a compliance statement for two additional years, through model year 
2014. For 2015 and later model years, manufacturers will need to submit 
measurements of N2O for compliance purposes.
b. Methane (CH4) Exhaust Emission Standard
    Methane (CH4) is a greenhouse gas with a high global 
warming potential.\198\ It accounts for about 0.2% of the greenhouse 
gases from cars and light trucks.\199\
---------------------------------------------------------------------------

    \198\ CH4 has a GWP of 25 according to the IPCC 
Fourth Assessment Report (AR4).
    \199\ See RIA Chapter 2.
---------------------------------------------------------------------------

    EPA is setting a CH4 emission standard of 0.030 g/mi as 
measured on the FTP, to apply beginning with model year 2012 for both 
cars and trucks. EPA believes that this level for the standard will be 
met by current gasoline and diesel vehicles, and will prevent large 
increases in future CH4 emissions. This is particularly a 
concern in the event that alternative fueled vehicles with high methane 
emissions, like some past dedicated compressed natural gas (CNG) 
vehicles and some flexible-fueled vehicles when operated on E85 fuel, 
become a significant part of the vehicle fleet. Currently EPA does not 
have separate CH4 standards because unlike other 
hydrocarbons it does not contribute significantly to ozone 
formation.\200\ However, CH4 emissions levels in the 
gasoline and diesel car and light truck fleet have nevertheless 
generally been controlled by the Tier 2 standards for non-methane 
organic gases (NMOG). However, without an emission standard for 
CH4, there is no guarantee that future emission levels of 
CH4 will remain at current levels as vehicle technologies 
and fuels evolve.
---------------------------------------------------------------------------

    \200\ But see Ford Motor Co. v. EPA, 604 F. 2d 685 (D.C. Cir. 
1979) (permissible for EPA to regulate CH4 under CAA 
section 202(b)).
---------------------------------------------------------------------------

    The standard will cap CH4 emission levels, with the 
expectation that emissions levels of current gasoline and diesel 
vehicles meeting the Tier 2 emission standards will not increase. The 
level of the standard will generally be achievable for typical vehicles 
through normal emission control methods already required to meet the 
Tier 2 emission standards for NMOG. Also, since CH4 is 
already measured under the current Tier 2 regulations (so that it may 
be subtracted to calculate non-methane hydrocarbons), we believe that 
the standard will not result in any additional testing costs. 
Therefore, EPA is not attributing any costs to this part of this 
program. Since CH4 is produced during fuel combustion in 
gasoline and diesel engines similarly to other hydrocarbon components, 
controls targeted at reducing overall NMOG levels are generally also 
effective in reducing CH4 emissions. Therefore, for typical 
gasoline and diesel vehicles, manufacturer strategies to comply with 
the Tier 2 NMOG standards have to date tended to prevent increases in 
CH4 emissions levels. The CH4 standard will 
ensure that emissions will be addressed if in the future there are 
increases in the use of natural gas or other alternative fuels or 
technologies that may result in higher CH4 emissions.
    As with the N2O standard, EPA is setting the level of 
the CH4 standard to be approximately two times the level of 
average CH4 emissions from Tier 2 gasoline passenger cars 
and light-duty trucks. EPA believes the standard will easily be met by 
current gasoline vehicles, and that flexible fuel vehicles operating on 
ethanol can be designed to resolve any potential CH4 
emissions concerns. Similarly, since current diesel vehicles generally 
have even lower CH4 emissions than gasoline vehicles, EPA 
believes that diesels will also meet the CH4 standard. 
However, EPA also believes that to set a CH4 emission 
standard more stringent than the proposed standard could effectively 
make the Tier 2 NMOG standard more stringent and is inappropriate for 
that reason (and untimely as well, given the challenge of meeting the 
CO2 standards, as noted above).
    Some CNG-fueled vehicles have historically produced significantly 
higher CH4 emissions than gasoline or diesel vehicles. This 
is because CNG fuel is essentially methane and any unburned fuel that 
escapes combustion and is not oxidized by the catalyst is emitted as 
methane. However, in recent model years, the few dedicated CNG vehicles 
sold in the U.S. meeting the Tier 2 standards have had CH4 
control as effective as that of gasoline or diesel vehicles. Still, 
even if these vehicles meet the Tier 2 NMOG standard and appear to have 
effective CH4 control by

[[Page 25424]]

nature of the NMOG controls, Tier 2 standards do not require 
CH4 control. Although EPA believes that in most cases that 
the CH4 cap standard should not require any different 
emission control designs beyond what is already required to meet Tier 2 
NMOG standards on a dedicated CNG vehicle, the cap will ensure that 
systems maintain the current level of CH4 control.
    Some manufacturers have also expressed some concerns about 
CH4 emissions from flexible-fueled vehicles operating on E85 
(85% ethanol, 15% gasoline). However, we are not aware of any 
information that would indicate that if engine-out CH4 
proves to be higher than for a typical gasoline vehicle, that such 
emissions could not be managed by reasonably available control 
strategies (perhaps similar to those used in dedicated CNG vehicles).
    As described above, in response to the comments, EPA will also 
allow manufacturers to choose to comply with a CO2-
equivalent standard in lieu of complying with a separate CH4 
cap standard. A manufacturer choosing this option would convert its 
N2O and CH4 test results into CO2-
equivalent values (using the respective GWP values), and would then 
compare this value to the manufacturer's footprint-based CO2 
target level to determine compliance. However, as with N2O, 
this approach will not permit a manufacturer to increase its 
CO2 by reducing CH4; the company's footprint-
based CO2 target level would remain the same.
8. Small Entity Exemption
    As proposed, EPA is exempting from GHG emissions standards small 
entities meeting the Small Business Administration (SBA) size criteria 
of a small business as described in 13 CFR 121.201.\201\ EPA will 
instead consider appropriate GHG standards for these entities as part 
of a future regulatory action. This includes both U.S.-based and 
foreign small entities in three distinct categories of businesses for 
light-duty vehicles: small volume manufacturers, independent commercial 
importers (ICIs), and alternative fuel vehicle converters.
---------------------------------------------------------------------------

    \201\ See final regulations at 40 CFR 86.1801-12(j).
---------------------------------------------------------------------------

    EPA has identified about 13 entities that fit the Small Business 
Administration (SBA) size criterion of a small business. EPA estimates 
there currently are approximately two small volume manufacturers, eight 
ICIs, and three alternative fuel vehicle converters in the light-duty 
vehicle market. Further detail is provided in Section III.I.3, below. 
EPA estimates that these small entities comprise less than 0.1 percent 
of the total light-duty vehicle sales in the U.S., and therefore the 
exemption will have a negligible impact on the GHG emissions reductions 
from the standards.
    To ensure that EPA is aware of which companies would be exempt, EPA 
proposed to require that such entities submit a declaration to EPA 
containing a detailed written description of how that manufacturer 
qualifies as a small entity under the provisions of 13 CFR 121.201. EPA 
has reconsidered the need for this additional submission under the 
regulations and is deleting it as not necessary. We already have 
information on the limited number of small entities that we expect 
would receive the benefits of the exemption, and do not need the 
proposed regulatory requirement to be able to effectively implement 
this exemption for those parties who in fact meet its terms. Small 
entities are currently covered by a number of EPA motor vehicle 
emission regulations, and they routinely submit information and data on 
an annual basis as part of their compliance responsibilities.
    EPA did not receive adverse comments regarding the proposed small 
entity exemption. EPA received comments concerning whether or not the 
small entity exemption applies to foreign manufacturers. EPA clarifies 
that foreign manufacturers meeting the SBA size criteria are eligible 
for the exemption, as was EPA's intent during the proposal.

C. Additional Credit Opportunities for CO2 Fleet Average Program

    The final standards represent a significant multi-year challenge 
for manufacturers, especially in the early years of the program. 
Section III.B.4 above describes EPA's provisions for manufacturers to 
be able to generate credits by achieving fleet average CO2 
emissions below their fleet average standard, and also how 
manufacturers can use credits to comply with the standards. As 
described in Section III.B.4, credits can be carried forward five 
years, carried back three years, transferred between vehicle 
categories, and traded between manufacturers. The credits provisions 
described below provide manufacturers with additional ways to earn 
credits starting in MY 2012. EPA is also including early credits 
provisions for the 2009-2011 model years, as described below in Section 
III.C.5.
    The provisions described below provide additional flexibility, 
especially in the early years of the program. This helps to address 
issues of lead-time or technical feasibility for various manufacturers 
and in several cases provides an incentive for promotion of technology 
pathways that warrant further development. EPA is finalizing a variety 
of credit opportunities because manufacturers are not likely to be in a 
position to use every credit provision. EPA expects that manufacturers 
are likely to select the credit opportunities that best fit their 
future plans.
    EPA believes it is critical that manufacturers have options to ease 
the transition to the final MY 2016 standards. At the same time, EPA 
believes these credit programs must be and are designed in a way to 
ensure that they achieve emission reductions that achieve real-world 
reductions over the full useful life of the vehicle (or, in the case of 
FFV credits and Advanced Technology incentives, to incentivize the 
introduction of those vehicle technologies) and are verifiable. In 
addition, EPA believes that these credit programs do not provide an 
opportunity for manufacturers to earn ``windfall'' credits. Comments on 
the proposed EPA credit programs are summarized below along with EPA's 
response, and are detailed in the Response to Comments document.
1. Air Conditioning Related Credits
    Manufacturers will be able to generate and use credits for improved 
air conditioner (A/C) systems in complying with the CO2 
fleetwide average standards described above (or otherwise to be able to 
bank or trade the credits). EPA expects that most manufacturers will 
choose to utilize the A/C provisions as part of its compliance 
demonstration (and for this reason cost of compliance with A/C related 
emission reductions are assumed in the cost analysis). The A/C 
provisions are structured as credits, unlike the CO2 
standards for which manufacturers will demonstrate compliance using 2-
cycle (city/highway) tests (see Sections III.B and III.E.). Those tests 
do not measure either A/C leakage or tailpipe CO2 emissions 
attributable to A/C load. Thus, it is a manufacturer's option to 
include A/C GHG emission reductions as an aspect of its compliance 
demonstration. Since this is an elective alternative, EPA is referring 
to the A/C part of the rule as a credit.
    EPA estimates that direct A/C GHG emissions--emissions due to the 
leakage of the hydrofluorocarbon refrigerant in common use today--
account for 5.1% of CO2-equivalent GHGs from light-duty cars 
and trucks. This includes the direct leakage of refrigerant as well as 
the subsequent leakage associated with maintenance and servicing, and 
with disposal at the end of the vehicle's life.

[[Page 25425]]

The emissions that are associated with leakage reductions are the 
direct leakage and the leakage associated with maintenance and 
servicing. Together these are equivalent to CO2 emissions of 
approximately 13.6 g/mi per car and light-truck. EPA also estimates 
that indirect GHG emissions (additional CO2 emitted due to 
the load of the A/C system on the engine) account for another 3.9% of 
light-duty GHG emissions.\202\ This is equivalent to CO2 
emissions of approximately 14.2 g/mi per vehicle. The derivation of 
these figures can be found in Chapter 2.2 of the EPA RIA.
---------------------------------------------------------------------------

    \202\ See Chapter 2, Section 2.2.1.2 of the RIA.
---------------------------------------------------------------------------

    EPA believes that it is important to address A/C direct and 
indirect emissions because the technologies that manufacturers will 
employ to reduce vehicle exhaust CO2 will have little or no 
impact on A/C related emissions. Without addressing A/C related 
emissions, as vehicles become more efficient, the A/C related 
contribution will become a much larger portion of the overall vehicle 
GHG emissions.
    Over 95% of the new cars and light trucks in the United States are 
equipped with A/C systems and, as noted, there are two mechanisms by 
which A/C systems contribute to the emissions of greenhouse gases: 
Through leakage of refrigerant into the atmosphere and through the 
consumption of fuel to provide mechanical power to the A/C system. With 
leakage, it is the high global warming potential (GWP) of the current 
automotive refrigerant (HFC-134a, with a GWP of 1430) that results in 
the CO2-equivalent impact of 13.6 g/mi.\203\ Due to the high 
GWP of this HFC, a small leakage of the refrigerant has a much greater 
global warming impact than a similar amount of emissions of 
CO2 or other mobile source GHGs. Manufacturers can reduce A/
C leakage emissions by using leak-tight components. Also, manufacturers 
can largely eliminate the global warming impact of leakage emissions by 
adopting systems that use an alternative, low-GWP refrigerant, as 
discussed below.\204\ The A/C system also contributes to increased 
CO2 emissions through the additional work required to 
operate the compressor, fans, and blowers. This additional work 
typically is provided through the engine's crankshaft, and delivered 
via belt drive to the alternator (which provides electric energy for 
powering the fans and blowers) and the A/C compressor (which 
pressurizes the refrigerant during A/C operation). The additional fuel 
used to supply the power through the crankshaft necessary to operate 
the A/C system is converted into CO2 by the engine during 
combustion. This incremental CO2 produced from A/C operation 
can thus be reduced by increasing the overall efficiency of the 
vehicle's A/C system, which in turn will reduce the additional load on 
the engine from A/C operation.\205\
---------------------------------------------------------------------------

    \203\ The global warming potentials (GWP) used in this rule are 
consistent with Intergovernmental Panel on Climate Change (IPCC) 
Fourth Assessment Report (AR4). (At this time, the IPCC Second 
Assessment Report (SAR) GWP values are used in the official U.S. 
greenhouse gas inventory submission to the climate change 
framework.)
    \204\ Refrigerant emissions during maintenance and at the end of 
the vehicle's life (as well as emissions during the initial charging 
of the system with refrigerant) are also addressed by the CAA Title 
VI stratospheric ozone program, as described below.
    \205\ We chose not to address changes to the weight of the A/C 
system, since the issue of CO2 emissions from the fuel 
consumption of normal (non-A/C) operation, including basic vehicle 
weight, is inherently addressed by the primary CO2 
standards (Section III.B above).
---------------------------------------------------------------------------

    Manufacturers can make very feasible improvements to their A/C 
systems to address A/C system leakage and efficiency. EPA is finalizing 
two separate credit approaches to address leakage reductions and 
efficiency improvements independently. A leakage reduction credit will 
take into account the various technologies that could be used to reduce 
the GHG impact of refrigerant leakage, including the use of an 
alternative refrigerant with a lower GWP. An efficiency improvement 
credit will account for the various types of hardware and control of 
that hardware available to increase the A/C system efficiency. For 
purposes of use of A/C credits at certification, manufacturers will be 
required to attest to the durability of the leakage reduction and the 
efficiency improvement technologies over the full useful life of the 
vehicle.
    EPA believes that both reducing A/C system leakage and increasing 
efficiency are highly cost-effective and technologically feasible. EPA 
expects most manufacturers will choose to use these A/C credit 
provisions, although some may not find it necessary to do so.
a. A/C Leakage Credits
    The refrigerant used in vehicle A/C systems can get into the 
atmosphere by many different means. These refrigerant emissions occur 
from the slow leakage over time that all closed high pressure systems 
will experience. Refrigerant loss occurs from permeation through hoses 
and leakage at connectors and other parts where the containment of the 
system is compromised. The rate of leakage can increase due to 
deterioration of parts and connections as well. In addition, there are 
emissions that occur during accidents and maintenance and servicing 
events. Finally, there are end-of-life emissions if, at the time of 
vehicle scrappage, refrigerant is not fully recovered.
    Because the process of refrigerant leakage has similar root causes 
as those that cause fuel evaporative emissions from the fuel system, 
some of the emission control technologies are similar (including hose 
materials and connections). There are, however, some fundamental 
differences between the systems that require a different approach, both 
to controlling and to documenting that control. The most notable 
difference is that A/C systems are completely closed systems and always 
under significant pressure, whereas the fuel system is not. Fuel 
systems are meant to be refilled as liquid fuel is consumed by the 
engine, while the A/C system ideally should never require 
``recharging'' of the contained refrigerant. Thus it is critical that 
the A/C system leakages be kept to an absolute minimum. As a result, 
these emissions are typically too low to accurately measure in most 
current SHED chambers designed for fuel evaporative emissions 
measurement, especially for A/C systems that are new or early in life.
    A few commenters suggested that we allow manufacturers, as an 
option, to use an industry-developed ``mini-shed'' test procedure (SAE 
J2763--Test Procedure for Determining Refrigerant Emissions from Mobile 
Air Conditioning Systems) to measure and report annual refrigerant 
leakage.\206\ However, while EPA generally prefers performance testing, 
for an individual vehicle A/C system or component, there is not a 
strong inherent correlation between a performance test using SAE J2763 
and the design-based approach we are adopting (based on SAE J2727, as 
discussed below).\207\ Establishing such a correlation would require 
testing of a fairly broad range of current-technology systems in order 
to establish the effects of such factors as production variability and 
assembly practices (which are included in J2727 scores, but not in 
J2763 measurements). To EPA's knowledge, such a correlation study has 
not been done. At the same time, as discussed below, there are 
indications that much of the industry will eventually be moving toward 
alternative refrigerants with very low GWPs. EPA believes such a 
transition would diminish the value of any correlation

[[Page 25426]]

studies that might be done to confirm the appropriateness of the SAE 
J2763 procedure as an option in this rule. For these reasons, EPA is 
therefore not adopting such an optional direct measurement approach to 
addressing refrigerant leakage at this time.
---------------------------------------------------------------------------

    \206\ Honeywell and Volvo supported this view; most other 
commenters did not.
    \207\ However, there is a correlation in the fleet between J2763 
measurements and J2727 scores.
---------------------------------------------------------------------------

    Instead, as proposed, EPA is adopting a design-based method for 
manufacturers to demonstrate improvements in their A/C systems and 
components.\208\ Manufacturers implementing system designs expected to 
result in reduced refrigerant leakage will be eligible for credits that 
could then be used to meet their CO2 emission compliance 
requirements (or otherwise banked or traded). The A/C Leakage Credit 
provisions will generally assign larger credits to system designs that 
would result in greater leakage reductions. In addition, 
proportionately larger A/C Leakage Credits will be available to 
manufacturers that substitute a refrigerant with lower GWP than the 
current HFC-134a refrigerant.
---------------------------------------------------------------------------

    \208\ See final regulations at 40 CFR 86.1866-12(b).
---------------------------------------------------------------------------

    Our method for calculating A/C Leakage Credits is based closely on 
an industry-consensus leakage scoring method, described below. This 
leakage scoring method is correlated to experimentally-measured leakage 
rates from a number of vehicles using the different available A/C 
components. Under the approach, manufacturers will choose from a menu 
of A/C equipment and components used in their vehicles in order to 
establish leakage scores which will characterize their A/C system 
leakage performance. Credits will be generated from leakage reduction 
improvements that exceed average fleetwide leakage rates.
    EPA believes that the design-based approach will result in 
estimates of leakage emissions reductions that will be comparable to 
those that will eventually result from performance-based testing. We 
believe that this method appropriately approximates the real-world 
leakage rates for the expected MY 2012-2016 A/C systems.
    The cooperative industry and government Improved Mobile Air 
Conditioning (IMAC) program \209\ has demonstrated that new-vehicle 
leakage emissions can be reduced by 50%. This program has shown that 
this level of improvement can be accomplished by reducing the number 
and improving the quality of the components, fittings, seals, and hoses 
of the A/C system. All of these technologies are already in commercial 
use and exist on some of today's systems.
---------------------------------------------------------------------------

    \209\ Team 1-Refrigerant Leakage Reduction: Final Report to 
Sponsors, SAE, 2007.
---------------------------------------------------------------------------

    As proposed, a manufacturer wishing to generate A/C Leakage Credits 
will compare the components of its A/C system with a set of leakage-
reduction technologies and actions based closely on that developed 
through IMAC and the Society of Automotive Engineers (as SAE Surface 
Vehicle Standard J2727, August 2008 version). The J2727 approach was 
developed from laboratory testing of a variety of A/C related 
components, and EPA believes that the J2727 leakage scoring system 
generally represents a reasonable correlation with average real-world 
leakage in new vehicles. The EPA credit approach addresses the same A/C 
components as does SAE J2727 and associates each component with the 
same gram-per-year leakage rate as the SAE method, although, as 
described below, EPA limits the credits allowed and also modifies it 
for other factors such as alternative refrigerants.
    A manufacturer choosing to generate A/C Leakage Credits will sum 
the leakage values for an A/C system for a total A/C leakage score 
according to the following formula. Because the primary GHG program 
standards are expressed in terms of vehicle exhaust CO2 
emissions as measured in grams per mile, the credits programs adopted 
in this rule, including A/C related credits, must ultimately be 
converted to a common metric for proper calculation of credits toward 
compliance with the primary vehicle standards. This formula describes 
the conversion of the grams-per-year leakage score to a grams-per-mile 
CO2eq value, taking vehicle miles traveled (VMT) and the GWP 
of the refrigerant into account:

A/C Leakage Credit = (MaxCredit) * [1-(LeakScore/AvgImpact) * 
(GWPRefrigerant/1430)]

Where:

MaxCredit is 12.6 and 15.6 g/mi CO2eq for cars and 
trucks, respectively. These values become 13.8 and 17.2 for cars and 
trucks, respectively, if low-GWP refrigerants are used, since this 
would generate additional credits from reducing emissions during 
maintenance events, accidents, and at end-of-life.
LeakScore is the leakage score of the A/C system as measured 
according to the EPA leakage method (based on the J2727 procedure, 
as discussed above) in units of g/yr. The minimum score that EPA 
considers feasible is fixed at 8.3 and 10.4 g/yr for cars and trucks 
respectively (4.1 and 5.2 g/yr for systems using electric A/C 
compressors) as discussed below.
Avg Impact is the average current A/C leakage emission rate, which 
is 16.6 and 20.7 g/yr for cars and trucks, respectively.
GWPRefrigerant is the global warming potential (GWP) for direct 
radiative forcing of the refrigerant. For purposes of this rule, the 
GWP of HFC-134a is 1430, the GWP of HFC-152a is 124, the GWP of HFO-
1234yf is 4, and the GWP of CO2 as a refrigerant is 1.

    The EPA Final RIA elaborates further on the development of each of 
the values incorporated in the A/C Leakage Credit formula above, as 
summarized here. First, as proposed, EPA estimates that leakage 
emission rates for systems using the current refrigerant (HFC-134a) 
could be feasibly reduced to rates no less than 50% of current rates--
or 8.3 and 10.4 g/yr for cars and trucks, respectively--based on the 
conclusions of the IMAC study as well as consideration of refrigerant 
emissions over the full life of the vehicle.
    Also, some commenters noted that A/C compressors powered by 
electric motors (e.g. as used today in several hybrid vehicle models) 
were not included in the IMAC study and yet allow for leakage emission 
rate reductions beyond EPA's estimates for systems with conventional 
belt-driven compressors. EPA agrees with these comments, and we have 
incorporated lower minimum emission rates into the formula above--4.1 
and 5.2 g/yr for cars and trucks, respectively--in order to allow 
additional leakage reduction credits for vehicles that use sealed 
electric A/C compressors. The maximum available credits for these two 
approaches are summarized in Table III.C.1-1 below.
    AIAM commented that EPA should not set a lower limit on the leakage 
score, even for non-electric compressors. EPA has determined not to do 
so. First, although there do exist vehicles in the Minnesota data with 
lower scores than our proposed (and now final) minimum scores, there 
are very few car models that have scores less than 8.3, and these range 
from 7.0 to about 8.0 and the difference are small compared to our 
minimum score.\210\ More important, lowering the leakage limit would 
necessarily increase credit opportunities for equipment design changes, 
and EPA believes that these changes could discourage the 
environmentally optimal result of using low GWP refrigerants. 
Introduction of low GWP refrigerants could be discouraged because it 
may be less costly to reduce leakage than to replace many of the A/C 
system components. Moreover, due to the likelihood of in-use factors, 
even a leakless (according to

[[Page 25427]]

J2727) R134a system will have some emissions due to manufacturing 
variability, accidents, deterioration, maintenance, and end of life 
emissions, a further reason to cap the amount of credits available 
through equipment design. The only way to guarantee a near zero 
emission system in-use is to use a low GWP refrigerant. The EPA has 
therefore decided for the purposes of this final rule to not change the 
minimum score for belt driven compressors due to the reason cited above 
and to the otherwise overwhelming support for the program as proposed 
from commenters.
---------------------------------------------------------------------------

    \210\ The Minnesota refrigerant leakage data can be found at 
http://www.pca.state.mn.us/climatechange/mobileair.html#leakdata.
---------------------------------------------------------------------------

    In addition, as discussed above, EPA recognizes that substituting a 
refrigerant with a significantly lower GWP will be a very effective way 
to reduce the impact of all forms of refrigerant emissions, including 
maintenance, accidents, and vehicle scrappage. To address future GHG 
regulations in Europe and California, systems using alternative 
refrigerants--including HFO1234yf, with a GWP of 4 and CO2 
with a GWP of 1--are under serious development and have been 
demonstrated in prototypes by A/C component suppliers. The European 
Union has enacted regulations phasing in alternative refrigerants with 
GWP less than 150 starting this year, and the State of California 
proposed providing credits for alternative refrigerant use in its GHG 
rule. Within the timeframe of MYs 2012-2016, EPA is not expecting 
widespread use of low-GWP refrigerants. However, EPA believes that 
these developments are promising, and, as proposed, has included in the 
A/C Leakage Credit formula above a factor to account for the effective 
GHG reductions that could be expected from refrigerant substitution. 
The A/C Leakage Credits that will be available will be a function of 
the GWP of the alternative refrigerant, with the largest credits being 
available for refrigerants with GWPs at or approaching a value of 1. 
For a hypothetical alternative refrigerant with a GWP of 1 (e.g., 
CO2 as a refrigerant), effectively eliminating leakage as a 
GHG concern, our credit calculation method could result in maximum 
credits equal to total average emissions, or credits of 13.8 and 17.2 
g/mi CO2eq for cars and trucks, respectively, as 
incorporated into the A/C Leakage Credit formula above as the 
``MaxCredit'' term.
    Table III.C.1-1 summarizes the maximum A/C leakage credits 
available to a manufacturer, according to the formula above.

   Table III.C.1-1--Maximum Leakage Credit Available to Manufacturers
------------------------------------------------------------------------
                                        Car (g/mi)        Truck (g/mi)
------------------------------------------------------------------------
R-134a refrigerant with belt-                     6.3                7.8
 driven compressor................
R-134a refrigerant with electric                  9.5               11.7
 motor-driven compressor..........
Lowest-GWP refrigerant (GWP=1)....               13.8               17.2
------------------------------------------------------------------------

    It is possible that alternative refrigerants could, without 
compensating action by the manufacturer, reduce the efficiency of the 
A/C system (see related discussion of the A/C Efficiency Credit below.) 
However, as noted at proposal and discussed further in the following 
section, EPA believes that manufacturers will have substantial 
incentives to design their systems to maintain the efficiency of the A/
C system. Therefore EPA is not accounting for any potential efficiency 
degradation due to the use of alternative refrigerants.
    Beyond the comments mentioned above, commenters generally supported 
or were silent about EPA's refrigerant leakage methodology (as based on 
SAE J2727), including the maximum leakage credits available, the 
technologies eligible for credit and their associated leakage reduction 
values, and the potential for alternative refrigerants. All comments 
related to A/C credits are addressed in the Response to Comments 
Document.
b. A/C Efficiency Credits
    Manufacturers that make improvements in their A/C systems to 
increase efficiency and thus reduce CO2 emissions due to A/C 
system operation may be eligible for A/C Efficiency Credits. As with A/
C Leakage Credits, manufacturers could apply A/C Efficiency Credits 
toward compliance with their overall CO2 standards (or 
otherwise bank and trade the credits).
    As mentioned above, EPA estimates that the CO2 emissions 
due to A/C related loads on the engine account for approximately 3.9% 
of total greenhouse gas emissions from passenger vehicles in the United 
States. Usage of A/C systems is inherently higher in hotter and more 
humid months and climates; however, vehicle owners may use their A/C 
systems all year round in all parts of the nation. For example, people 
commonly use A/C systems to cool and dehumidify the cabin air for 
passenger comfort on hot humid days, but they also use the systems to 
de-humidify cabin air to assist in defogging/de-icing the front 
windshield and side glass in cooler weather conditions for improved 
visibility. A more detailed discussion of seasonal and geographical A/C 
usage rates can be found in the RIA.
    Most of the additional load on the engine from A/C system operation 
comes from the compressor, which pumps the refrigerant around the 
system loop. Significant additional load on the engine may also come 
from electric or hydraulic fans, which are used to move air across the 
condenser, and from the electric blower, which is used to move air 
across the evaporator and into the cabin. Manufacturers have several 
currently-existing technology options for improving efficiency, 
including more efficient compressors, fans, and motors, and system 
controls that avoid over-chilling the air (and subsequently re-heating 
it to provide the desired air temperature with an associated loss of 
efficiency). For vehicles equipped with automatic climate-control 
systems, real-time adjustment of several aspects of the overall system 
(such as engaging the full capacity of the cooling system only when it 
is needed, and maximizing the use of recirculated air) can result in 
improved efficiency. Table III.C.1-2 below lists some of these 
technologies and their respective efficiency improvements.
    As discussed in the proposal, EPA is adopting a design-based 
``menu'' approach for estimating efficiency improvements and, thus, 
quantifying A/C Efficiency Credits.\211\ However, EPA's ultimate 
preference is performance-based standards and credit mechanisms (i.e., 
using actual measurements) as typically providing a more accurate 
measure of performance. However, EPA has concluded that a practical, 
performance-based procedure for the purpose of accurately quantifying 
A/C-related CO2 emission reductions, and thus efficiency 
improvements for assigning credits, is not yet available. Still, EPA is 
introducing a new specialized performance-based test for the more 
limited purpose of demonstrating that

[[Page 25428]]

actual efficiency improvements are being achieved by the design 
improvements for which a manufacturer is seeking A/C credits. As 
discussed below, beginning in MY 2014, manufacturers wishing to 
generate A/C Efficiency Credits will need to show improvement on the 
new A/C Idle Test in order to then use the ``menu'' approach to 
quantify the number of credits attributable to those improvements.
---------------------------------------------------------------------------

    \211\ See final regulations at 40 CFR 86.1866-12(c).
---------------------------------------------------------------------------

    In response to comments concerning the applicability and 
effectiveness of technologies that were or were not included in our 
analysis, we have made several changes to the design-based menu.\212\ 
First, we have separated the credit available for `recirculated air' 
\213\ technologies into those with closed-loop control of the air 
supply and those with open-loop control. By ``closed-loop'' control, we 
mean a system that uses feedback from a sensor, or sensors, (e.g., 
humidity, glass fogging, CO2, etc.) to actively control the 
interior air quality. For those systems that use ``open-loop'' control 
of the air supply, we project that since this approach cannot precisely 
adjust to varying ambient humidity or passenger respiration levels, the 
relative effectiveness will be less than that for systems using closed-
loop control.
---------------------------------------------------------------------------

    \212\ Commenters included the Alliance of Automobile 
Manufacturers, Jaguar Land Rover, Denso, and the Motor and Equipment 
Manufacturers Association, among others.
    \213\ Recirculated air is defined as air present in the 
passenger compartment of the vehicle (versus outside air) available 
for the A/C system to cool or condition.
---------------------------------------------------------------------------

    Second, many commenters indicated that the electronic expansion 
valve, or EXV, should not be included in the menu of technologies, as 
its effectiveness may not be as high as we projected. Commenters noted 
that the SAE IMAC report stated efficiency improvements for an EXV used 
in conjunction with a more efficient compressor, and not as a stand 
alone technology and that no manufacturers are considering this 
technology for their products within the timeframe of this rulemaking. 
We believe other technologies (improved compressor controls for 
example) can achieve the same benefit as an EXV, without the need for 
this unique component, and therefore are not adopting it as an option 
in the design menu of efficiency-improving A/C technologies.
    Third, many commenters requested that an internal heat exchanger, 
or IHX, be added to the design menu. EPA initially considered adding 
this technology, but in our initial review of studies on this 
component, we had understood that the value of the technology is 
limited to systems using the alternative refrigerant HFO-1234yf. Some 
manufacturers, however, commented that an IHX can also be used with 
systems using the current refrigerant HFC-134a to improve efficiency, 
and that they plan on implementing this technology as part their 
strategy to improve A/C efficiency. Based on these comments, and 
projections in a more recent SAE Technical Paper, we project that an 
IHX in a conventional HFC-134a system can improve system efficiency by 
20%, resulting in a credit of 1.1 g/mi.\214\ Further discussion of IHX 
technology can be found in the RIA.
---------------------------------------------------------------------------

    \214\ Mathur, Gursaran D., ``Experimental Investigation with 
Cross Fluted Double-Pipe Suction Line Heat Exchanger to Enhance A/C 
System Performance,'' SAE 2009-01-0970, 2009.
---------------------------------------------------------------------------

    Fourth, we have modified the definition of `improved evaporators 
and condensers' to recognize that improved versions of these heat 
exchangers may be used separately or in conjunction with one another, 
and that an engineering analysis must indicate a COP improvement of 10% 
or better when using either or both components (and not a 10% COP 
improvement for each component). Furthermore, we have modified the 
regulation text to clarify what is considered to be the `baseline' 
components for this analysis. We consider the baseline component to be 
the version which a manufacturer most recently had in production on the 
same vehicle or a vehicle in a similar EPA vehicle classification. The 
dimensional characteristics (e.g. tube configuration/thickness/spacing, 
and fin density) of the baseline components are then compared to the 
new components, and an engineering analysis is required to demonstrate 
the COP improvement.
    For model years 2012 and 2013, a manufacturer wishing to generate 
A/C Efficiency Credits for a group of its vehicles with similar A/C 
systems will compare several of its vehicle A/C-related components and 
systems with a list of efficiency-related technology improvements (see 
Table III.C.1-2 below). Based on the technologies the manufacturer 
chooses, an A/C Efficiency Credit value will be established. This 
design-based approach will recognize the relationships and synergies 
among efficiency-related technologies. Manufacturers could receive 
credits based on the technologies they chose to incorporate in their A/
C systems and the associated credit value for each technology. The 
total A/C Efficiency Credit will be the total of these values, up to a 
maximum allowable credit of 5.7 g/mi CO2eq. This will be the 
maximum improvement from current average efficiencies for A/C systems 
(see the RIA for a full discussion of our derivation of the reductions 
and credit values for individual technologies and for the maximum total 
credit available). Although the total of the individual technology 
credit values may exceed 5.7 g/mi CO2eq, synergies among the 
technologies mean that the values are not additive. A/C Efficiency 
Credits as adopted may not exceed 5.7 g/mi CO2eq.

   Table III.C.1-2--Efficiency-Improving A/C Technologies and Credits
------------------------------------------------------------------------
                                          Estimated
                                      reduction in A/C   A/C efficiency
       Technology description           CO2 emissions     credit  (g/mi
                                             (%)              CO2)
------------------------------------------------------------------------
Reduced reheat, with externally-                    30               1.7
 controlled, variable-displacement
 compressor.........................
Reduced reheat, with externally-                    20               1.1
 controlled, fixed-displacement or
 pneumatic variable-displacement
 compressor.........................
Default to recirculated air with                    30               1.7
 closed-loop control of the air
 supply (sensor feedback to control
 interior air quality) whenever the
 ambient temperature is 75 [deg]F or
 higher (although deviations from
 this temperature are allowed if
 accompanied by an engineering
 analysis)..........................
Default to recirculated air with                    20               1.1
 open-loop control air supply (no
 sensor feedback) whenever the
 ambient temperature 75 [deg]F or
 higher lower temperatures are
 allowed............................
Blower motor controls which limit                   15               0.9
 wasted electrical energy (e.g.,
 pulse width modulated power
 controller)........................
Internal heat exchanger.............                20               1.1
Improved condensers and/or                          20               1.1
 evaporators (with system analysis
 on the component(s) indicating a
 COP improvement greater than 10%,
 when compared to previous industry
 standard designs)..................

[[Page 25429]]

Oil separator (with engineering                     10               0.6
 analysis demonstrating
 effectiveness relative to the
 baseline design)...................
------------------------------------------------------------------------

    The proposal requested comment on adjusting the efficiency credit 
for alternative refrigerants. Although a few commenters noted that the 
efficiency of an HFO1234yf system may differ from a current HFC-134a 
system,\215\ we believe that this difference does not take into account 
any efficiency improvements that may be recovered or gained when the 
overall system is specifically designed with consideration of the new 
refrigerant properties (as compared to only substituting the new 
refrigerant). EPA is therefore not adjusting the credits based on 
efficiency differences for this rule.
---------------------------------------------------------------------------

    \215\ Ford noted that ``the physical properties of the 
alternative refrigerant R1234yf could result in a reduction of 
efficiency by 5 to 10 percent compared to R134a in use today with a 
similar refrigerant system and controls technology.''
---------------------------------------------------------------------------

    As noted above, for model years 2014 and later, manufacturers 
seeking to generate design-based A/C Efficiency Credits will also need 
to use a specific new EPA performance test to confirm that the design 
changes are resulting in improvements in A/C system efficiency as 
integrated into the vehicle. As proposed, beginning in MY 2014 
manufacturers will need to perform an A/C CO2 Idle Test for 
each A/C system (family) for which it desires to generate Efficiency 
Credits. Manufacturers will need to demonstrate an improvement over 
current average A/C CO2 levels (21.3 g/minute on the Idle 
Test) to qualify for the menu approach credits. Upon qualifying on the 
Idle Test, the manufacturer will be eligible to use the menu approach 
above to quantify the potential credits it could generate. To earn the 
full amount of credits available in the menu approach (limited to the 
maximum), the test must demonstrate a 30% or greater improvement in 
CO2 levels over the current average.
    For A/C systems that achieve an improvement between 0-and-30% (or a 
result between 21.3 and 14.9 g/minute result on the A/C CO2 
Idle Test), a credit can still be earned, but a multiplicative credit 
adjustment factor will be applied to the eligible credits. As shown in 
Figure III.C.1-1 this factor will be scaled from 1.0 to 0, with 
vehicles demonstrating a 30% or better improvement (14.9 g/min or 
lower) receiving 100% of the eligible credit (adj. factor = 1.0), and 
vehicles demonstrating a 0% improvement--21.3 g/min or higher result--
receiving no credit (adj. factor = 0). We adopted this adjustment 
factor in response to commenters who were concerned that a vehicle 
which incorporated many efficiency-improving technologies may not 
achieve the full 30% improvement, and as a result would receive no 
credit (thus discouraging them from using any of the technologies). 
Because there is environmental benefit (reduced CO2) from 
the use of even some of these efficiency-improving technologies, EPA 
believes it is appropriate to scale the A/C efficiency credits to 
account for these partial improvements.
BILLING CODE 6560-50-P

[[Page 25430]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.016

BILLING CODE 6560-50-C

[[Page 25431]]

    EPA is adopting the A/C CO2 Idle Test procedure as 
proposed in most respects. This laboratory idle test is performed while 
the vehicle is at idle, similar to the idle carbon monoxide (CO) test 
that was once a part of EPA vehicle certification. The test determines 
the additional CO2 generated at idle when the A/C system is 
operated. The A/C CO2 Idle Test will be run with and without 
the A/C system cooling the interior cabin while the vehicle's engine is 
operating at idle and with the system under complete control of the 
engine and climate control system. The test includes tighter 
restrictions on test cell temperatures and humidity levels than apply 
for the basic FTP test procedure in order to more closely control the 
loads from operation of the A/C system. EPA is also adopting additional 
refinements to the required in-vehicle blower fan settings for manually 
controlled systems to more closely represent ``real world'' usage 
patterns.
    Many commenters questioned the ability of this test to measure the 
improved efficiency of certain A/C technologies, and stated that the 
test was not representative of real-world driving conditions. However, 
although EPA acknowledges that this test directly simulates a 
relatively limited range of technologies and conditions, we determined 
that it is sufficiently robust for the purpose of demonstrating that 
the system design changes are indeed implemented properly and are 
resulting in improved efficiency of a vehicle's A/C system, at idle as 
well as under a range of operating conditions. Further details of the 
A/C Idle Test can be found in the RIA and the regulations, as well as 
in the Response to Comments Document.
    The design of the A/C CO2 Idle Test represents a 
balancing of the need for performance tests whenever possible to ensure 
the most accurate quantification of efficiency improvements, with 
practical concerns for testing burden and facility requirements. EPA 
believes that the Idle Test adds to the robust quantification of A/C 
credits that will result in real-world efficiency improvements and 
reductions in A/C-related CO2 emissions. The Idle Test will 
not be required in order to generate A/C Efficiency Credits until MY 
2014 to allow sufficient time for manufacturers to make the necessary 
facilities improvements and to gain experience with the test.
    EPA also considered and invited comment on a more comprehensive 
testing approach to quantifying A/C CO2 emissions that could 
be somewhat more technically robust, but would require more test time 
and test facility improvements for many manufacturers. EPA invited 
comment on using an adapted version of the SCO3, an existing test 
procedure that is part of the Supplemental Federal Test Procedure. EPA 
discussed and invited comment on the various benefits and concerns 
associated with using an adapted SCO3 test. There were many comments 
opposed to this proposal, and very few supporters. Most of the comments 
opposing this approach echoed the concerns made by in the NPRM. These 
included excessive testing burden, limited test facilities and the cost 
of adding new ones, and the concern that the SC03 test may not be 
sufficiently representative of in use A/C usage. Some commenters 
supported a derivative of the SCO3 test or multiple runs of other urban 
cycles (such as the LA-4) for quantifying A/C system efficiency. While 
EPA considers a test cycle that covers a broader range of vehicle speed 
and climatic conditions to be ideal, developing such a representative 
A/C test would involve the work of many stakeholders, and would require 
a significant amount of time, exceeding the scope of this rule. EPA 
expects to continue working with industry, the California Air Resources 
Board, and other stakeholders to move toward increasingly robust 
performance tests and methods for determining the efficiency of mobile 
A/C systems and the related impact on vehicle CO2 emissions, 
including a potential adapted SC03 test.
c. Interaction With Title VI Refrigerant Regulations
    Title VI of the Clean Air Act deals with the protection of 
stratospheric ozone. Section 608 establishes a comprehensive program to 
limit emissions of certain ozone-depleting substances (ODS). The rules 
promulgated under section 608 regulate the use and disposal of such 
substances during the service, repair or disposal of appliances and 
industrial process refrigeration. In addition, section 608 and the 
regulations promulgated under it, prohibit knowingly venting or 
releasing ODS during the course of maintaining, servicing, repairing or 
disposing of an appliance or industrial process refrigeration 
equipment. Section 609 governs the servicing of motor vehicle A/C 
systems. The regulations promulgated under section 609 (40 CFR part 82, 
subpart B) establish standards and requirements regarding the servicing 
of A/C systems. These regulations include establishing standards for 
equipment that recovers and recycles (or, for refrigerant blends, only 
recovers) refrigerant from A/C systems; requiring technician training 
and certification by an EPA-approved organization; establishing 
recordkeeping requirements; imposing sales restrictions; and 
prohibiting the venting of refrigerants. Section 612 requires EPA to 
review substitutes for class I and class II ozone depleting substances 
and to consider whether such substitutes will cause an adverse effect 
to human health or the environment as compared with other substitutes 
that are currently or potentially available. EPA promulgated 
regulations for this program in 1992 and those regulations are located 
at 40 CFR part 82, subpart G. When reviewing substitutes, in addition 
to finding them acceptable or unacceptable, EPA may also find them 
acceptable so long as the user meets certain use conditions. For 
example, all motor vehicle air conditioning systems must have unique 
fittings and a uniquely colored label for the refrigerant being used in 
the system.
    On September 14, 2006, EPA proposed to approve R-744 
(CO2) for use in motor vehicle A/C systems (71 FR 55140) and 
on October 19, 2009, EPA proposed to approve the low-GWP refrigerant 
HFO-1234yf for these systems (74 FR 53445), both subject to certain 
requirements. Final action on both of these proposals is expected later 
this year. EPA previously issued a final rule allowing the use of HFC-
152a as a refrigerant in motor vehicle A/C systems subject to certain 
requirements (June 12, 2008; 73 FR 33304). As discussed above, 
manufacturers transitioning to any of the approved refrigerants would 
be eligible for A/C Leakage Credits, the value of which would depend on 
the GWP of their refrigerant and the degree of leakage reduction of 
their systems.
    EPA views this rule as complementing these Title VI programs, and 
not conflicting with them. To the extent that manufacturers choose to 
reduce refrigerant leakage in order to earn A/C Leakage Credits, this 
will dovetail with the Title VI section 609 standards which apply to 
maintenance events, and to end-of-vehicle life disposal. In fact, as 
noted, a benefit of the A/C credit provisions is that there should be 
fewer and less impactive maintenance events for MVACs, since there will 
be less leakage. In addition, the credit provisions will not conflict 
(or overlap) with the Title VI section 609 standards. EPA also believes 
the menu of leak control technologies described in this rule will 
complement the section 612 requirements, because these control 
technologies will help ensure that HFC-134a (or other refrigerants) 
will be used in a manner that further minimizes potential adverse

[[Page 25432]]

effects on human health and the environment.
2. Flexible Fuel and Alternative Fuel Vehicle Credits
    EPA is finalizing its proposal to allow flexible-fuel vehicles 
(FFVs) and alternative fuel vehicles to generate credits for purposes 
of the GHG rule starting in the 2012 model year. FFVs are vehicles that 
can run on both an alternative fuel and a conventional fuel. Most FFVs 
are E85 vehicles, which can run on a mixture of up to 85 percent 
ethanol and gasoline. Dedicated alternative fuel vehicles are vehicles 
that run exclusively on an alternative fuel (e.g., compressed natural 
gas). These credits are designed to complement the treatment of FFVs 
under CAFE, consistent with the emission reduction objectives of the 
CAA. As explained at proposal, EPCA includes an incentive under the 
CAFE program for production of dual-fueled vehicles or FFVs, and 
dedicated alternative fuel vehicles.\216\ For FFVs and dual-fueled 
vehicles, the EPCA/EISA credits have three elements: (1) The assumption 
that the vehicle is operated 50% of the time on the conventional fuel 
and 50% of the time on the alternative fuel, (2) that 1 gallon of 
alternative fuel is treated as 0.15 gallon of fuel, essentially 
increasing the fuel economy of a vehicle on alternative fuel by a 
factor of 6.67, and (3) a ``cap'' provision that limits the maximum 
fuel economy increase that can be applied to a manufacturer's overall 
CAFE compliance value for all CAFE compliance categories (i.e., 
domestic passenger cars, import passenger cars, and light trucks) to 
1.2 mpg through 2014 and 1.0 mpg in 2015. EPCA's provisions were 
amended by the EISA to extend the period of availability of the FFV 
credits, but to begin phasing them out by annually reducing the amount 
of FFV credits that can be used in demonstrating compliance with the 
CAFE standards.\217\ EPCA does not premise the availability of the FFV 
credits on actual use of alternative fuel. Under EPCA, after MY 2019 no 
FFV credits will be available for CAFE compliance.\218\ Under EPCA, for 
dedicated alternative fuel vehicles, there are no limits or phase-out. 
As proposed, FFV and Alternative Fuel Vehicle Credits will be 
calculated as a part of the calculation of a manufacturer's overall 
fleet average fuel economy and fleet average carbon-related exhaust 
emissions (Sec.  600.510-12).
---------------------------------------------------------------------------

    \216\ 49 U.S.C. 32905.
    \217\ See 49 U.S.C. 32906. The mechanism by which EPCA provides 
an incentive for production of FFVs is by specifying that their fuel 
economy is determined using a special calculation procedure that 
results in those vehicles being assigned a higher fuel economy level 
than would otherwise occur. 49 U.S.C. 32905(b). This is typically 
referred to as an FFV credit.
    \218\ 49 U.S.C. 32906.
---------------------------------------------------------------------------

    Manufacturers supported the inclusion of FFV credits in the 
program. Chrysler noted that the credits encourage manufacturers to 
continue production of vehicles capable of running on alternative fuels 
as the production and distribution systems of such fuels are developed. 
Chrysler believes the lower carbon intensity of such fuels is an 
opportunity for further greenhouse gas reductions and increased energy 
independence, and the continuance of such incentives recognizes the 
important potential of this technology to reduce GHGs. Toyota noted 
that because actions taken by manufacturers to comply with EPA's 
regulation will, to a large extent, be the same as those taken to 
comply with NHTSA's CAFE regulation, it is appropriate for EPA to 
consider flexibilities contained in the CAFE program that clearly 
impact product plans and technology deployment plans already in place 
or nearly in place. Toyota believes that adopting the FFV credit for a 
transitional period of time appears to recognize this reality, while 
providing a pathway to eventually phase-out the flexibility.
    As proposed, electric vehicles (EVs) or plug-in hybrid electric 
vehicles (PHEVs) are not eligible to generate this type of credit. 
These vehicles are covered by the advanced technology vehicle 
incentives provisions described in Section III.C.3, so including them 
here would lead to a double counting of credits.
a. Model Year 2012-2015 Credits
i. FFVs
    For the GHG program, EPA is allowing FFV credits corresponding to 
the amounts allowed by the amended EPCA but only during the period from 
MYs 2012 to 2015. (As discussed below in Section III.E., EPA is not 
allowing CAFE-based FFV credits to be generated as part of the early 
credits program.) As noted at proposal, several manufacturers have 
already taken the availability of FFV credits into account in their 
near-term future planning for CAFE and this reliance indicates that 
these credits need to be considered in assessing necessary lead time 
for the CO2 standards. Manufacturers commented that the 
credits are necessary in allowing them to transition to the new 
standards. EPA thus believes that allowing these credits, in the near 
term, would help provide adequate lead time for manufacturers to 
implement the new multi-year standards, but that for the longer term 
there is adequate lead time without the use of such credits. This will 
also tend to harmonize the GHG and the CAFE program during these 
interim years. As discussed below, EPA is requiring for MY 2016 and 
later that manufacturers will need to reliably estimate the extent to 
which the alternative fuel is actually being used by vehicles in order 
to count the alternative fuel use in the vehicle's CO2 
emissions level determination. Beginning in MY 2016, the FFV credits as 
described above for MY 2012-2015 will no longer be available for EPA's 
GHG program. Rather, GHG compliance values will be based on actual 
emissions performance of the FFV on conventional and alternative fuels, 
weighted by the actual use of these fuels in the FFVs.
    As with the CAFE program, EPA will base MY 2012-2015 credits on the 
assumption that the vehicles would operate 50% of the time on the 
alternative fuel and 50% of the time on conventional fuel, resulting in 
CO2 emissions that are based on an arithmetic average of 
alternative fuel and conventional fuel CO2 emissions.\219\ 
In addition, the measured CO2 emissions on the alternative 
fuel will be multiplied by a 0.15 volumetric conversion factor which is 
included in the CAFE calculation as provided by EPCA. Through this 
mechanism a gallon of alternative fuel is deemed to contain 0.15 
gallons of fuel. For example, for a flexible-fuel vehicle that emitted 
330 g/mi CO2 operating on E85 and 350 g/mi CO2 
operating on gasoline, the resulting CO2 level to be used in 
the manufacturer's fleet average calculation would be:
---------------------------------------------------------------------------

    \219\ 49 U.S.C. 32905(b).
    [GRAPHIC] [TIFF OMITTED] TR07MY10.017
    
    EPA understands that by using the CAFE approach--including the 0.15 
factor--the CO2 emissions value for the vehicle is 
calculated to be significantly lower than it actually would be 
otherwise, even if the vehicle were assumed to operate on the 
alternative fuel at all times. This represents a ``credit'' being 
provided to FFVs.
    EPA notes also that the above equation and example are based on an 
FFV that is an E85 vehicle. EPCA, as amended by EISA, also establishes 
the use of this approach, including the 0.15 factor, for all 
alternative fuels, not just

[[Page 25433]]

E85.\220\ The 0.15 factor is used for B-20 (20 percent biofuel and 80 
percent diesel) FFVs. EPCA also establishes this approach, including 
the 0.15 factor, for gaseous-fueled dual-fueled vehicles, such as a 
vehicle able to operate on gasoline and CNG.\221\ (For natural gas 
dual-fueled vehicles, EPCA establishes a factor of 0.823 gallons of 
fuel for every 100 cubic feet a natural gas used to calculate a gallons 
equivalent.\222\) The EISA's use of the 0.15 factor in this way 
provides a similar regulatory treatment across the various types of 
alternative fuel vehicles. EPA also will use the 0.15 factor for all 
FFVs in order not to disrupt manufacturers' near-term compliance 
planning and assure sufficient lead time. EPA, in any case, expects the 
vast majority of FFVs to be E85 vehicles, as is the case today.
---------------------------------------------------------------------------

    \220\ 49 U.S.C. 32905(c).
    \221\ 49 U.S.C. 32905(d).
    \222\ 49 U.S.C. 32905(c).
---------------------------------------------------------------------------

    The FFV credit limits for CAFE are 1.2 mpg for model years 2012-
2014 and 1.0 mpg for model year 2015.\223\ In CO2 terms, 
these CAFE limits translate to declining CO2 credit limits 
over the four model years, as the CAFE standards increase in 
stringency. As the CAFE standard increases numerically, the limit 
becomes a smaller fraction of the standard. EPA proposed, but is not 
adopting, credit limits based on the overall industry average 
CO2 standards for cars and trucks. EPA also requested 
comments on basing the calculated CO2 credit limits on the 
individual manufacturer fleet-average standards calculated from the 
footprint curves. EPA received comment from one manufacturer supporting 
this approach. EPA also received comments from another manufacturer 
recommending that the credit limits for an individual manufacturer be 
based instead on that manufacturer's fleet average performance. The 
commenter noted that this approach is in line with how CAFE FFV credit 
limits are applied. This is due to the fact that the GHG-equivalent of 
the CAFE 1.2 mpg cap will vary due to the non-linear relationship 
between fuel economy and GHGs/fuel consumption. EPA agrees with this 
approach since it best harmonizes how credit limits are determined in 
CAFE. EPA intended and continues to believe it is appropriate to 
provide essentially the same FFV credits under both programs for MYs 
2012-2015. Therefore, EPA is finalizing FFV credits limits for MY 2012-
2015 based on a manufacturer's fleet-average performance. For example, 
if a manufacturer's 2012 car fleet average emissions performance was 
260 g/mile (34.2 mpg), the credit limit in CO2 terms would 
be 9.5 g/mile (34.2 mpg - 1.2 mpg = 33.0 mpg = 269.5 g/mile) and if it 
were 270 g/mile the limit would be 10.2 g/mile.
---------------------------------------------------------------------------

    \223\ 49 U.S.C. 32906(a).
---------------------------------------------------------------------------

ii. Dedicated Alternative Fuel Vehicles
    As proposed, EPA will calculate CO2 emissions from 
dedicated alternative fuel vehicles for MY 2012-2015 by measuring the 
CO2 emissions over the test procedure and multiplying the 
results by the 0.15 conversion factor described above. For example, for 
a dedicated alternative fuel vehicle that would achieve 330 g/mi 
CO2 while operating on alcohol (ethanol or methanol), the 
effective CO2 emissions of the vehicle for use in 
determining the vehicle's CO2 emissions would be calculated 
as follows:

    CO2 = 330 x 0.15 = 49.5 g/mi
b. Model Years 2016 and Later
i. FFVs
    EPA is treating FFV credits the same as under EPCA for model years 
2012-2015, but is applying a different approach starting with model 
year 2016. EPA recognizes that under EPCA automatic FFV credits are 
entirely phased out of the CAFE program by MY 2020, and apply in the 
prior model years with certain limitations, but without a requirement 
that the manufacturers demonstrate actual use of the alternative fuel. 
Unlike EPCA, CAA section 202(a) does not mandate that EPA treat FFVs in 
a specific way. Instead EPA is required to exercise its own judgment 
and determine an appropriate approach that best promotes the goals of 
this CAA section. Under these circumstances, EPA will treat FFVs for 
model years 2012-2015 the same as under EPCA, as part of providing 
sufficient lead time given manufacturers' compliance strategies which 
rely on the existence of these EPCA statutory credits, as explained 
above.
    Starting with model year 2016, as proposed, EPA will no longer 
allow manufacturers to base FFV emissions on the use of the 0.15 factor 
credit described above, and on the use of an assumed 50% usage of 
alternative fuel. Instead, EPA believes the appropriate approach is to 
ensure that FFV emissions are based on demonstrated emissions 
performance. This will promote the environmental goals of the final 
program. EPA received several comments in support of EPA's proposal to 
use this approach instead of the EPCA approach for MY 2016 and later. 
Under the EPA program in MY 2016 and later, manufacturers will be 
allowed to base an FFV's emissions compliance value in part on the 
vehicle test values run on the alternative fuel, for that portion of 
its fleet for which the manufacturer demonstrates utilized the 
alternative fuel in the field. In other words, the default is to assume 
FFVs operate on 100% gasoline, and the emissions value for the FFV 
vehicle will be based on the vehicle's tested value on gasoline. 
However, if a manufacturer can demonstrate that a portion of its FFVs 
are using an alternative fuel in use, then the FFV emissions compliance 
value can be calculated based on the vehicle's tested value using the 
alternative fuel, prorated based on the percentage of the fleet using 
the alternative fuel in the field. An example calculation is described 
below. EPA believes this approach will provide an actual incentive to 
ensure that such fuels are used. The incentive arises since actual use 
of the flexible fuel typically results in lower tailpipe GHG emissions 
than use of gasoline and hence improves the vehicles' performance, 
making it more likely that its performance will improve a 
manufacturers' average fleetwide performance. Based on existing 
certification data, E85 FFV CO2 emissions are typically 
about 5 percent lower on E85 than CO2 emissions on 100 
percent gasoline. Moreover, currently there is little incentive to 
optimize CO2 performance for vehicles when running on E85. 
EPA believes the above approach would provide such an incentive to 
manufacturers and that E85 vehicles could be optimized through engine 
redesign and calibration to provide additional CO2 
reductions.
    Under the EPCA credit provisions, there is an incentive to produce 
FFVs but no actual incentive to ensure that the alternative fuels are 
used, or that actual vehicle fuel economy improves. GHG and energy 
security benefits are only achieved if the alternative fuel is actually 
used and (for GHGs) that performance improves, and EPA's approach for 
MY 2016 and beyond will now provide such an incentive. This approach 
will promote greater use of alternative fuels, as compared to a 
situation where there is a credit but no usage requirement. This is 
also consistent with the agency's overall commitment to the expanded 
use of renewable fuels. Therefore, EPA is basing the FFV program for 
MYs 2016 and thereafter on real-world reductions: i.e., actual vehicle 
CO2 emissions levels based on actual use of the two fuels, 
without the 0.15 conversion factor specified under EISA.

[[Page 25434]]

    For 2016 and later model years, EPA will therefore treat FFVs 
similarly to conventional fueled vehicles in that FFV emissions would 
be based on actual CO2 results from emission testing on the 
fuels on which it operates. In calculating the emissions performance of 
an FFV, manufacturers may base FFV emissions on vehicle testing based 
on the alternative fuel emissions, if they can demonstrate that the 
alternative fuel is actually being used in the vehicles. Performance 
will otherwise be calculated assuming use only of conventional fuel. 
The manufacturer must establish the ratio of operation that is on the 
alternative fuel compared to the conventional fuel. The ratio will be 
used to weight the CO2 emissions performance over the 2-
cycle test on the two fuels. The 0.15 conversion factor will no longer 
be included in the CO2 emissions calculation. For example, 
for a flexible-fuel vehicle that emitted 300 g/mi CO2 
operating on E85 ten percent of the time and 350 g/mi CO2 
operating on gasoline ninety percent of the time, the CO2 
emissions for the vehicles to be used in the manufacturer's fleet 
average would be calculated as follows:

CO2 = (300 x 0.10) + (350 x 0.90) = 345 g/mi

    The most complex part of this approach is to establish what data 
are needed for a manufacturer to accurately demonstrate use of the 
alternative fuel, where the manufacturer intends for its performance to 
be calculated based on some use of alternative fuels. One option EPA is 
finalizing is establishing a rebuttable presumption using a national 
average approach based on national E85 fuel use. Manufacturers could 
use this value along with their vehicle emissions results demonstrating 
lower emissions on E85 to determine the emissions compliance values for 
FFVs sold by manufacturers under this program. For example, national 
E85 volumes and national FFV sales may be used to prorate E85 use by 
manufacturer sales volumes and FFVs already in-use. Upon a 
manufacturer's written request, EPA will conduct an analysis of vehicle 
miles travelled (VMT) by year for all FFVs using its emissions 
inventory MOVES model. Using the VMT ratios and the overall E85 sales, 
E85 usage will be assigned to each vehicle. This method accounts for 
the VMT of new FFVs and FFVs already in the existing fleet using VMT 
data in the model. The model will then be used to determine the ratio 
of E85 and gasoline for new vehicles being sold. Fluctuations in E85 
sales and FFV sales will be taken into account to adjust the 
manufacturers' E85 actual use estimates annually. EPA plans to make 
this assigned fuel usage factor available through guidance prior to the 
start of MY 2016 and adjust it annually as necessary. EPA believes this 
is a reasonable way to apportion E85 use across the fleet.
    If manufacturers decide not to use EPA's assigned fuel usage based 
on the national average analysis, they have a second option of 
presenting their own data for consideration as the basis for evaluating 
fuel usage. Manufacturers have suggested demonstrations using vehicle 
on-board data gathering through the use of on-board sensors and 
computers. California's program allows FFV credits based on FFV use and 
envisioned manufacturers collecting fuel use data from vehicles in 
fleets with on-site refueling. Manufacturers must present a statistical 
analysis of alternative fuel usage data collected on actual vehicle 
operation. EPA is not attempting to specify how the data is collected 
or the amount of data needed. However, the analysis must be based on 
sound statistical methodology. Uncertainty in the analysis must be 
accounted for in a way that provides reasonable certainty that the 
program does not result in loss of emissions reductions.
    EPA received comments that the 2016 and later FFV emissions 
performance methodology should be based on the life cycle emissions 
(i.e., including the upstream GHG emissions associated with fuel 
feedstocks, production, and transportation) associated with the use of 
the alternative fuel. Commenters are concerned that the use of ethanol 
will not result in lower GHGs on a lifecycle basis. After considering 
these comments, EPA is not including lifecycle emissions in the 
calculation of vehicle credits. EPA continues to believe that it is 
appropriate to base credits for MY 2012-2015 on the EPCA/CAFE credits 
and to base compliance values for MY 2016 on the demonstrated tailpipe 
emissions performance on gasoline and E85, and is finalizing this 
approach as proposed. EPA recently finalized its RFS2 rulemaking which 
addresses lifecycle emissions from ethanol and the upstream GHG 
benefits of E85 use are already captured by this program.\224\
---------------------------------------------------------------------------

    \224\ 75 FR 14670 (March 26, 2010).
---------------------------------------------------------------------------

ii. Dedicated Alternative Fuel Vehicles
    As proposed, for model years 2016 and later dedicated alternative 
fuel vehicles, CO2 will be measured over the 2-cycle test in 
order to be included in a manufacturer's fleet average CO2 
calculations. As noted above, this is different than CAFE methodology 
which provides a methodology for calculating a petroleum-based mpg 
equivalent for alternative fuel vehicles so they can be included in 
CAFE. However, because CO2 can be measured directly from 
alternative fuel vehicles over the test procedure, EPA believes this is 
the simplest and best approach since it is consistent with all other 
vehicle testing under the CO2 program. EPA did not receive 
comments on this approach.
3. Advanced Technology Vehicle Incentives for Electric Vehicles, Plug-
in Hybrids, and Fuel Cell Vehicles
    EPA is finalizing provisions that provide a temporary regulatory 
incentive for the commercialization of certain advanced vehicle power 
trains--electric vehicles (EVs), plug-in hybrid electric vehicles 
(PHEVs), and fuel cell vehicles (FCVs)--for model year 2012-2016 light-
duty and medium-duty passenger vehicles.\225\ The purpose of these 
provisions is to provide a temporary incentive to promote technologies 
which have the potential to produce very large GHG reductions in the 
future, but which face major challenges such as vehicle cost, consumer 
acceptance, and the development of low-GHG fuel production 
infrastructure. The tailpipe GHG emissions from EVs, PHEVs operated on 
grid electricity, and hydrogen-fueled FCVs are zero, and traditionally 
the emissions of the vehicle itself are all that EPA takes into account 
for purposes of compliance with standards set under section 202(a). 
Focusing on vehicle tailpipe emissions has not raised any issues for 
criteria pollutants, as upstream emissions associated with production 
and distribution of the fuel are addressed by comprehensive regulatory 
programs focused on the upstream sources of those emissions.\226\ At 
this time, however, there is no such comprehensive program addressing 
upstream emissions of GHGs, and the upstream GHG emissions associated 
with production and distribution of electricity are higher than the 
corresponding upstream GHG emissions of gasoline or other petroleum 
based fuels. In the future, if there were a program to comprehensively 
control upstream GHG emissions, then the zero tailpipe levels from 
these vehicles have the potential to produce very large GHG reductions, 
and to transform the

[[Page 25435]]

transportation sector's contribution to nationwide GHG emissions.
---------------------------------------------------------------------------

    \225\ See final regulations at 40 CFR 86.1866-12(a).
    \226\ In this section, ``upstream'' means all fuel-related GHG 
emissions prior to the fuel being introduced to the vehicle.
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    This temporary incentive program applies only for the model years 
2012-2016 covered by this final rule. EPA will reassess the issue of 
how to address EVs, PHEVs, and FCVs in rulemakings for model years 2017 
and beyond, based on the status of advanced technology vehicle 
commercialization, the status of upstream GHG emissions control 
programs, and other relevant factors.
    In the Joint Notice of Intent, EPA stated that ``EPA is currently 
considering proposing additional credit opportunities to encourage the 
commercialization of advanced GHG/fuel economy control technology such 
as electric vehicles and plug-in hybrid electric vehicles. These `super 
credits' could take the form of a multiplier that would be applied to 
the number of vehicles sold such that they would count as more than one 
vehicle in the manufacturer's fleet average.'' \227\ Following through, 
EPA proposed two mechanisms by which these vehicles would earn credits: 
(1) A zero grams/mile compliance value for EVs, FCVs, and for PHEVs 
when operated on grid electricity, and (2) a vehicle multiplier in the 
range of 1.2 to 2.0.\228\
---------------------------------------------------------------------------

    \227\ Notice of Upcoming Joint Rulemaking to Establish Vehicle 
GHG Emissions and CAFE Standards, 74 FR 24007, 24011 (May 22, 2009).
    \228\ 74 FR 49533-34.
---------------------------------------------------------------------------

    The zero grams/mile compliance value for EVs (and for PHEVs when 
operated on grid electricity, as well as for FCVs which involve similar 
upstream GHG issues with respect to hydrogen production) is an 
incentive that operates like a credit because, while it accurately 
accounts for tailpipe GHG emissions, it does not reflect the increase 
in upstream GHG emissions associated with the electricity used by EVs 
compared to the upstream GHG emissions associated with the gasoline or 
diesel fuel used by conventional vehicles.\229\ For example, based on 
GHG emissions from today's national average electricity generation 
(including GHG emissions associated with feedstock extraction, 
processing, and transportation) and other key assumptions related to 
vehicle electricity consumption, vehicle charging losses, and grid 
transmission losses, a midsize EV might have an upstream GHG emissions 
of about 180 grams/mile, compared to the upstream GHG emissions of a 
typical midsize gasoline car of about 60 grams/mile. Thus, the EV would 
cause a net upstream GHG emissions increase of about 120 grams/mile (in 
general, the net upstream GHG increase would be less for a smaller EV 
and more for a larger EV). The zero grams/mile compliance value 
provides an incentive because it is less than the 120 grams/mile value 
that would fully account for the net increase in GHG emissions, 
counting upstream emissions.\230\ The net upstream GHG impact could 
change over time, of course, based on changes in electricity generation 
or gasoline production.
---------------------------------------------------------------------------

    \229\ See 74 FR 49533 (``EPA recognizes that for each EV that is 
sold, in reality the total emissions off-set relative to the typical 
gasoline or diesel powered vehicle is not zero, as there is a 
corresponding increase in upstream CO2 emissions due to 
an increase in the requirements for electric utility generation'').
    \230\ This 120 grams/mile value for a midsize EV is 
approximately similar to the compliance value for today's most 
efficient conventional hybrid vehicle, so the EV would not be 
significantly more ``GHG-positive'' than the most efficient 
conventional hybrid counterpart under a full accounting approach. It 
should be noted that these emission levels would still be well below 
the footprint targets for the vehicles in question.
---------------------------------------------------------------------------

    The proposed vehicle multiplier incentive would also have operated 
like a credit as it would have allowed an EV, PHEV, or FCV to count as 
more than one vehicle in the manufacturer's fleet average. For example, 
combining a multiplier of 2.0 with a zero grams/mile compliance value 
for an EV would allow that EV to be counted as two vehicles, each with 
a zero grams/mile compliance value, in the manufacturer's fleet average 
calculations. In effect, a multiplier of 2.0 would double the overall 
credit associated with an EV, PHEV, or FCV.
    EPA explained in the proposal that the potential for large future 
emissions benefits from these technologies provides a strong reason for 
providing incentives at this time to promote their commercialization in 
the 2012-2016 model years. At the same time, EPA acknowledged that the 
zero grams/mile compliance value did not account for increased upstream 
GHG emissions. EPA requested comment on providing some type of 
incentive, the appropriateness of both the zero grams/mile and vehicle 
multiplier incentive mechanisms, and on any alternative approaches for 
addressing advanced technology vehicle incentives. EPA received many 
comments on these issues, which will be briefly summarized below.
    Although some environmental organizations and State agencies 
supported the principle of including some type of regulatory incentive 
mechanism, almost all of their comments were opposed to the combination 
of both the zero grams/mile compliance value and multipliers in the 
higher end of the proposed range of 1.2 to 2.0. The California Air 
Resources Board stated that the proposed credits ``are excessive'' and 
the Union of Concerned Scientists stated that it ``strongly objects'' 
to the approach that lacks ``technical justification'' by not 
``accounting for upstream emissions.'' The Natural Resources Defense 
Council (NRDC) stated that the credits could ``undermine the emissions 
benefits of the program and will have the unintended consequence of 
slowing the development of conventional cleaner vehicle emission 
reduction technologies into the fleet.'' NRDC, along with several other 
commenters who made the same point, cited an example based on Nissan's 
public statements that it plans on producing up to 150,000 Nissan Leaf 
EVs in the near future at its plant in Smyrna, Tennessee.\231\ NRDC's 
analysis showed that if EVs were to account for 10% of Nissan's car 
fleet in 2016, the combination of the zero grams/mile and 2.0 
multiplier would allow Nissan to make only relatively small 
improvements to its gasoline car fleet and still be in compliance. NRDC 
described a detailed methodology for calculating ``true full fuel cycle 
emissions impacts'' for EVs. The Sierra Club suggested that the zero 
grams/mile credit would ``taint'' EVs as the public comes to understand 
that these vehicles are not zero-GHG vehicles, and that the zero grams/
mile incentive would allow higher gasoline vehicle GHG emissions.
---------------------------------------------------------------------------

    \231\ ``Secretary Chu Announces Closing of $1.4 Billion Loan to 
Nissan,'' Department of Energy, January 28, 2010, http://
www.energy.gov/news/8581.htm. EPA Docket EPA-HQ-OAR-2009-0472.
---------------------------------------------------------------------------

    Most vehicle manufacturers were supportive of both the zero grams/
mile compliance value and a higher vehicle multiplier. The Alliance of 
Automobile Manufacturers supported zero grams/mile ``since customers 
need to receive a clear signal that they have made the right choice by 
preferring an EV, PHEV, or EREV. * * * However, the Alliance recognizes 
the need for a comprehensive approach with shared responsibility in 
order to achieve an overall carbon reduction.'' Nissan claimed that 
zero grams/mile is ``legally required,'' stating that EPA's 2-cycle 
test procedures do not account for upstream GHG emissions, that 
accounting for upstream emissions from electric vehicles but not from 
other vehicles would be arbitrary, and that including upstream GHG 
would ``disrupt the careful balancing embedded into the National 
Program.'' Several other manufacturers, including Ford, Chrysler, 
Toyota, and Mitsubishi, also supported the proposed zero grams/mile 
compliance value. BMW suggested a compliance value approach similar to

[[Page 25436]]

that used for CAFE compliance (described below), which would yield a 
very low, non-zero grams/mile compliance value. Honda opposed the zero 
grams/mile incentive. Honda suggested that EPA should fully account for 
upstream GHG and ``should separate incentives and credits from the 
measurement of emissions.'' Automakers universally supported higher 
multipliers, many higher than the maximum 2.0 level proposed by EPA. 
Honda suggested a multiplier of 16.0 for FCVs. Mitsubishi supported the 
concept of larger, temporary incentives until advanced technology 
vehicle sales achieved a 10% market share. Finally, some commenters 
suggested that other technologies should also receive incentives, such 
as diesel vehicles, hydrogen-fueled internal combustion engines, and 
natural gas vehicles.
    Based on a careful consideration of these comments, EPA is 
modifying its proposed advanced technology vehicle incentive program 
for EVs, PHEVs, and FCVs produced in 2012-2016. EPA is not extending 
the program to include additional technologies at this time. The final 
incentive program, and our rationale for it, are described below.
    One, the incentive program retains the zero grams/mile value for 
EVs and FCVs, and for PHEVs when operated on grid electricity, subject 
to vehicle production caps discussed below. EPA acknowledges that, 
based on current electricity and hydrogen production processes, that 
EVs, PHEVs, and FCVs yield higher upstream GHG emissions than 
comparable gasoline vehicles. But EPA reiterates its support for 
temporarily rewarding advanced emissions control technologies by 
foregoing modest emissions reductions in the short term in order to lay 
the foundation for the potential for much larger emission reductions in 
the longer term.\232\ EPA notes that EVs, PHEVs, and FCVs are potential 
GHG ``game changers'' if major cost and consumer barriers can be 
overcome and if there is a nationwide transformation to low-GHG 
electricity (or hydrogen, in the case of FCVs).
---------------------------------------------------------------------------

    \232\ EPA has adopted this strategy in several of its most 
recent and important mobile source rulemakings, such as its Tier 2 
Light-Duty Vehicle, 2007 Heavy-Duty Highway, and Tier 4 Nonroad 
Diesel rulemakings.
---------------------------------------------------------------------------

    Although EVs and FCVs will have compliance values of zero grams/
mile, PHEV compliance values will be determined by combining zero 
grams/mile for grid electricity operation with the GHG emissions from 
the 2-cycle test results during operation on liquid fuel, and weighting 
these values by the percentage of miles traveled that EPA believes will 
be performed on grid electricity and on liquid fuel, which will vary 
for different PHEVs. EPA is currently considering different approaches 
for determining the weighting factor to be used in calculating PHEV GHG 
emissions compliance values. EPA will consider the work of the Society 
of Automotive Engineers Hybrid Technical Standards Committee, as well 
as other relevant factors. EPA will issue a final rule on this 
methodology by the fall of 2010, when EPA expects some PHEVs to 
initially enter the market.
    EPA agrees with the comments by the environmental organizations, 
States, and Honda that the zero grams/mile compliance value will reduce 
the overall GHG benefits of the program. However, EPA believes these 
reductions in GHG benefits will be relatively small based on the 
projected production of EVs, PHEVs, and FCVs during the 2012-2016 
timeframe, along with the other changes that we are making in the 
incentive program. EPA believes this modest potential for reduction in 
near-term emissions control is more than offset by the potential for 
very large future emissions reductions that commercialization of these 
technologies could promote.
    Two, the incentive program will not include any vehicle 
multipliers, i.e., an EV's zero grams/mile compliance value will count 
as one vehicle in a manufacturer's fleet average, not as more than one 
vehicle as proposed. EPA has concluded that the combination of the zero 
grams/mile and multiplier credits would be excessive. Compared to the 
maximum multiplier of 2.0 that EPA had proposed, dropping this 
multiplier reduces the aggregate impact of the overall credit program 
by a factor of two (less so for lower multipliers, of course).
    Three, EPA is placing a cumulative cap on the total production of 
EVs, PHEVs, and FCVs for which an individual manufacturer can claim the 
zero grams/mile compliance value during model years 2012-2016. The 
cumulative production cap will be 200,000 vehicles, except those 
manufacturers that sell at least 25,000 EVs, PHEVs, and FCVs in MY 2012 
will have a cap of 300,000 vehicles for MY 2012-2016. This higher cap 
option is an additional incentive for those manufacturers that take an 
early leadership role in aggressively and successfully marketing 
advanced technology vehicles. These caps are a second way to limit the 
potential GHG benefit losses associated with the incentive program and 
therefore are another response to the concerns that the proposed 
incentives were excessive and could significantly undermine the 
program's GHG benefits. If, for example, 500,000 EVs were produced in 
2012-2016 that qualified for the zero grams/mile compliance value, the 
loss in GHG benefits due to this program would be about 25 million 
metric tons, or less than 3 percent of the total projected GHG benefits 
of this program.\233\ The rationale for these caps is that the 
incentive for EVs, PHEVs, and FCVs is most critical when individual 
automakers are beginning to introduce advanced technologies in the 
market, and less critical once individual automakers have successfully 
achieved a reasonable market share and technology costs decline due to 
higher production volumes and experience. EPA believes that cap levels 
of 200,000-300,000 vehicles over a five model year period are 
reasonable, as production greater than this would indicate that the 
manufacturer has overcome at least some of the initial market barriers 
to these advanced technologies. Further, EPA believes that it is 
unlikely that many manufacturers will approach these cap levels in the 
2012-2016 timeframe.\234\
---------------------------------------------------------------------------

    \233\ See Regulatory Impact Analysis, Appendix 5.B. While it is, 
of course, impossible to predict the number of EVs, PHEVs, and FCVs 
that will be produced between 2012 and 2016 with absolute certainty, 
EPA believes that 500,000 ``un-capped'' EVs is an optimistic 
scenario. Fewer EVs, or a combination of 500,000 EVs and PHEVs, 
would lessen the short-term reduction in GHG benefits. Production of 
more than 500,000 ``un-capped'' EVs would increase the short-term 
reduction in GHG benefits.
    \234\ Fundamental power train changes in the automotive market 
typically evolve slowly over time. For example, over ten years after 
the U.S. introduction of the first conventional hybrid electric 
vehicle, total hybrid sales are approximately 300,000 units per 
year.
---------------------------------------------------------------------------

    Production beyond the cumulative vehicle production cap for a given 
manufacturer in MY 2012-2016 would have its compliance values 
calculated according to a methodology that accounts in full for the net 
increase in upstream GHG emissions. For an EV, for example, this would 
involve: (1) Measuring the vehicle electricity consumption in watt-
hours/mile over the 2-cycle test (in the example introduced earlier, a 
midsize EV might have a 2-cycle test electricity consumption of 230 
watt-hours/mile), (2) adjusting this watt-hours/mile value upward to 
account for electricity losses during transmission and vehicle charging 
(dividing 230 watt-hours/mile by 0.93 to account for grid/transmission 
losses and by 0.90 to reflect losses during vehicle charging yields a 
value of 275 watt-hours/mile), (3) multiplying the adjusted watt-hours/
mile value by a

[[Page 25437]]

nationwide average electricity upstream GHG emissions rate of 0.642 
grams/watt-hour at the powerplant \235\ (275 watt-hours/mile multiplied 
by 0.642 grams GHG/watt-hour yields 177 grams/mile), and 4) subtracting 
the upstream GHG emissions of a comparable midsize gasoline vehicle of 
56 grams/mile to reflect a true net increase in upstream GHG emissions 
(177 grams/mile for the EV minus 56 grams/mile for the gasoline vehicle 
yields a net increase and EV compliance value of 121 grams/
mile).236 237 The full accounting methodology for the 
portion of PHEV operation on grid electricity would use this same 
approach.
---------------------------------------------------------------------------

    \235\ The nationwide average electricity upstream GHG emissions 
rate of 0.642 grams GHG/watt-hour was calculated from 2005 
nationwide powerplant data for CO2, CH4, and 
N2O emissions from eGRID2007 (http://www.epa.gov/
cleanenergy/energy-resources/egrid/index.html), converting to 
CO2 -e using Global Warming Potentials of 25 for 
CH4 and 298 for N2O, and multiplying by a 
factor of 1.06 to account for GHG emissions associated with 
feedstock extraction, transportation, and processing (based on 
Argonne National Laboratory's The Greenhouse Gases, Regulated 
Emissions, and Energy Use in Transportation (GREET) Model, Version 
1.8c.0, available at http://www.transportation.anl.gov/modeling_
simulation/GREET/). EPA Docket EPA-HQ-OAR-2009-0472. EPA recognizes 
that there are many issues involved with projecting the electricity 
upstream GHG emissions associated with future EV and PHEV use 
including, but not limited to, average vs marginal, daytime vs 
nighttime vehicle charging, geographical differences, and changes in 
future electricity feedstocks. EPA chose to use the 2005 national 
average value because it is known and documentable. Values 
appropriate for future vehicle use may be higher or lower than this 
value. EPA will reevaluate this value in future rulemakings.
    \236\ A midsize gasoline vehicle with a footprint of 45 square 
feet would have a MY 2016 GHG target of about 225 grams/mile; 
dividing 8887 grams CO2/gallon of gasoline by 225 grams/
mile yields an equivalent fuel economy level of 39.5 mpg; and 
dividing 2208 grams upstream GHG/gallon of gasoline by 39.5 mpg 
yields a midsize gasoline vehicle upstream GHG value of 56 grams/
mile. The 2208 grams upstream GHG/gallon of gasoline is calculated 
from 19,200 grams upstream GHG/mmBtu (Renewable Fuel Standard 
Program, Regulatory Impact Analysis, Section 2.5.8, February 2010) 
and multiplying by 0.115 mmBtu/gallon of gasoline.
    \237\ Manufacturers can utilize alternate calculation 
methodologies if shown to yield equivalent or superior results and 
if approved in advance by the Administrator.
---------------------------------------------------------------------------

    EPA projects that the aggregate impact of the incentive program on 
advanced technology vehicle GHG compliance values will be similar to 
the way advanced technologies are treated under DOT's CAFE program. In 
the CAFE program, the mpg value for an EV is determined using a 
``petroleum equivalency factor'' that has a 1/0.15 factor built into it 
similar to the flexible fuel vehicle credit.\238\ For example, under 
current regulations, an EV with a 2-cycle electricity consumption of 
230 watt-hours/mile would have a CAFE rating of about 360 miles per 
gallon, which would be equivalent to a gasoline vehicle GHG emissions 
value of 25 grams/mile, which is close to EPA's zero grams/mile for EV 
production that is below an individual automaker's cumulative vehicle 
production cap. The exception would be if a manufacturer exceeded its 
cumulative vehicle production cap during MY 2012-2016. Then, the same 
EV would have a GHG compliance value of about 120 grams/mile, which 
would be significantly higher than the 25 gram/mile implied by the 360 
mile/gallon CAFE value.
---------------------------------------------------------------------------

    \238\ 65 FR 36987 (June 12, 2000).
---------------------------------------------------------------------------

    EPA disagrees with Nissan that excluding upstream GHGs is legally 
required under section 202(a)(1). In this rulemaking, EPA is adopting 
standards under section 202(a)(1), which provides EPA with broad 
discretion in setting emissions standards. This includes authority to 
structure the emissions standards in a way that provides an incentive 
to promote advances in emissions control technology. This discretion 
includes the adjustments to compliance values adopted in the final 
rule, the multipliers we proposed, and other kinds of incentives. EPA 
recognizes that we have not previously made adjustments to a compliance 
value to account for upstream emissions in a section 202(a) vehicle 
emissions standard, but that does not mean we do not have authority to 
do so in this case. In addition, EPA is not directly regulating 
upstream GHG emissions from stationary sources, but instead is deciding 
how much value to assign to a motor vehicle for purposes of compliance 
calculations with the motor vehicle standard. While the logical place 
to start is the emissions level measured under the test procedure, 
section 202(a)(1) does not require that EPA limit itself to only that 
level. For vehicles above the production volume cap described above, 
EPA will adjust the measured value to a level that reflects the net 
difference in upstream GHG emissions compared to a comparable 
conventional vehicle. This will account for the actual GHG emissions 
increase associated with the use of the EV. As shown above, upstream 
GHG emissions attributable to increased electricity production to 
operate EVs or PHEVs currently exceed the upstream GHG emissions 
attributable to gasoline vehicles. There is a rational basis for EPA to 
account for this net difference, as that best reflects the real world 
effect on the air pollution problem we are addressing. For vehicles 
above the cap, EPA is reasonably and fairly accounting for the 
incremental increase in upstream GHG emissions from both the electric 
vehicles and the conventional vehicles. EPA is not, as Nissan 
suggested, arbitrarily counting upstream emissions for electric 
vehicles but not for conventional fuel vehicles.
    EPA recognizes that every motor vehicle fuel and fuel production 
process has unique upstream GHG emissions impacts. EPA has discretion 
in this rulemaking under section 202(a) on whether to account for 
differences in net upstream GHG emissions relative to gasoline produced 
from oil, and intends to only consider upstream GHG emissions for those 
fuels that have significantly higher or lower GHG emissions impacts. At 
this time, EPA is only making such a determination for electricity, 
given that, as shown above in the example for a midsize car, 
electricity upstream GHG emissions are about three times higher than 
gasoline upstream GHG emissions. For example, the difference in 
upstream GHG emissions for both diesel fuel from oil and CNG from 
natural gas are relatively small compared to differences associated 
with electricity. Nor is EPA arbitrarily ignoring upstream GHG 
emissions of flexible fuel vehicles (FFVs) that can operate on E85. 
Data show that, on average, FFVs operate on gasoline over 99 percent of 
the time, and on E85 fuel less than 1 percent of the time.\239\ EPA's 
recently promulgated Renewable Fuel Standard Program shows that, with 
respect to aggregate lifecycle emissions including non-tailpipe GHG 
emissions (such as feedstock growth, transportation, fuel production, 
and land use), lifecycle emissions for ethanol from corn using advanced 
production technologies are about 20 percent less GHG than gasoline 
from oil.\240\ Given this difference, and that E85 is used in FFVs less 
than 1 percent of the time, EPA has concluded that it is not necessary 
to adopt a more complicated upstream accounting for FFVs. Accordingly, 
EPA's incentive approach here is both reasonable and authorized under 
section 202(a)(1).
---------------------------------------------------------------------------

    \239\ Renewable Fuel Standard Program (RFS2), Regulatory Impact 
Analysis, Section 1.7.4, February 2010.
    \240\ 75 FR 14670 (March 26, 2010).
---------------------------------------------------------------------------

    In summary, EPA believes that this program for MY 2012-2016 strikes 
a reasoned balance by providing a temporary regulatory incentive to 
help promote commercialization of advanced vehicle technologies which 
are potential game-changers, but which also face major barriers, while 
effectively minimizing potential GHG losses by dropping the proposed 
multiplier and adding individual automaker

[[Page 25438]]

production volume caps. In the future, if there were a program to 
control utility GHG emissions, then these advanced technology vehicles 
have the potential to produce very large reductions in GHG emissions, 
and to transform the transportation sector's contribution to nationwide 
GHG emissions. EPA will reassess the issue of how to address EVs, 
PHEVs, and FCVs in rulemakings for model years 2017 and beyond based on 
the status of advanced vehicle technology commercialization, the status 
of upstream GHG control programs, and other relevant factors.
    Finally, the criteria and definitions for what vehicles qualify for 
the advanced technology vehicle incentives are provided in Section 
III.E. These definitions for EVs, PHEVs, and FCVs ensure that only 
credible advanced technology vehicles are provided the incentives.
4. Off-Cycle Technology Credits
    As proposed, EPA is adopting an optional credit opportunity 
intended to apply to new and innovative technologies that reduce 
vehicle CO2 emissions, but for which the CO2 
reduction benefits are not significantly captured over the 2-cycle test 
procedure used to determine compliance with the fleet average standards 
(i.e., ``off-cycle'').\241\ Eligible innovative technologies are those 
that are relatively newly introduced in one or more vehicle models, but 
that are not yet implemented in widespread use in the light-duty fleet. 
EPA will not approve credits for technologies that are not innovative 
or do not provide novel approaches to reducing greenhouse gas 
emissions. Manufacturers must obtain EPA approval for new and 
innovative technologies at the time of vehicle certification in order 
to earn credits for these technologies at the end of the model year. 
This approval must include the testing methodology to be used for 
quantifying credits. Further, any credits for these off-cycle 
technologies must be based on real-world GHG reductions not 
significantly captured on the current 2-cycle tests and verifiable test 
methods, and represent average U.S. driving conditions.
---------------------------------------------------------------------------

    \241\ See final regulations at 40 CFR 86.1866-12(d).
---------------------------------------------------------------------------

    Similar to the technologies used to reduce A/C system indirect 
CO2 emissions by increasing A/C efficiency, eligible 
technologies would not be primarily active during the 2-cycle test and 
therefore the associated improvements in CO2 emissions would 
not be significantly captured. Because these technologies are not 
nearly so well developed and understood, EPA is not prepared to 
consider them in assessing the stringency of the CO2 
standards. However, EPA is aware of some emerging and innovative 
technologies and concepts in various stages of development with 
CO2 reduction potential that might not be adequately 
captured on the FTP or HFET. EPA believes that manufacturers should be 
able to generate credit for the emission reductions these technologies 
actually achieve, assuming these reductions can be adequately 
demonstrated and verified. Examples include solar panels on hybrids or 
electric vehicles, adaptive cruise control, and active aerodynamics. 
EPA believes it would be appropriate to provide an incentive to 
encourage the introduction of these types of technologies, that bona 
fide reductions from these technologies should be considered in 
determining a manufacturer's fleet average, and that a credit mechanism 
is an effective way to do this. This optional credit opportunity would 
be available through the 2016 model year.
    EPA received comments from a few manufacturers that the ``new and 
innovative'' criteria should be broadened. The commenters pointed out 
that there are technologies already in the marketplace that would 
provide emissions reductions off-cycle and that their use should be 
incentivized. One manufacturer suggested that off-cycle credits should 
be given for start-stop technologies. EPA does not agree that this 
technology, which EPA's modeling projects will be widely used by 
manufacturers in meeting the CO2 standards, should qualify 
for off-cycle credits. Start-stop technology already achieves a 
significant CO2 benefit on the current 2-cycle tests, which 
is why many manufacturers have announced plans to adopt it across large 
segments of the fleet. EPA recognizes there may be additional benefits 
to start-stop technology beyond the 2-cycle tests (e.g., heavy idle 
use), and that this is likely the case for other technologies that 
manufacturers will rely on to meet the MY 2012-2016 standards. EPA 
plans to continue to assess the off-cycle potential for these 
technologies in the future. However, EPA does not believe that off-
cycle credits should be granted for technologies which we expect 
manufacturers to rely on in widespread use throughout the fleet in 
meeting the CO2 standards. Such credits could lead to double 
counting, as there is already significant CO2 benefit over 
the 2-cycle tests. EPA expects that most if not all technologies that 
reduce CO2 emission on the 2-cycle test will also reduce 
CO2 emissions during the wide variety of in-use operation 
that is not directly captured in the 2-cycle test. This is no different 
than what occurs from the control technology on vehicles for criteria 
pollutants. We expect that the catalytic converter and other emission 
control technology will operate to reduce emissions throughout in-use 
driving, and not just when the vehicle is tested on the specified test 
procedure. The aim for this off-cycle credit provisions is to provide 
an incentive for technologies that normally would not be chosen as a 
GHG control strategy, as their GHG benefits are not measured on the 
specified 2-cycle test. It is not designed to provide credits for 
technology that does provide significant GHG benefits on the 2-cycle 
test and as expected will also typically provide GHG benefits in other 
kinds of operation. Thus, EPA is finalizing the ``new and innovative'' 
criteria as proposed. That is, the potential to earn off-cycle credits 
will be limited to those technologies that are new and innovative, are 
introduced in only a limited number of vehicle models (i.e., not in 
widespread use), and are not captured on the current 2-cycle tests. 
This approach will encourage future innovation, which may lead to the 
opportunity for future emissions reductions.
    As proposed, manufacturers would quantify CO2 reductions 
associated with the use of the innovative off-cycle technologies such 
that the credits could be applied on a g/mile equivalent basis, as is 
the case with A/C system improvements. Credits must be based on real 
additional reductions of CO2 emissions and must be 
quantifiable and verifiable with a repeatable methodology. As proposed, 
the technologies upon which the credits are based would be subject to 
full useful life compliance provisions, as with other emissions 
controls. Unless the manufacturer can demonstrate that the technology 
would not be subject to in-use deterioration over the useful life of 
the vehicle, the manufacturer must account for deterioration in the 
estimation of the credits in order to ensure that the credits are based 
on real in-use emissions reductions over the life of the vehicle.
    As discussed below, EPA is finalizing a two-tiered process for 
demonstrating the CO2 reductions of an innovative and novel 
technology with benefits not captured by the FTP and HFET test 
procedures. First, a manufacturer must determine whether the benefit of 
the technology could be captured using the 5-cycle methodology 
currently used to determine fuel economy label values. EPA established 
the 5-cycle test

[[Page 25439]]

methods to better represent real-world factors impacting fuel economy, 
including higher speeds and more aggressive driving, colder temperature 
operation, and the use of air conditioning. If this determination is 
affirmative, the manufacturer must follow the procedures described 
below (as codified in today's rules). If the manufacturer finds that 
the technology is such that the benefit is not adequately captured 
using the 5-cycle approach, then the manufacturer would have to develop 
a robust methodology, subject to EPA approval, to demonstrate the 
benefit and determine the appropriate CO2 gram per mile 
credit. As discussed below, EPA is also providing opportunity for 
public comment as part of the approval process for such non-5-cycle 
credits.
a. Technology Demonstration Using EPA 5-Cycle Methodology
    As noted above, the CO2 reduction benefit of some 
innovative technologies could be demonstrated using the 5-cycle 
approach currently used for EPA's fuel economy labeling program. The 5-
cycle methodology was finalized in EPA's 2006 fuel economy labeling 
rule,\242\ which provides a more accurate fuel economy label estimate 
to consumers starting with 2008 model year vehicles. In addition to the 
FTP and HFET test procedures, the 5-cycle approach folds in the test 
results from three additional test procedures to determine fuel 
economy. The additional test cycles include cold temperature operation, 
high temperature, high humidity and solar loading, and aggressive and 
high-speed driving; thus these tests could be used to demonstrate the 
benefit of a technology that reduces CO2 over these types of 
driving and environmental conditions. Using the test results from these 
additional test cycles collectively with the 2-cycle data provides a 
more precise estimate of the average fuel economy and CO2 
emissions of a vehicle for both the city and highway independently. A 
significant benefit of using the 5-cycle methodology to measure and 
quantify the CO2 reductions is that the test cycles are 
properly weighted for the expected average U.S. operation, meaning that 
the test results could be used without further adjustments.
---------------------------------------------------------------------------

    \242\ Fuel Economy Labeling of Motor Vehicles: Revisions to 
Improve Calculation of Fuel Economy Estimates; Final Rule (71 FR 
77872, December 27, 2006).
---------------------------------------------------------------------------

    EPA continues to believe that the use of these supplemental cycles 
may provide a method by which technologies not demonstrated on the 
baseline 2-cycles can be quantified and is finalizing this approach as 
proposed. The cold temperature FTP can capture new technologies that 
improve the CO2 performance of vehicles during colder 
weather operation. These improvements may be related to warm-up of the 
engine or other operation during the colder temperature. An example of 
such a new, innovative technology is a waste heat capture device that 
provides heat to the cabin interior, enabling additional engine-off 
operation during colder weather not previously enabled due to heating 
and defrosting requirements. The additional engine-off time would 
result in additional CO2 reductions that otherwise would not 
have been realized without the heat capture technology.
    Although A/C credits for efficiency improvements will largely be 
captured in the A/C credits provisions through the credit menu of known 
efficiency improving components and controls, certain new technologies 
may be able to use the high temperatures, humidity, and solar load of 
the SC03 test cycle to accurately measure their impact. An example of a 
new technology may be a refrigerant storage device that accumulates 
pressurized refrigerant during driving operation or uses recovered 
vehicle kinetic energy during deceleration to pressurize the 
refrigerant. Much like the waste heat capture device used in cold 
weather, this device would also allow additional engine-off operation 
while maintaining appropriate vehicle interior occupant comfort levels. 
SC03 test data measuring the relative impact of innovative A/C-related 
technologies could be applied to the 5-cycle equation to quantify the 
CO2 reductions of the technology.
    The US06 cycle may be used to capture innovative technologies 
designed to reduce CO2 emissions during higher speed and 
more aggressive acceleration conditions, but not reflected on the 2-
cycle tests. An example of this is an active aerodynamic technology. 
This technology recognizes the benefits of reduced aerodynamic drag at 
higher speeds and makes changes to the vehicle at those speeds. The 
changes may include active front or grill air deflection devices 
designed to redirect frontal airflow. Certain active suspension devices 
designed primarily to reduce aerodynamic drag by lowering the vehicle 
at higher speeds may also be measured on the US06 cycle. To properly 
measure these technologies on the US06, the vehicle would require 
unique load coefficients with and without the technologies. The 
different load coefficient (properly weighted for the US06 cycle) could 
effectively result in reduced vehicle loads at the higher speeds when 
the technologies are active. Similar to the previously discussed 
cycles, the results from the US06 test with and without the technology 
could then use the 5-cycle methodology to quantify CO2 
reductions.
    If the 5-cycle procedures can be used to demonstrate the innovative 
technology, then the regulatory evaluation/approval process will be 
relatively simple. The manufacturer will simply test vehicles with and 
without the technology installed or operating and compare results. All 
5-cycles must be tested with the technology enabled and disabled, and 
the test results will be used to calculate a combined city/highway 
CO2 value with the technology and without the technology. 
These values will then be compared to determine the amount of the 
credit; the combined city/highway CO2 value with the 
technology operating will be subtracted from the combined city/highway 
CO2 value without the technology operating to determine the 
gram per mile CO2 credit. It is likely that multiple tests 
of each of the five test procedures will need to be performed in order 
to achieve the necessary strong degree of statistical significance of 
the credit determination results. This will have to be done for each 
model type for which a credit is sought, unless the manufacturer could 
demonstrate that the impact of the technology was independent of the 
vehicle configuration on which it was installed. In this case, EPA may 
consider allowing the test to be performed on an engine family basis or 
other grouping. At the end of the model year, the manufacturer will 
determine the number of vehicles produced subject to each credit amount 
and report that to EPA in the final model year report. The gram per 
mile credit value determined with the 5-cycle comparison testing will 
be multiplied by the total production of vehicles subject to that value 
to determine the total number of credits.
    EPA received a few comments regarding the 5-cycle approach. While 
not commenting directly on the 5-cycle testing methodology, the 
Alliance raised general concerns that the proposed approach did not 
offer manufacturers enough certainty with regard to credit applications 
and testing in order to take advantage of the credits. The Alliance 
further commented that the proposal did not provide a level playing 
field to all manufacturers in terms of possible credit availability. 
The Alliance recommended that rather than attempting to quantify 
CO2 reductions with a prescribed test procedure on unknown 
technologies, EPA should

[[Page 25440]]

handle credit applications and testing guidelines via future guidance 
letters, as technologies emerge and are developed.
    EPA believes that 5-cycle testing methodology is one clear and 
objective way to demonstrate certain off-cycle emissions control 
technologies, as discussed above. It provides certainty with regard to 
testing, and is available for all manufacturers. As discussed below, 
there are also other options for manufactures where the 5-cycle test is 
not appropriate. EPA is retaining this as a primary methodology for 
determining off-cycle credits. For technologies not able to be 
demonstrated on the 5-cycle test, EPA is finalizing an approach that 
will include a public comment opportunity, as discussed below, which we 
believe addresses commenter concerns regarding maintaining a level 
playing field.
b. Alternative Off-Cycle Credit Methodologies
    As proposed, in cases where the benefit of a technological approach 
to reducing CO2 emissions can not be adequately represented 
using existing test cycles, manufacturers will need to develop test 
procedures and analytical approaches to estimate the effectiveness of 
the technology for the purpose of generating credits. As discussed 
above, the first step must be a thorough assessment of whether the 5-
cycle approach can be used to demonstrate a reduction in emissions. If 
EPA determines that the 5-cycle process is inadequate for the specific 
technology being considered by the manufacturer (i.e., the 5-cycle test 
does not demonstrate any emissions reductions), then an alternative 
approach may be developed and submitted to EPA for approval. The 
demonstration program must be robust, verifiable, and capable of 
demonstrating the real-world emissions benefit of the technology with 
strong statistical significance.
    The CO2 benefit of some technologies may be able to be 
demonstrated with a modeling approach, using engineering principles. An 
example would be where a roof solar panel is used to charge the on-
board vehicle battery. The amount of potential electrical power that 
the panel could supply could be modeled for average U.S. conditions and 
the units of electrical power could be translated to equivalent fuel 
energy or annualized CO2 emission rate reduction from the 
captured solar energy. The CO2 reductions from other 
technologies may be more challenging to quantify, especially if they 
are interactive with the driver, geographic location, environmental 
condition, or other aspect related to operation on actual roads. In 
these cases, manufacturers might have to design extensive on-road test 
programs. Any such on-road testing programs would need to be 
statistically robust and based on average U.S. driving conditions, 
factoring in differences in geography, climate, and driving behavior 
across the U.S.
    Whether the approach involves on-road testing, modeling, or some 
other analytical approach, the manufacturer will be required to present 
a proposed methodology to EPA. EPA will approve the methodology and 
credits only if certain criteria are met. Baseline emissions and 
control emissions must be clearly demonstrated over a wide range of 
real world driving conditions and over a sufficient number of vehicles 
to address issues of uncertainty with the data. The analytical approach 
must be robust, verifiable, and capable of demonstrating the real-world 
emissions benefit with strong statistical significance. Data must be on 
a vehicle model-specific basis unless a manufacturer demonstrated model 
specific data was not necessary. Approval of the approach to 
determining a CO2 benefit will not imply approval of the 
results of the program or methodology; when the testing, modeling, or 
analyses are complete the results will likewise be subject to EPA 
review and approval. EPA believes that manufacturers could work 
together to develop testing, modeling, or analytical methods for 
certain technologies, similar to the SAE approach used for A/C 
refrigerant leakage credits.
    In addition, EPA received several comments recommending that the 
approval process include an opportunity for public comment. As noted 
above, some manufacturers are concerned that there be a level playing 
field in terms of all manufacturers having a reasonable opportunity to 
earn credits under an approved approach. Commenters also want an 
opportunity for input in the methodology to ensure the accuracy of 
credit determinations for these technologies. Commenters point out that 
there are a broad number of stakeholders with experience in the issues 
pertaining to the technologies that could add value in determining the 
most appropriate method to assess these technologies' performance. EPA 
agrees with these comments and is including an opportunity for public 
comment as part of the approval process. If and when EPA receives an 
application for off-cycle credits using an alternative non 5-cycle 
methodology, EPA will publish a notice of availability in the Federal 
Register with instructions on how to comment on draft off-cycle credit 
methodology. The public information available for review will focus on 
the methodology for determining credits but the public review obviously 
is limited to non-confidential business information. The timing for 
final approval will depend on the comments received. EPA also believes 
that a public review will encourage manufacturers to be thorough in 
their preparation prior to submitting their application for credits to 
EPA for approval. EPA will take comments into consideration, and where 
appropriate, work with the manufacturer to modify their approach prior 
to approving any off-cycle credits methodology. EPA will give final 
notice of its determination to the general public as well as the 
applicant. Off-cycle credits would be available in the model year 
following the final approval. Thus, it will be imperative for a 
manufacturer pursuing this option to begin the process as early as 
possible.
    EPA also received comments that the off-cycle credits highlights 
the inadequacy of current test procedures, and that there is a clear 
need for updated certification test procedures. As discussed in Section 
III. B., EPA believes the current test procedures are adequate for 
implementing the standards finalized today. However, EPA is interested 
in improving test procedures in the future and believes that the off-
cycle credits program has the potential to provide useful data and 
insights both for the 5-cycle test procedures and also other test 
procedures that capture off-cycle emissions.
5. Early Credit Options
    EPA is finalizing a program to allow manufacturers to generate 
early credits in model years 2009-2011.\243\ As described below, 
credits may be generated through early additional fleet average 
CO2 reductions, early A/C system improvements, early 
advanced technology vehicle credits, and early off-cycle credits. As 
with other credits, early credits are subject to a five year carry-
forward limit based on the model year in which they are generated. 
Manufacturers may transfer early credits between vehicle categories 
(e.g., between the car and truck fleet). With the exception of MY 2009 
early program credits, as discussed below, a manufacturer may trade 
other early credits to other manufacturers without limits. The agencies 
note that CAFE credits earned in MYs prior to MY 2011 will still be 
available to manufacturers

[[Page 25441]]

for use in the CAFE program in accordance with applicable regulations.
---------------------------------------------------------------------------

    \243\ See final regulations at 40 CFR 86.1867-12.
---------------------------------------------------------------------------

    EPA is not adopting certification, compliance, or in-use 
requirements for vehicles generating early credits. Since manufacturers 
are already certifying MY 2010 and in some cases even MY 2011 vehicles, 
doing so would make certification, compliance, and in-use requirements 
unworkable. As discussed below, manufacturers are required to submit an 
early credits report to EPA for approval no later than 90 days after 
the end of MY 2011. This report must include details on all early 
credits the manufacturer generates, why the credits are bona fide, how 
they are quantified, and how they can be verified.
a. Credits Based on Early Fleet Average CO2 Reductions
    As proposed, EPA is finalizing opportunities for early credit 
generation in MYs 2009-2011 through over-compliance with a fleet 
average CO2 baseline established by EPA. EPA is finalizing 
four pathways for doing so. In order to generate early CO2 
credits, manufacturers must select one of the four paths for credit 
generation for the entire three year period and may not switch between 
pathways for different model years. For two pathways, EPA is 
establishing the baseline equivalent to the California standards for 
the relevant model year. Generally, manufacturers that over-comply with 
those CARB standards would earn credits. Two additional pathways, 
described below, include credits based on over-compliance with CAFE 
standards in states that have not adopted the California standards.
    EPA received comments from manufacturers in support of the early 
credits program as a necessary compliance flexibility. The Alliance 
commented that the early credits reward manufacturers for providing 
fleet performance that exceeds California and Federal standards and do 
not result in a windfall. AIAM commented that early credits are 
essential to assure the feasibility of the proposed standards and the 
need for such credits must be evaluated in the context of the dramatic 
changes the standards will necessitate in vehicle design and the 
current economic environment in which manufacturers are called upon to 
make the changes. Manufacturers also supported retaining all four 
pathways, commenting that eliminating pathways would diminish the 
flexibility of the program. EPA also received comments from many 
environmental organizations and states that the program would provide 
manufacturers with windfall credits because manufacturers will not have 
to take any steps to earn credits beyond those that are already planned 
and in some cases implemented. These commenters were particularly 
concerned that the California truck standards in MY 2009 are not as 
stringent as CAFE, so overcompliance with the California standards 
could be a windfall in MY 2009, and possibly even MY 2010. These 
commenters supported an early credits program based on overcompliance 
with the more stringent of either the CAFE or California standards in 
any given year. EPA is retaining the early credits program because EPA 
judges that they are not windfall credits, and manufacturers in some 
cases have reasonably relied on the availability of these credits, and 
have based early model year compliance strategies on their availability 
so that the credits are needed to provide adequate lead for the initial 
years of the program. However, as discussed below, EPA is restricting 
credit trading for MY 2009 credits earned under the California-based 
pathways.
    Manufacturers selecting Pathway 1 will generate credits by over-
complying with the California equivalent baseline established by EPA 
over the manufacturer's fleet of vehicles sold nationwide. 
Manufacturers selecting Pathway 2 will generate credits against the 
California equivalent baseline only for the fleet of vehicles sold in 
California and the CAA section 177 states.\244\ This approach includes 
all CAA 177 states as of the date of promulgation of the Final Rule in 
this proceeding. Manufacturers are required to include both cars and 
trucks in the program. Under Pathways 1 and 2, EPA is requiring 
manufacturers to cover any deficits incurred against the baseline 
levels established by EPA during the three year period 2009-2011 before 
credits can be carried forward into the 2012 model year. For example, a 
deficit in 2011 would have to be subtracted from the sum of credits 
earned in 2009 and 2010 before any credits could be applied to 2012 (or 
later) model year fleets. EPA is including this provision to help 
ensure the early credits generated under this program are consistent 
with the credits available under the California program during these 
model years. In its comments, California supported such an approach.
---------------------------------------------------------------------------

    \244\ CAA 177 states refers to states that have adopted the 
California GHG standards. At present, there are thirteen CAA 177 
states: New York, Massachusetts, Maryland, Vermont, Maine, 
Connecticut, Arizona, New Jersey, New Mexico, Oregon, Pennsylvania, 
Rhode Island, Washington, as well as Washington, DC.
---------------------------------------------------------------------------

    Table III.C.5-1 provides the California equivalent baselines EPA is 
finalizing to be used as the basis for CO2 credit generation 
under the California-based pathways. These are the California GHG 
standards for the model years shown. EPA proposed to adjust the 
California standards by 2.0 g/mile to account for the exclusion of 
N2O and CH4, which are included in the California 
GHG standards, but not included in the credits program. EPA received 
comments from one manufacturer that this adjustment is in error and 
should not be made. The commenter noted that EPA already includes total 
hydrocarbons in the carbon balance determination of carbon related 
exhaust emissions and therefore already accounts for CH4. 
EPA also includes CO in the carbon related exhaust emissions 
determination which acts to offset the need for an N20 
adjustment. The commenter noted that THC and CO add about 0.8 to 3.0 g/
mile to the determination of carbon related emissions and therefore EPA 
should not make the 2.0g/mile adjustment. The commenter is correct, and 
therefore the final levels shown in the table below are 2.0 g/mile 
higher than proposed. These comments are further discussed in the 
Response to Comments document. Manufacturers will generate 
CO2 credits by achieving fleet average CO2 levels 
below these baselines. As shown in the table, the California-based 
early credit pathways are based on the California vehicle categories. 
Also, the California-based baseline levels are not footprint-based, but 
universal levels that all manufacturers would use. Manufacturers will 
need to achieve fleet levels below those shown in the table in order to 
earn credits, using the California vehicle category definitions.

[[Page 25442]]

        Table III.C.5-1--California Equivalent Baselines CO2 Emissions Levels for Early Credit Generation
----------------------------------------------------------------------------------------------------------------
                                                                                     Light trucks with a LVW  of
                                                          Passenger cars and light    3,751 or more and a  GVWR
                      Model year                         trucks with an LVW of  0-     of up to  8,500 lbs plus
                                                                 3,750 lbs              medium-duty  passenger
                                                                                               vehicles
----------------------------------------------------------------------------------------------------------------
2009..................................................                          323                          439
2010..................................................                          301                          420
2011..................................................                          267                          390
----------------------------------------------------------------------------------------------------------------

    Manufacturers using Pathways 1 or 2 above will use year-end car and 
truck sales in each category. Although production data is used for the 
program starting in 2012, EPA is using sales data for the early credits 
program in order to apportion vehicles by State. This is described 
further below. Manufacturers must calculate actual fleet average 
emissions over the appropriate vehicle fleet, either for vehicles sold 
nationwide for Pathway 1, or California plus 177 states sales for 
Pathway 2. Early CO2 credits are based on the difference 
between the baseline shown in the table above and the actual fleet 
average emissions level achieved. Any early A/C credits generated by 
the manufacturer, described below in Section III.C.5.b, will be 
included in the fleet average level determination. In model year 2009, 
the California CO2 standard for cars (323 g/mi 
CO2) is equivalent to 323 g/mi CO2, and the 
California light-truck standard (437 g/mi CO2) is less 
stringent than the equivalent CAFE standard, recognizing that there are 
some differences between the way the California program and the CAFE 
program categorize vehicles. Manufacturers are required to show that 
they over comply over the entire three model year time period, not just 
the 2009 model year, to generate early credits under either Pathways 1, 
2 or 3. A manufacturer cannot use credits generated in model year 2009 
unless they offset any debits from model years 2010 and 2011.
    EPA received comments that this approach will provide windfall 
credits to manufacturers because the MY 2009 California light truck 
standards are less stringent than the corresponding CAFE standards. 
While this could be accurate if credits were based on performance in 
just MY 2009, that is not how credits are determined. Credits are based 
on the performance over a three model year period, MY 2009-2011. As 
noted in the proposal, EPA expects that the requirement to over comply 
over the entire time period covering these three model years should 
mean that the credits that are generated are real and are in excess of 
what would have otherwise occurred. However, because of the 
circumstances involving the 2009 model year, in particular for 
companies with significant truck sales, there is some concern that 
under Pathways 1, 2, and 3, there is a potential for a large number of 
credits generated in 2009 against the California standard, in 
particular for a number of companies who have significantly over-
achieved on CAFE in recent model years. Some commenters were very 
concerned about this issue and commented in support of restricting 
credit trading between firms of MY 2009 credits based on the California 
program. EPA requested comments on this approach and is finalizing this 
credit trading restriction based on continued concerns regarding the 
issue of windfall credits. EPA wants to avoid a situation where, 
contrary to expectation, some part of the early credits generated by a 
manufacturer are in fact not excess, where companies could trade such 
credits to other manufacturers, risking a delay in the addition of new 
technology across the industry from the 2012 and later EPA 
CO2 standards. Therefore, manufacturers selecting Pathways 
1, 2, or 3 will not be allowed to trade any MY 2009 credits that they 
may generate.
    Commenters also recommended basing credits on the more stringent of 
the standards between CAFE and CARB, which for MY 2009, would be the 
CAFE standards. However, EPA believes that this would not be necessary 
in light of the credit provisions requiring manufacturers choosing the 
California based pathways to use the California pathway for all three 
MYs 2009-2011, and the credit trading restrictions for MY 2009 
discussed above.
    In addition, for Pathways 1 and 2, EPA is allowing manufacturers to 
include alternative compliance credits earned per the California 
alternative compliance program.\245\ These alternative compliance 
credits are based on the demonstrated use of alternative fuels in flex 
fuel vehicles. As with the California program, the credits are 
available beginning in MY 2010. Therefore, these early alternative 
compliance credits are available under EPA's program for the 2010 and 
2011 model years. FFVs are otherwise included in the early credit fleet 
average based on their emissions on the conventional fuel. This does 
not apply to EVs and PHEVs. The emissions of EVs and PHEVs are to be 
determined as described in Section III.C.3. Manufacturers may choose to 
either include their EVs and PHEVs in one of the four pathways 
described in this section or under the early advanced technology 
emissions credits described below, but not both due to issues of credit 
double counting.
---------------------------------------------------------------------------

    \245\ See Section 6.6.E, California Environmental Protection 
Agency Air Resources Board, Staff Report: Initial Statement of 
Reasons For Proposed Rulemaking, Public Hearing to Consider Adoption 
of Regulations to Control Greenhouse Gas Emissions From Motor 
Vehicles, August 6, 2004.
---------------------------------------------------------------------------

    EPA is also finalizing two additional early credit pathways 
manufacturers could select. Pathways 3 and 4 incorporate credits based 
on over-compliance with CAFE standards for vehicles sold outside of 
California and CAA 177 states in MY 2009-2011. Pathway 3 allows 
manufacturers to earn credits as under Pathway 2, plus earn CAFE-based 
credits in other states. Credits may not be generated for cars sold in 
California and CAA 177 states unless vehicle fleets in those states are 
performing better than the standards which otherwise would apply in 
those states, i.e., the baselines shown in Table III.C.5-1 above.
    Pathway 4 is for manufacturers choosing to forego California-based 
early credits entirely and earn only CAFE-based credits outside of 
California and CAA 177 states. Manufacturers may not include FFV 
credits under the CAFE-based early credit pathways since those credits 
do not automatically reflect actual reductions in CO2 
emissions.
    The baselines for CAFE-based early pathways are provided in Table 
III.C.5-2 below. They are based on the CAFE standards for the 2009-2011 
model years. For CAFE standards in 2009-2011 model years that are 
footprint-based, the baseline would vary by manufacturer. Footprint-
based standards are in effect for the 2011 model year CAFE

[[Page 25443]]

standards.\246\ Additionally, for Reform CAFE truck standards, 
footprint standards are optional for the 2009-2010 model years. Where 
CAFE footprint-based standards are in effect, manufacturers will 
calculate a baseline using the footprints and sales of vehicles outside 
of California and CAA 177 states. The actual fleet CO2 
performance calculation will also only include the vehicles sold 
outside of California and CAA 177 states, and as mentioned above, may 
not include FFV credits.
---------------------------------------------------------------------------

    \246\ 74 FR 14196, March 30, 2009.

   Table III.C.5-2--CAFE Equivalent Baselines CO2 Emissions Levels for
                         Early Credit Generation
------------------------------------------------------------------------
         Model year                   Cars                 Trucks
------------------------------------------------------------------------
2009........................  323.................  381 *
2010........................  323.................  376 *
2011........................  Footprint-based       Footprint-based
                               standard.             standard.
------------------------------------------------------------------------
* Must be footprint-based standard for manufacturers selecting footprint
  option under CAFE.

    For the CAFE-based pathways, EPA is using the NHTSA car and truck 
definitions that are in place for the model year in which credits are 
being generated. EPA understands that the NHTSA definitions change 
starting in the 2011 model year, and therefore changes part way through 
the early credits program. EPA further recognizes that medium-duty 
passenger vehicles (MDPVs) are not part of the CAFE program until the 
2011 model year, and therefore are not part of the early credits 
calculations for 2009-2010 under the CAFE-based pathways.
    Pathways 2 through 4 involve splitting the vehicle fleet into two 
groups, vehicles sold in California and CAA 177 states and vehicles 
sold outside of these states. This approach requires a clear accounting 
of location of vehicle sales by the manufacturer. EPA believes it will 
be reasonable for manufacturers to accurately track sales by State, 
based on its experience with the National Low Emissions Vehicle (NLEV) 
Program. NLEV required manufacturers to meet separate fleet average 
standards for vehicles sold in two different regions of the 
country.\247\ As with NLEV, the determination is to be based on where 
the completed vehicles are delivered as a point of first sale, which in 
most cases would be the dealer.\248\
---------------------------------------------------------------------------

    \247\ 62 FR 31211, June 6, 1997.
    \248\ 62 FR 31212, June 6, 1997.
---------------------------------------------------------------------------

    As noted above, manufacturers choosing to generate early 
CO2 credits must select one of the four pathways for the 
entire early credits program and would not be able to switch among 
them. Manufacturers must submit their early credits report to EPA when 
they submit their final CAFE report for MY 2011 (which is required to 
be submitted no later than 90 days after the end of the model year). 
Manufacturers will have until then to decide which pathway to select. 
This gives manufacturers enough time to determine which pathway works 
best for them. This timing may be necessary in cases where 
manufacturers earn credits in MY 2011 and need time to assess data and 
prepare an early credits submittal for final EPA approval.
    The table below provides a summary of the four fleet average-based 
CO2 early credit pathways EPA is finalizing:

   Table III.C.5-3--Summary of Early Fleet Average CO2 Credit Pathways
------------------------------------------------------------------------

------------------------------------------------------------------------
Common Elements...................  --Manufacturers select a pathway.
                                     Once selected, may not switch among
                                     pathways.
                                    --All credits subject to 5 year
                                     carry-forward restrictions.
                                    --For Pathways 2-4, vehicles
                                     apportioned by State based on point
                                     of first sale.
Pathway 1: California-based         --Manufacturers earn credits based
 Credits for National Fleet.         on fleet average emissions compared
                                     with California equivalent baseline
                                     set by EPA.
                                    --Based on nationwide CO2 sales-
                                     weighted fleet average.
                                    --Based on use of California vehicle
                                     categories.
                                    --FFV alternative compliance credits
                                     per California program may be
                                     included.
                                    --Once in the program, manufacturers
                                     must make up any deficits that are
                                     incurred prior to 2012 in order to
                                     carry credits forward to 2012 and
                                     later.
Pathway 2: California-based         --Same as Pathway 1, but
 Credits for vehicles sold in        manufacturers only includes
 California plus CAA 177 States.     vehicles sold in California and CAA
                                     177 states in the fleet average
                                     calculation.
Pathway 3: Pathway 2 plus CAFE-     --Manufacturer earns credits as
 based Credits outside of            provided by Pathway 2: California-
 California plus CAA 177 States.     based credits for vehicles sold in
                                     California plus CAA 177 States,
                                     plus:
                                    --CAFE-based credits allowed for
                                     vehicles sold outside of California
                                     and CAA 177 states.
                                    --For CAFE-based credits,
                                     manufacturers earn credits based on
                                     fleet average emissions compared
                                     with baseline set by EPA.
                                    --CAFE-based credits based on NHTSA
                                     car and truck definitions.
                                    --FFV credits not allowed to be
                                     included for CAFE-based credits.
Pathway 4: Only CAFE-based Credits  --Manufacturer elects to only earn
 outside of California plus CAA      CAFE-based credits for vehicles
 177 States.                         sold outside of California and CAA
                                     177 states. Earns no California and
                                     177 State credits.
                                    --For CAFE-based credits,
                                     manufacturers earn credits based on
                                     fleet average emissions compared
                                     with baseline set by EPA.
                                    --CAFE-based credits based on NHTSA
                                     car and truck definitions.
                                    --FFV credits not allowed to be
                                     included for CAFE-based credits.
------------------------------------------------------------------------

[[Page 25444]]

b. Early A/C Credits
    As proposed, EPA is finalizing provisions allowing manufacturers to 
earn early A/C credits in MYs 2009-2011 using the same A/C system 
design-based EPA provisions being finalized for MYs commencing in 2012, 
as described in Section III.C.1, above. Manufacturers will be able to 
earn early A/C CO2-equivalent credits by demonstrating 
improved A/C system performance, for both direct and indirect 
emissions. To earn credits for vehicles sold in California and CAA 177 
states, the vehicles must be included in one of the California-based 
early credit pathways described above in III.C.5.a. EPA is finalizing 
this constraint in order to avoid credit double counting with the 
California program in place in those states, which also allows A/C 
system credits in this time frame. Manufacturers must fold the A/C 
credits into the fleet average CO2 calculations under the 
California-based pathway. For example, the MY 2009 California-based 
program car baseline would be 323 g/mile (see Table III.C.5-1). If a 
manufacturer under Pathway 1 had a MY 2009 car fleet average 
CO2 level of 320 g/mile and then earned an additional 12 g/
mile CO2-equivalent A/C credit, the manufacturers would earn 
a total of 10 g/mile of credit. Vehicles sold outside of California and 
177 states would be eligible for the early A/C credits whether or not 
the manufacturers participate in other aspects of the early credits 
program. The early A/C credits for vehicles sold outside of California 
and 177 states are based on the NHTSA vehicle categories established 
for the model year in which early A/C credits are being earned.
c. Early Advanced Technology Vehicle Incentive
    As discussed in Section III.C.3, above, EPA is finalizing an 
incentive for sales of advanced technology vehicles including EVs, 
PHEVs, and fuel cell vehicles. EPA is not including a multiplier for 
these vehicles. However, EPA is allowing the use of the 0 g/mile value 
for electricity operation for up to 200,000 vehicles per manufacturer 
(or 300,000 vehicles for any manufacturer that sells 25,000 or more 
advanced technology vehicles in MY 2012). EPA believes that providing 
an incentive for the sales of such vehicles prior to MY 2012 is 
consistent with the goal encouraging the introduction of such vehicles 
as early as possible. Therefore, manufacturers may use the 0 g/mile 
value for vehicles sold in MY 2009-2011 consistent with the approach 
being finalized for MY 2012-2016. Any vehicles sold prior to MY 2012 
under these provisions must be counted against the cumulative sales cap 
of 200,000 (or 300,000, if applicable) vehicles. Manufacturers selling 
such vehicles in MY 2009-2011 have the option of either folding them 
into the early credits calculation under Pathways 1 through 4 described 
in III.C.5.a above, or tracking the sales of these vehicles separately 
for use in their fleetwide average compliance calculation in MY 2012 or 
later years, but may not do both as this would lead to double counting. 
Manufacturers tracking the sales of vehicles not folded into Pathways 
1-4, may choose to use the vehicle counts along with the 0 g/mi 
emissions value (up to the applicable vehicle sales cap) to comply with 
2012 or later standards. For example, if a manufacturer sells 1,000 EVs 
in MY 2011, the manufacturer would then be able to include 1,000 
vehicles at 0 g/mile in their MY 2012 fleet to decrease the fleet 
average for that model year. Again, these 1,000 vehicles would be 
counted against the cumulative cap of 200,000 or 300,000, as 
applicable, vehicles. Also, these 1,000 EVs would not be included in 
the early credit pathways discussed above in Section III.C.5.a, 
otherwise the vehicles would be double counted. As with early credits, 
these early advanced technology vehicles will be tracked by model year 
(2009, 2010, or 2011) and subject to the 5-year carry-forward 
restrictions.
d. Early Off-Cycle Credits
    EPA's is finalizing off-cycle innovative technology credit 
provisions, as described in Section III.C.4. EPA requested comment on 
beginning these credits in the 2009-2011 time frame, provided 
manufacturers are able to make the necessary demonstrations outlined in 
Section III.C.4, above. EPA is finalizing this approach for early off-
cycle credits as a way to encourage innovation to lower emissions as 
early as possible, including the requirements for public review 
described in Section III.C.4. Upon EPA approval of a manufacturer's 
application for credits, the credits may be earned retroactively. EPA 
did not receive comments specifically on early off-cycle credits.

D. Feasibility of the Final CO2 Standards

    This final rule is based on the need to obtain significant GHG 
emissions reductions from the transportation sector, and the 
recognition that there are cost-effective technologies to achieve such 
reductions for MY 2012-2016 vehicles. As in many prior mobile source 
rulemakings, the decision on what standard to set is largely based on 
the effectiveness of the emissions control technology, the cost and 
other impacts of implementing the technology, and the lead time needed 
for manufacturers to employ the control technology. The standards 
derived from assessing these factors are also evaluated in terms of the 
need for reductions of greenhouse gases, the degree of reductions 
achieved by the standards, and the impacts of the standards in terms of 
costs, quantified benefits, and other impacts of the standards. The 
availability of technology to achieve reductions and the cost and other 
aspects of this technology are therefore a central focus of this 
rulemaking.
    EPA is taking the same basic approach in this rulemaking, although 
the technological problems and solutions involved in this rulemaking 
differ in some ways from prior mobile source rulemakings. Here, the 
focus of the emissions control technology is on reducing CO2 
and other greenhouse gases. Vehicles combust fuel to perform two basic 
functions: (1) To transport the vehicle, its passengers and its 
contents (and any towed loads), and (2) to operate various accessories 
during the operation of the vehicle such as the air conditioner. 
Technology can reduce CO2 emissions by either making more 
efficient use of the energy that is produced through combustion of the 
fuel or reducing the energy needed to perform either of these 
functions.
    This focus on efficiency calls for looking at the vehicle as an 
entire system, and the proposed and now final standards reflect this 
basic paradigm. In addition to fuel delivery, combustion, and 
aftertreatment technology, any aspect of the vehicle that affects the 
need to produce energy must also be considered. For example, the 
efficiency of the transmission system, which takes the energy produced 
by the engine and transmits it to the wheels, and the resistance of the 
tires to rolling both have major impacts on the amount of fuel that is 
combusted while operating the vehicle. The braking system, the 
aerodynamics of the vehicle, and the efficiency of accessories, such as 
the air conditioner, all affect how much fuel is combusted as well.
    In evaluating vehicle efficiency, we have excluded fundamental 
changes in vehicles' size and utility. For example, we did not evaluate 
converting minivans and SUVs to station wagons, converting vehicles 
with four wheel drive to two wheel drive, or reducing headroom in order 
to lower the roofline and reduce aerodynamic drag. We have

[[Page 25445]]

limited our assessment of technical feasibility and resultant vehicle 
cost to technologies which maintain vehicle utility as much as 
possible. Manufacturers may decide to alter the utility of the vehicles 
which they sell in response to this rule, but this is not a necessary 
consequence of the rule but rather a matter of automaker choice.
    This need to focus on the efficient use of energy by the vehicle as 
a system leads to a broad focus on a wide variety of technologies that 
affect almost all the systems in the design of a vehicle. As discussed 
below, there are many technologies that are currently available which 
can reduce vehicle energy consumption. These technologies are already 
being commercially utilized to a limited degree in the current light-
duty fleet. These technologies include hybrid technologies that use 
higher efficiency electric motors as the power source in combination 
with or instead of internal combustion engines. While already 
commercialized, hybrid technology continues to be developed and offers 
the potential for even greater efficiency improvements. Finally, there 
are other advanced technologies under development, such as lean burn 
gasoline engines, which offer the potential of improved energy 
generation through improvements in the basic combustion process. In 
addition, the available technologies are not limited to powertrain 
improvements but also include mass reduction, electrical system 
efficiencies, and aerodynamic improvements.
    The large number of possible technologies to consider and the 
breadth of vehicle systems that are affected mean that consideration of 
the manufacturer's design and production process plays a major role in 
developing the final standards. Vehicle manufacturers typically develop 
many different models by basing them on a limited number of vehicle 
platforms. The platform typically consists of a common set of vehicle 
architecture and structural components. This allows for efficient use 
of design and manufacturing resources. Given the very large investment 
put into designing and producing each vehicle model, manufacturers 
typically plan on a major redesign for the models approximately every 5 
years. At the redesign stage, the manufacturer will upgrade or add all 
of the technology and make most other changes supporting the 
manufacturer's plans for the next several years, including plans 
related to emissions, fuel economy, and safety regulations.
    This redesign often involves a package of changes designed to work 
together to meet the various requirements and plans for the model for 
several model years after the redesign. This often involves significant 
engineering, development, manufacturing, and marketing resources to 
create a new product with multiple new features. In order to leverage 
this significant upfront investment, manufacturers plan vehicle 
redesigns with several model years' of production in mind. Vehicle 
models are not completely static between redesigns as limited changes 
are often incorporated for each model year. This interim process is 
called a refresh of the vehicle and generally does not allow for major 
technology changes although more minor ones can be done (e.g., small 
aerodynamic improvements, valve timing improvements, etc.). More major 
technology upgrades that affect multiple systems of the vehicle thus 
occur at the vehicle redesign stage and not in the time period between 
redesigns. The Center for Biological Diversity commented on EPA's 
assumptions on redesign cycles, and these comments are addressed in 
Section III.D.7 below.
    As discussed below, there are a wide variety of CO2 
reducing technologies involving several different systems in the 
vehicle that are available for consideration. Many can involve major 
changes to the vehicle, such as changes to the engine block and 
cylinder heads, redesign of the transmission and its packaging in the 
vehicle, changes in vehicle shape to improve aerodynamic efficiency and 
the application of aluminum (and other lightweight materials) in body 
panels to reduce mass. Logically, the incorporation of emissions 
control technologies would be during the periodic redesign process. 
This approach would allow manufacturers to develop appropriate packages 
of technology upgrades that combine technologies in ways that work 
together and fit with the overall goals of the redesign. It also allows 
the manufacturer to fit the process of upgrading emissions control 
technology into its multi-year planning process, and it avoids the 
large increase in resources and costs that would occur if technology 
had to be added outside of the redesign process.
    This final rule affects five years of vehicle production, model 
years 2012-2016. Given the now-typical five year redesign cycle, nearly 
all of a manufacturer's vehicles will be redesigned over this period. 
However, this assumes that a manufacturer has sufficient lead time to 
redesign the first model year affected by this final rule with the 
requirements of this final rule in mind. In fact, the lead time 
available for the start of model year 2012 (January 2011) is relatively 
short, less than a year. The time between this final rule and the start 
of 2013 model year (January 2012) production is under two years. At the 
same time, manufacturer product plans indicate that they are planning 
on introducing many of the technologies EPA projects could be used to 
show compliance with the final CO2 standards in both 2012 
and 2013. In order to account for the relatively short lead time 
available prior to the 2012 and 2013 model years, albeit mitigated by 
their existing plans, EPA has factored this reality into how the 
availability is modeled for much of the technology being considered for 
model years 2012-2016 as a whole. If the technology to control 
greenhouse gas emissions is efficiently folded into this redesign 
process, then EPA projects that 85 percent of each manufacturer's sales 
will be able to be redesigned with many of the CO2 emission 
reducing technologies by the 2016 model year, and as discussed below, 
to reduce emissions of HFCs from the air conditioner.
    In determining the level of this first ever GHG emissions standard 
under the CAA for light-duty vehicles, EPA uses an approach that 
accounts for and builds on this redesign process. This provides the 
opportunity for several control technologies to be incorporated into 
the vehicle during redesign, achieving significant emissions reductions 
from the model at one time. This is in contrast to what would be a much 
more costly approach of trying to achieve small increments of 
reductions over multiple years by adding technology to the vehicle 
piece by piece outside of the redesign process.
    As described below, the vast majority of technology required by 
this final rule is commercially available and already being employed to 
a limited extent across the fleet (although the final rule will 
necessitate far wider penetration of these technologies throughout the 
fleet). The vast majority of the emission reductions which will result 
from this final rule will be produced from the increased use of these 
technologies. EPA also believes that this final rule will encourage the 
development and limited use of more advanced technologies, such as 
PHEVs and EVs, and the final rule is structured to facilitate this 
result.
    In developing the final standard, EPA built on the technical work 
performed by the State of California during its development of its 
statewide GHG program. EPA began by evaluating a nationwide CAA 
standard for MY 2016 that would require the levels of technology 
upgrade, across the country, which California standards would

[[Page 25446]]

require for the subset of vehicles sold in California under Pavley 1. 
In essence, EPA developed an assessment of an equivalent national new 
vehicle fleet-wide CO2 performance standards for model year 
2016 which would result in the new vehicle fleet in the State of 
California having CO2 performance equal to the performance 
from the California Pavley 1 standards. This assessment is documented 
in Chapter 3.1 of the RIA. The results of this assessment predicts that 
a national light-duty vehicle fleet which adopts technology that 
achieves performance of 250 g/mile CO2 for model year 2016 
will result in vehicles sold in California that would achieve the 
CO2 performance equivalent to the Pavley 1 standards.
    EPA then analyzed a level of 250 g/mi CO2 in 2016 using 
the OMEGA model (described in more detail below), and the car and truck 
footprint curves' relative stringency discussed in Section II to 
determine what technology will be needed to achieve a fleet wide 
average of 250 g/mi CO2. As discussed later in this section 
we believe this level of technology application to the light-duty 
vehicle fleet can be achieved in this time frame, that such standards 
will produce significant reductions in GHG emissions, and that the 
costs for both the industry and the costs to the consumer are 
reasonable. EPA also developed standards for the model years 2012 
through 2015 that lead up to the 2016 level.
    EPA's independent technical assessment of the technical feasibility 
of the final MY 2012-2016 standards is described below. EPA has also 
evaluated a set of alternative standards for these model years, one 
that is more stringent than the final standards and one that is less 
stringent. The technical feasibility of these alternative standards is 
discussed at the end of this section.
    Evaluating the feasibility of these standards primarily includes 
identifying available technologies and assessing their effectiveness, 
cost, and impact on relevant aspects of vehicle performance and 
utility. The wide number of technologies which are available and likely 
to be used in combination requires a more sophisticated assessment of 
their combined cost and effectiveness. An important factor is also the 
degree that these technologies are already being used in the current 
vehicle fleet and thus, unavailable for use to improve energy 
efficiency beyond current levels. Finally, the challenge for 
manufacturers to design the technology into their products, and the 
appropriate lead time needed to employ the technology over the product 
line of the industry must be considered.
    Applying these technologies efficiently to the wide range of 
vehicles produced by various manufacturers is a challenging task. In 
order to assist in this task, EPA has developed a computerized model 
called the Optimization Model for reducing Emissions of Greenhouse 
gases from Automobiles (OMEGA) model. Broadly, the model starts with a 
description of the future vehicle fleet, including manufacturer, sales, 
base CO2 emissions, footprint and the extent to which 
emission control technologies are already employed. For the purpose of 
this analysis, over 200 vehicle platforms were used to capture the 
important differences in vehicle and engine design and utility of 
future vehicle sales of roughly 16 million units in the 2016 timeframe. 
The model is then provided with a list of technologies which are 
applicable to various types of vehicles, along with their cost and 
effectiveness and the percentage of vehicle sales which can receive 
each technology during the redesign cycle of interest. The model 
combines this information with economic parameters, such as fuel prices 
and a discount rate, to project how various manufacturers would apply 
the available technology in order to meet various levels of emission 
control. The result is a description of which technologies are added to 
each vehicle platform, along with the resulting cost. While OMEGA can 
apply technologies which reduce CO2 emissions and HFC 
refrigerant emissions associated with air conditioner use, this task is 
currently handled outside of the OMEGA model. The model can be set to 
account for various types of compliance flexibilities, such as FFV 
credits.
    The remainder of this section describes the technical feasibility 
analysis in greater detail. Section III.D.1 describes the development 
of our projection of the MY 2012-2016 fleet in the absence of this 
final rule. Section III.D.2 describes our estimates of the 
effectiveness and cost of the control technologies available for 
application in the 2012-2016 timeframe. Section III.D.3 combines these 
technologies into packages likely to be applied at the same time by a 
manufacturer. In this section, the overall effectiveness of the 
technology packages vis-[agrave]-vis their effectiveness when combined 
individually is described. Section III.D.4 describes the process which 
manufacturers typically use to apply new technology to their vehicles. 
Section III.D.5 describes EPA's OMEGA model and its approach to 
estimating how manufacturers will add technology to their vehicles in 
order to comply with CO2 emission standards. Section III.D.6 
presents the results of the OMEGA modeling, namely the level of 
technology added to manufacturers' vehicles and its cost. Section 
III.D.7 discusses the feasibility of the alternative 4-percent-per-year 
and 6-percent-per-year standards. Further detail on all of these issues 
can be found in EPA and NHTSA's Joint Technical Support Document as 
well as EPA's Regulatory Impact Analysis.
1. How did EPA develop a reference vehicle fleet for evaluating further 
CO2 reductions?
    In order to calculate the impacts of this final rule, it is 
necessary to project the GHG emissions characteristics of the future 
vehicle fleet absent this regulation. This is called the ``reference'' 
fleet. EPA and NHTSA develop this reference fleet using a three step 
process. Step one develops a set of detailed vehicle characteristics 
and sales for a specific model year (in this case, 2008). This is 
called the baseline fleet. Step two adjusts the sales of these vehicles 
using projections made by AEO and CSM to account for expected changes 
in market conditions. Step three applies fuel saving and emission 
control technology to these vehicles to the extent necessary for 
manufacturers to comply with the MY 2011 CAFE standards. Thus, the 
reference fleet differs from the MY 2008 baseline fleet in both the 
level of technology utilized and in terms of the sales of any 
particular vehicle.
    EPA and NHTSA perform steps one and two in an identical manner. The 
development of the characteristics of the baseline 2008 fleet and the 
adjustment of sales to match AEO and CSM forecasts is described in 
detail in Section II.B above. The two agencies perform step three in a 
conceptually identical manner, but each agency utilizes its own vehicle 
technology and emission model to project the technology needed to 
comply with the 2011 CAFE standards. The agencies use the same two 
models to project the technology and cost of the 2012-2016 standards. 
Use of the same model for both pre-control and post-control costs 
ensures consistency.
    The agencies received one comment from the Center for Biological 
Diversity that the use of 2008 vehicles in our baseline and reference 
fleets inherently includes vehicle models which already have or will be 
discontinued by the time this rule takes effect and will be replaced by 
more advanced vehicle models. This is true. However, we believe that 
the use of 2008 vehicle designs is still the most appropriate

[[Page 25447]]

approach available. First, as discussed in Section II.B above, the 
designs of these new vehicles at the level of detail required for 
emission and cost modeling are not publically available. Even the 
confidential descriptions of these vehicle designs are usually not of 
sufficient detail to facilitate the level of technology and emission 
modeling performed by both agencies. Second, steps two and three of the 
process used to create the reference fleet adjust both the sales and 
technology of the 2008 vehicles. Thus, our reference fleet reflects the 
extent that completely new vehicles are expected to shift the light 
vehicle market in terms of both segment and manufacturer. Also, by 
adding technology to facilitate compliance with the 2011 CAFE 
standards, we account for the vast majority of ways in which these new 
vehicles will differ from their older counterparts.
    The agencies also received a comment that some manufacturers have 
already announced plans to introduce technology well beyond that 
required by the 2011 MY CAFE standards. This commenter indicated that 
the agencies' approach over-estimated the technology and cost required 
by the proposed standards and resulted in less stringent standards 
being proposed than a more realistic reference fleet would have 
supported. First, the agencies agree that limiting the application of 
additional technology beyond that already on 2008 vehicles to only that 
required by the 2011 CAFE standards could under-estimate the use of 
such technology absent this rule. However, it is difficult, if not 
impossible, to separate future fuel economy improvements made for 
marketing purposes from those designed to facilitate compliance with 
anticipated CAFE or CO2 emission standards. For example, 
EISA was signed over two years ago, which contained specific minimum 
limits on light vehicle fuel economy in 2020, while also requiring 
ratable improvements in the interim. NHTSA proposed fuel economy 
standards for the 2012-2015 model years under the EISA provisions in 
April of 2008, although NHTSA finalized only 2011 standards for 
passenger vehicles. It is also true that manufacturers can change their 
plans based on market conditions and other factors. Thus, announcements 
of future plans are not certain. As mentioned above, these plans do not 
include specific vehicle characteristics. Thus, in order to avoid 
under-estimating the cost associated with this rule, the agencies have 
limited the fuel economy improvements in the reference fleet to those 
projected to result from the existing CAFE standards. We disagree with 
the commenter that this has caused the standards being promulgated 
today to be less stringent than would have been the case had we been 
able to confidently predict additional fuel economy and CO2 
emission improvements which will occur absent this rule. The inclusion 
of such technology in the reference fleet would certainly have reduced 
the cost of this final rule, as well as the benefits, but would not 
have changed the final level of technology required to meet the final 
standards. Also, we believe that the same impacts would apply to our 
evaluations of the two alternative sets of standards, the 4% per year 
and 6% per year standards. We are confident that the vast majority of 
manufacturers would not comply with the least stringent of these 
standards (the 4% per year standards) in the absence of this rule. 
Thus, changes to the reference fleet would not have affected the 
differences in technology, cost or benefits between the final standards 
and the two alternatives. As described below, our rejection of the two 
alternatives in favor of the final standards is based primarily on the 
relative technology, cost and benefits associated with the three sets 
of standards than the absolute cost or benefit relative to the 
reference fleet. Thus, we do not agree with the commenter that our 
choice of reference fleet adversely impacted the development of the 
final standards being promulgated today.
    The addition of technology to the baseline fleet so that it 
complies with the MY 2011 CAFE standards is described later in Section 
III.D.4, as this uses the same methodology used to project compliance 
with the final CO2 emission standards. In summary, the 
reference fleet represents vehicle characteristics and sales in the 
2012 and later model years absent this final rule. Technology is then 
added to these vehicles in order to reduce CO2 emissions to 
achieve compliance with the final CO2 standards. As noted 
above, EPA did not factor in any changes to vehicle utility or 
characteristics, or sales in projecting manufacturers' compliance with 
this final rule.
    After the reference fleet is created, the next step aggregates 
vehicle sales by a combination of manufacturer, vehicle platform, and 
engine design. As discussed in Section III.D.4 below, manufacturers 
implement major design changes at vehicle redesign and tend to 
implement these changes across a vehicle platform. Because the cost of 
modifying the engine depends on the valve train design (such as SOHC, 
DOHC, etc.), the number of cylinders and in some cases head design, the 
vehicle sales are broken down beyond the platform level to reflect 
relevant engine differences. The vehicle groupings are shown in Table 
III.D.1-1. These groupings are the same as those used in the NPRM.

                                      Table III.D.1-1--Vehicle Groupings a
----------------------------------------------------------------------------------------------------------------
              Vehicle description                Vehicle type          Vehicle description         Vehicle type
----------------------------------------------------------------------------------------------------------------
Large SUV (Car) V8+ OHV.......................              13  Subcompact Auto I4..............               1
Large SUV (Car) V6 4v.........................              16  Large Pickup V8+ DOHC...........              19
Large SUV (Car) V6 OHV........................              12  Large Pickup V8+ SOHC 3v........              14
Large SUV (Car) V6 2v SOHC....................               9  Large Pickup V8+ OHV............              13
Large SUV (Car) I4 and I5.....................               7  Large Pickup V8+ SOHC...........              10
Midsize SUV (Car) V6 2v SOHC..................               8  Large Pickup V6 DOHC............              18
Midsize SUV (Car) V6 S/DOHC 4v................               5  Large Pickup V6 OHV.............              12
Midsize SUV (Car) I4..........................               7  Large Pickup V6 SOHC 2v.........              11
Small SUV (Car) V6 OHV........................              12  Large Pickup I4 S/DOHC..........               7
Small SUV (Car) V6 S/DOHC.....................               4  Small Pickup V6 OHV.............              12
Small SUV (Car) I4............................               3  Small Pickup V6 2v SOHC.........               8
Large Auto V8+ OHV............................              13  Small Pickup I4.................               7
Large Auto V8+ SOHC...........................              10  Large SUV V8+ DOHC..............              17
Large Auto V8+ DOHC, 4v SOHC..................               6  Large SUV V8+ SOHC 3v...........              14
Large Auto V6 OHV.............................              12  Large SUV V8+ OHV...............              13
Large Auto V6 SOHC 2/3v.......................               5  Large SUV V8+ SOHC..............              10
Midsize Auto V8+ OHV..........................              13  Large SUV V6 S/DOHC 4v..........              16

[[Page 25448]]

Midsize Auto V8+ SOHC.........................              10  Large SUV V6 OHV................              12
Midsize Auto V7+ DOHC, 4v SOHC................               6  Large SUV V6 SOHC 2v............               9
Midsize Auto V6 OHV...........................              12  Large SUV I4....................               7
Midsize Auto V6 2v SOHC.......................               8  Midsize SUV V6 OHV..............              12
Midsize Auto V6 S/DOHC 4v.....................               5  Midsize SUV V6 2v SOHC..........               8
Midsize Auto I4...............................               3  Midsize SUV V6 S/DOHC 4v........               5
Compact Auto V7+ S/DOHC.......................               6  Midsize SUV I4 S/DOHC...........               7
Compact Auto V6 OHV...........................              12  Small SUV V6 OHV................              12
Compact Auto V6 S/DOHC 4v.....................               4  Minivan V6 S/DOHC...............              16
Compact Auto I5...............................               7  Minivan V6 OHV..................              12
Compact Auto I4...............................               2  Minivan I4......................               7
Subcompact Auto V8+ OHV.......................              13  Cargo Van V8+ OHV...............              13
Subcompact Auto V8+ S/DOHC....................               6  Cargo Van V8+ SOHC..............              10
Subcompact Auto V6 2v SOHC....................               8  Cargo Van V6 OHV................              12
Subcompact Auto I5/V6 S/DOHC 4v...............               4
----------------------------------------------------------------------------------------------------------------
\a\ I4 = 4 cylinder engine, I5 = 5 cylinder engine, V6, V7, and V8 = 6, 7, and 8 cylinder engines, respectively,
  DOHC = Double overhead cam, SOHC = Single overhead cam, OHV = Overhead valve, v = number of valves per
  cylinder, ``/'' = and, ``+'' = or larger.

    As mentioned above, the second factor which needs to be considered 
in developing a reference fleet against which to evaluate the impacts 
of this final rule is the impact of the 2011 MY CAFE standards. Since 
the vehicles which comprise the above reference fleet are those sold in 
the 2008 MY, when coupled with our sales projections, they do not 
necessarily meet the 2011 MY CAFE standards.
    The levels of the 2011 MY CAFE standards are straightforward to 
apply to future sales fleets, as is the potential fine-paying 
flexibility afforded by the CAFE program (i.e., $55 per mpg of 
shortfall). However, projecting some of the compliance flexibilities 
afforded by EISA and the CAFE program are less clear. Two of these 
compliance flexibilities are relevant to EPA's analysis: (1) The credit 
for FFVs, and (2) the limit on the transferring of credits between car 
and truck fleets. The FFV credit is limited to 1.2 mpg in 2011 and EISA 
gradually reduces this credit, to 1.0 mpg in 2015 and eventually to 
zero in 2020. In contrast, the limit on car-truck transfer is limited 
to 1.0 mpg in 2011, and EISA increases this to 1.5 mpg beginning in 
2015 and then to 2.0 mpg beginning in 2020. The question here is 
whether to hold the 2011 MY CAFE provisions constant in the future or 
incorporate the changes in the FFV credit and car-truck credit trading 
limits contained in EISA.
    As was done for the NPRM, EPA has decided to hold the 2011 MY 
limits on FFV credit and car-truck credit trading constant in 
projecting the fuel economy and CO2 emission levels of 
vehicles in our reference case. This approach treats the changes in the 
FFV credit and car-truck credit trading provisions consistently with 
the other EISA-mandated changes in the CAFE standards themselves. All 
EISA provisions relevant to 2011 MY vehicles are reflected in our 
reference case fleet, while all post-2011 MY provisions are not. 
Practically, relative to the alternative, this increases both the cost 
and benefit of the final standards. In our analysis of this final rule, 
any quantified benefits from the presence of FFVs in the fleet are not 
considered. Thus, the only impact of the FFV credit is to reduce onroad 
fuel economy. By assuming that the FFV credit stays at 1.2 mpg in the 
future absent this rule, the assumed level of onroad fuel economy that 
would occur absent this final rule is reduced. As this final rule 
eliminates the FFV credit (for purposes of CO2 emission 
compliance) starting in 2016, the net result is to increase the 
projected level of fuel savings from our final standards. Similarly, 
the higher level of FFV credit reduces projected compliance cost for 
manufacturers to meet the 2011 MY standards in our reference case. This 
increases the projected cost of meeting the final 2012 and later 
standards.
    As just implied, EPA needs to project the technology (and resultant 
costs) required for the 2008 MY vehicles to comply with the 2011 MY 
CAFE standards in those cases where they do not automatically do so. 
The technology and costs are projected using the same methodology that 
projects compliance with the final 2012 and later CO2 
standards. The description of this process is described in the 
following four sections and is essentially the same process used for 
the NPRM.
    A more detailed description of the methodology used to develop 
these sales projections can be found in the Joint TSD. Detailed sales 
projections by model year and manufacturer can also be found in the 
TSD.
2. What are the effectiveness and costs of CO2-reducing 
technologies?
    EPA and NHTSA worked together to jointly develop information on the 
effectiveness and cost of the CO2-reducing technologies, and 
fuel economy-improving technologies, other than A/C related control 
technologies. This joint work is reflected in Chapter 3 of the Joint 
TSD and in Section II of this preamble. A summary of the effectiveness 
and cost of A/C related technology is contained here. For more detailed 
information on the effectiveness and cost of A/C related technology, 
please refer to Section III.C of this preamble and Chapter 2 of EPA's 
RIA.
    A/C improvements are an integral part of EPA's technology analysis 
and have been included in this section along with the other technology 
options. While discussed in Section III.C as a credit opportunity, air 
conditioning-related improvements are included in Table III.D.2-1. 
because A/C improvements are a very cost-effective technology at 
reducing CO2 (or CO2-equivalent) emissions. EPA 
expects most manufacturers will choose to use AC improvement credit 
opportunities as a strategy for meeting compliance with the 
CO2 standards. Note that the costs shown in Table III.D.2-1 
do not include maintenance savings that would be expected from the new 
AC systems. Further, EPA does not include AC-related maintenance 
savings in our cost and benefit analysis presented in Section III.H. 
EPA discusses the likely maintenance savings in Chapter 2 of the RIA, 
though these savings are not included in our final cost estimates for 
the final rule. The EPA approximates that the level of the credits 
earned will increase from 2012 to 2016 as more vehicles in the fleet 
are redesigned. The

[[Page 25449]]

penetrations and average levels of credit are summarized in Table 
III.D.2-2, though the derivation of these numbers (and the breakdown of 
car vs. truck credits) is described in the RIA. As demonstrated in the 
IMAC study (and described in Section III.C as well as the RIA), these 
levels are feasible and achievable with technologies that are available 
and cost-effective today.
    These improvements are categorized as either leakage reduction, 
including use of alternative refrigerants, or system efficiency 
improvements. Unlike the majority of the technologies described in this 
section, A/C improvements will not be demonstrated in the test cycles 
used to quantify CO2 reductions in this final rule. As 
described earlier, for this analysis A/C-related CO2 
reductions are handled outside of OMEGA model and therefore their 
CO2 reduction potential is expressed in grams per mile 
rather than a percentage used by the OMEGA model. See Section III.C.1 
for the method by which potential reductions are calculated or 
measured. Further discussion of the technological basis for these 
improvements is included in Chapter 2 of the RIA.

  Table III.D.2-1--Total CO2 Reduction Potential and 2016 Cost for A/C
              Related Technologies for all Vehicle Classes
                         [Costs in 2007 dollars]
------------------------------------------------------------------------
                                    CO2 reduction         Incremental
                                      potential         compliance costs
------------------------------------------------------------------------
A/C refrigerant leakage         7.5 g/mi \249\.......                $17
 reduction.
A/C efficiency improvements...  5.7 g/mi.............                 53
------------------------------------------------------------------------

           Table III.D.2-2--A/C Related Technology Penetration and Credit Levels Expected To Be Earned
----------------------------------------------------------------------------------------------------------------
                                          Technology                 Average credit over entire fleet
                                         penetration    --------------------------------------------------------
                                          (percent)             Car               Truck          Fleet average
----------------------------------------------------------------------------------------------------------------
2012................................           \250\ 28                3.4                3.8                3.5
2013................................                 40                4.8                5.4                5.0
2014................................                 60                7.2                8.1                7.5
2015................................                 80                9.6               10.8               10.0
2016................................                 85               10.2               11.5               10.6
----------------------------------------------------------------------------------------------------------------

3. How can technologies be combined into ``packages'' and what is the 
cost and effectiveness of packages?
    Individual technologies can be used by manufacturers to achieve 
incremental CO2 reductions. However, as mentioned in Section 
III.D.1, EPA believes that manufacturers are more likely to bundle 
technologies into ``packages'' to capture synergistic aspects and 
reflect progressively larger CO2 reductions with additions 
or changes to any given package. In addition, manufacturers typically 
apply new technologies in packages during model redesigns that occur 
approximately once every five years, rather than adding new 
technologies one at a time on an annual or biennial basis. This way, 
manufacturers can more efficiently make use of their redesign resources 
and more effectively plan for changes necessary to meet future 
standards.
---------------------------------------------------------------------------

    \249\ This represents 50% improvement in leakage and thus 50% of 
the A/C leakage impact potential compared to a maximum of 15 g/mi 
credit that can be achieved through the incorporation of a low very 
GWP refrigerant.
    \250\ We assume slightly higher A/C penetration in 2012 than was 
assumed in the proposal to correct for rounding that occurred in the 
curve setting process.
---------------------------------------------------------------------------

    Therefore, as explained at proposal, the approach taken here is to 
group technologies into packages of increasing cost and effectiveness. 
EPA determined that 19 different vehicle types provided adequate 
representation to accurately model the entire fleet. This was the 
result of analyzing the existing light duty fleet with respect to 
vehicle size and powertrain configurations. All vehicles, including 
cars and trucks, were first distributed based on their relative size, 
starting from compact cars and working upward to large trucks. Next, 
each vehicle was evaluated for powertrain, specifically the engine 
size, I4, V6, and V8, and finally by the number of valves per cylinder. 
Note that each of these 19 vehicle types was mapped into one of the 
five classes of vehicles mentioned in Section III.D.2. While the five 
classes provide adequate representation for the cost basis associated 
with most technology application, they do not adequately account for 
all existing vehicle attributes such as base vehicle powertrain 
configuration and mass reduction. As an example, costs and 
effectiveness estimates for engine friction reduction for the small car 
class were used to represent cost and effectiveness for three vehicle 
types: Subcompact cars, compact cars, and small multi-purpose vehicles 
(MPV) equipped with a 4-cylinder engine, however the mass reduction 
associated for each of these vehicle types was based on the vehicle 
type sales-weighted average. In another example, a vehicle type for V8 
single overhead cam 3-valve engines was created to properly account for 
the incremental cost in moving to a dual overhead cam 4-valve 
configuration. Note also that these 19 vehicle types span the range of 
vehicle footprint (smaller footprints for smaller vehicles and larger 
footprints for larger vehicles) which serve as the basis for the 
standards being promulgated today. A complete list of vehicles and 
their associated vehicle types is shown above in Table III.D.1-1.
    Within each of the 19 vehicle types, multiple technology packages 
were created in increasing technology content resulting in increasing 
effectiveness. Important to note that the effort in creating the 
packages attempted to maintain a constant utility for each package as 
compared to the baseline package. As such, each package is meant to 
provide equivalent driver-perceived performance to the baseline 
package. The initial packages represent what a manufacturer will most 
likely implement on all vehicles, including low rolling resistance 
tires, low friction lubricants, engine friction reduction, aggressive 
shift logic, early torque converter lock-up, improved electrical

[[Page 25450]]

accessories, and low drag brakes.\251\ Subsequent packages include 
advanced gasoline engine and transmission technologies such as turbo/
downsizing, GDI, and dual-clutch transmission. The most technologically 
advanced packages within a segment included HEV, PHEV and EV designs. 
The end result is a list of several packages for each of 19 different 
vehicle types from which a manufacturer could choose in order to modify 
its fleet such that compliance could be achieved.
---------------------------------------------------------------------------

    \251\ When making reference to low friction lubricants, the 
technology being referred to is the engine changes and possible 
durability testing that would be done to accommodate the low 
friction lubricants, not the lubricants themselves.
---------------------------------------------------------------------------

    Before using these technology packages as inputs to the OMEGA 
model, EPA calculated the cost and effectiveness for the package. The 
first step was to apply the scaling class for each technology package 
and vehicle type combination. The scaling class establishes the cost 
and effectiveness for each technology with respect to the vehicle size 
or type. The Large Car class was provided as an example in Section 
III.D.2. Additional classes include Small Car, Minivan, Small Truck, 
and Large Truck and each of the 19 vehicle types was mapped into one of 
those five classes. In the next step, the cost for a particular 
technology package was determined as the sum of the costs of the 
applied technologies. The final step, determination of effectiveness, 
requires greater care due to the synergistic effects mentioned in 
Section III.D.2. This step is described immediately below.
    Usually, the benefits of the engine and transmission technologies 
can be combined multiplicatively. For example, if an engine technology 
reduces CO2 emissions by five percent and a transmission 
technology reduces CO2 emissions by four percent, the 
benefit of applying both technologies is 8.8 percent (100%-(100%-4%) * 
(100%-5%)). In some cases, however, the benefit of the transmission-
related technologies overlaps with many of the engine technologies. 
This occurs because the primary goal of most of the transmission 
technologies is to shift operation of the engine to more efficient 
locations on the engine map. This is accomplished by incorporating more 
ratio selections and a wider ratio span into the transmissions. Some of 
the engine technologies have the same goal, such as cylinder 
deactivation, advanced valvetrains, and turbocharging. In order to 
account for this overlap and avoid over-estimating emissions reduction 
effectiveness, EPA has developed a set of adjustment factors associated 
with specific pairs of engine and transmission technologies.
    The various transmission technologies are generally mutually 
exclusive. As such, the effectiveness of each transmission technology 
generally supersedes each other. For example, the 9.5-14.5 percent 
reduction in CO2 emissions associated with the automated 
manual transmission includes the 4.5-6.5 percent benefit of a 6-speed 
automatic transmission. Exceptions are aggressive shift logic and early 
torque converter lock-up that can be applied to vehicles with several 
types of automatic transmissions.
    EPA has chosen to use an engineering approach known as the lumped-
parameter technique to determine these adjustment factors. The results 
from this approach were then applied directly to the vehicle packages. 
The lumped-parameter technique is well documented in the literature, 
and the specific approach developed by EPA is detailed in Chapter 1 of 
the RIA.
    Table III.D.3-1 presents several examples of the reduction in the 
effectiveness of technology pairs. A complete list and detailed 
discussion of these synergies is presented in Chapter 3 of the Joint 
TSD.

   Table III.D.3-1--Reduction in Effectiveness for Selected Technology
                                  Pairs
------------------------------------------------------------------------
                                                          Reduction in
                                     Transmission           combined
       Engine technology              technology         effectiveness
                                                           (percent)
------------------------------------------------------------------------
Intake cam phasing............  5 speed automatic....                0.5
Coupled cam phasing...........  5 speed automatic....                0.5
Coupled cam phasing...........  Aggressive shift                     0.5
                                 logic.
Cylinder deactivation.........  5 speed automatic....                1.0
Cylinder deactivation.........  Aggressive shift                     0.5
                                 logic.
------------------------------------------------------------------------

    Table III.D.3-2 presents several examples of the CO2-
reducing technology vehicle packages used in the OMEGA model for the 
large car class. Similar packages were generated for each of the 19 
vehicle types and the costs and effectiveness estimates for each of 
those packages are discussed in detail in Chapter 3 of the Joint TSD.

    Table III.D.3-2--CO2 Reducing Technology Vehicle Packages for a Large Car Effectiveness and Costs in 2016
                                             [Costs in 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                         Transmission
         Engine technology                technology       Additional technology   CO2 reduction   Package cost
----------------------------------------------------------------------------------------------------------------
3.3L V6...........................  4 speed automatic....  None.................             Baseline
                                   -----------------------------------------------------------------------------
3.0L V6 + GDI + CCP...............  6 speed automatic....  3% Mass Reduction....           17.9%            $985
3.0L V6 + GDI + CCP + Deac........  6 speed automatic....  5% Mass Reduction....           20.6%           1,238
2.2L I4 + GDI + Turbo + DCP.......  6 speed DCT..........  10% Mass Reduction              34.3%           1,903
                                                            Start-Stop.
----------------------------------------------------------------------------------------------------------------

[[Page 25451]]

4. Manufacturer's Application of Technology
    Vehicle manufacturers often introduce major product changes 
together, as a package. In this manner the manufacturers can optimize 
their available resources, including engineering, development, 
manufacturing and marketing activities to create a product with 
multiple new features. In addition, manufacturers recognize that a 
vehicle will need to remain competitive over its intended life, meet 
future regulatory requirements, and contribute to a manufacturer's CAFE 
requirements. Furthermore, automotive manufacturers are largely focused 
on creating vehicle platforms to limit the development of entirely new 
vehicles and to realize economies of scale with regard to variable 
cost. In very limited cases, manufacturers may implement an individual 
technology outside of a vehicle's redesign cycle.\252\ In following 
with these industry practices, EPA has created set of vehicle 
technology packages that represent the entire light duty fleet.
---------------------------------------------------------------------------

    \252\ The Center for Biological Diversity submitted comments 
disputing this distinction as well as the need for lead time. These 
comments are addressed in Section III.D.7.
---------------------------------------------------------------------------

    In evaluating needed lead time, EPA has historically authorized 
manufacturers of new vehicles or nonroad equipment to phase in 
available emission control technology over a number of years. Examples 
of this are EPA's Tier 2 program for cars and light trucks and its 2007 
and later PM and NOX emission standards for heavy-duty 
vehicles. In both of these rules, the major modifications expected from 
the rules were the addition of exhaust aftertreatment control 
technologies. Some changes to the engine were expected as well, but 
these were not expected to affect engine size, packaging or 
performance. The CO2 reduction technologies described above 
potentially involve much more significant changes to car and light 
truck designs. Many of the engine technologies involve changes to the 
engine block and heads. The transmission technologies could change the 
size and shape of the transmission and thus, packaging. Improvements to 
aerodynamic drag could involve body design and therefore, the dies used 
to produce body panels. Changes of this sort potentially involve new 
capital investment and the obsolescence of existing investment.
    At the same time, vehicle designs are not static, but change in 
major ways periodically. The manufacturers' product plans indicate that 
vehicles are usually redesigned every 5 years on average.\253\ Vehicles 
also tend to receive a more modest ``refresh'' between major redesigns, 
as discussed above. Because manufacturers are already changing their 
tooling, equipment and designs at these times, further changes to 
vehicle design at these times involve a minimum of stranded capital 
equipment. Thus, the timing of any major technological changes is 
projected to coincide with changes that manufacturers are already 
making to their vehicles. This approach effectively avoids the need to 
quantify any costs associated with discarding equipment, tooling, 
emission and safety certification, etc. when CO2-reducing 
equipment is incorporated into a vehicle.
---------------------------------------------------------------------------

    \253\ See discussion in Section III.D.7 with references.
---------------------------------------------------------------------------

    This final rule affects five years of vehicle production, model 
years 2012-2016. Given the now-typical five year redesign cycle, nearly 
all of a manufacturer's vehicles will be redesigned over this period. 
However, this assumes that a manufacturer has sufficient lead time to 
redesign the first model year affected by this final rule with the 
requirements of this final rule in mind. In fact, the lead time 
available for model year 2012 is relatively short. The time between a 
likely final rule and the start of 2013 model year production is likely 
to be just over two years. At the same time, the manufacturer product 
plans indicate that they are planning on introducing many of the 
technologies projected to be required by this final rule in both 2012 
and 2013. In order to account for the relatively short lead time 
available prior to the 2012 and 2013 model years, albeit mitigated by 
their existing plans, EPA projects that only 85 percent of each 
manufacturer's sales will be able to be redesigned with major 
CO2 emission-reducing technologies by the 2016 model year. 
Less intrusive technologies can be introduced into essentially all of a 
manufacturer's sales. This resulted in three levels of technology 
penetration caps, by manufacturer. Common technologies (e.g., low 
friction lubes, aerodynamic improvements) had a penetration cap of 
100%. More advanced powertrain technologies (e.g., stoichiometric GDI, 
turbocharging) had a penetration cap of 85%. The most advanced 
technologies considered in this analysis (e.g., diesel engines,\254\ as 
well as IMA, powersplit and 2-mode hybrids) had a 15% penetration cap.
---------------------------------------------------------------------------

    \254\ While diesel engines are a mature technology and not 
``advanced'', the aftertreatment systems necessary for them in the 
U.S. market are advanced.
---------------------------------------------------------------------------

    This is the same approach as was taken in the NPRM. EPA received 
several comments commending it on its approach to establishing 
technical feasibility via its use of the OMEGA model. The only adverse 
comment received regarding the application of technology was from the 
Center for Biological Diversity (CBD), which criticized EPA's use of 
the 5-year redesign cycle. CBD argued that manufacturers occasionally 
redesign vehicles sooner than 5 years and that EPA did not quantify the 
cost of shortening the redesign cycle to less than 5 years and compare 
this cost to the increased benefit of reduced CO2 emissions. 
CBD also noted that manufacturers have been recently dropping vehicle 
lines and entire divisions with very little leadtime, indicating their 
ability to change product plans much quicker than projected above.
    EPA did not explicitly evaluate the cost of reducing the average 
redesign cycle to less than 5 years for two reasons. One, in the past, 
manufacturers have usually shortened the redesign cycle to address 
serious problems with the current design, usually lower than 
anticipated sales. However, the amortized cost of the capital necessary 
to produce a new vehicle design will increase by 23%, from one-fifth of 
the capital cost to one-fourth (and assuming a 3% discount rate). This 
would be on top of the cost of the emission control equipment itself. 
The only benefit of this increase in societal cost will be earlier 
CO2 emission reductions (and the other benefits associated 
with CO2 emission control). The capital costs associated 
with vehicle redesign go beyond CO2 emission control and 
potentially involve every aspect of the vehicle and can represent 
thousands of dollars. We believe that it would be an inefficient use of 
societal resources to incur such costs when they can be obtained much 
more cost effectively just one year later.
    Two, the examples of manufacturers dropping vehicle lines and 
divisions with very short lead time is not relevant to the redesign of 
vehicles. There is no relationship between a manufacturer's ability to 
stop selling a vehicle model or to close a vehicle division and a 
manufacturer's ability to redesign a vehicle. A company could decide to 
stop selling all of its products within a few weeks--but it would still 
take a firm approximately 5 years to introduce a major new vehicle 
line. It is relatively easy to stop the manufacture of a particular 
product (though this too can

[[Page 25452]]

incur some cost--such as plant wind-down costs, employee layoff or 
relocation costs, and dealership related costs). It is much more 
difficult to perform the required engineering design and development, 
design, purchase, and install the necessary capital equipment and 
tooling for components and vehicle manufacturing and develop all the 
processes associated with the application of a new technology. Further 
discussion of the CBD comments can be found in III.D.7 below.
5. How is EPA projecting that a manufacturer decides between options to 
improve CO2 performance to meet a fleet average standard?
    EPA is generally taking the same approach to projecting the 
application of technology to vehicles as it did for the NPRM. With the 
exception of two comments, all commenters agreed with the modeling 
approach taken in the NPRM. One of these two comments is addressed is 
Section III.D.1 above, while the other is addressed in Section III.D.3. 
above.
    There are many ways for a manufacturer to reduce CO2-
emissions from its vehicles. A manufacturer can choose from a myriad of 
CO2 reducing technologies and can apply one or more of these 
technologies to some or all of its vehicles. Thus, for a variety of 
levels of CO2 emission control, there are an almost infinite 
number of technology combinations which produce the desired 
CO2 reduction. As noted earlier, EPA developed a new vehicle 
model, the OMEGA model in order to make a reasonable estimate of how 
manufacturers will add technologies to vehicles in order to meet a 
fleet-wide CO2 emissions level. EPA has described OMEGA's 
specific methodologies and algorithms in a memo to the docket for this 
rulemaking (Docket EPA-HQ-OAR-2009-0472).
    The OMEGA model utilizes four basic sets of input data. The first 
is a description of the vehicle fleet. The key pieces of data required 
for each vehicle are its manufacturer, CO2 emission level, 
fuel type, projected sales and footprint. The model also requires that 
each vehicle be assigned to one of the 19 vehicle types, which tells 
the model which set of technologies can be applied to that vehicle. 
(For a description of how the 19 vehicle types were created, reference 
Section III.D.3.) In addition, the degree to which each vehicle already 
reflects the effectiveness and cost of each available technology must 
also be input. This avoids the situation, for example, where the model 
might try to add a basic engine improvement to a current hybrid 
vehicle. Except for this type of information, the development of the 
required data regarding the reference fleet was described in Section 
III.D.1 above and in Chapter 1 of the Joint TSD.
    The second type of input data used by the model is a description of 
the technologies available to manufacturers, primarily their cost and 
effectiveness. Note that the five vehicle classes are not explicitly 
used by the model, rather the costs and effectiveness associated with 
each vehicle package is based on the associated class. This information 
was described in Sections III.D.2 and III.D.3 above as well as Chapter 
3 of the Joint TSD. In all cases, the order of the technologies or 
technology packages for a particular vehicle type is determined by the 
model user prior to running the model. Several criteria can be used to 
develop a reasonable ordering of technologies or packages. These are 
described in the Joint TSD.
    The third type of input data describes vehicle operational data, 
such as annual scrap rates and mileage accumulation rates, and economic 
data, such as fuel prices and discount rates. These estimates are 
described in Section II.F above, Section III.H below and Chapter 4 of 
the Joint TSD.
    The fourth type of data describes the CO2 emission 
standards being modeled. These include the CO2 emission 
equivalents of the 2011 MY CAFE standards and the final CO2 
standards for 2016. As described in more detail below, the application 
of A/C technology is evaluated in a separate analysis from those 
technologies which impact CO2 emissions over the 2-cycle 
test procedure. Thus, for the percent of vehicles that are projected to 
achieve A/C related reductions, the CO2 credit associated 
with the projected use of improved A/C systems is used to adjust the 
final CO2 standard which will be applicable to each 
manufacturer to develop a target for CO2 emissions over the 
2-cycle test which is assessed in our OMEGA modeling.
    As mentioned above for the market data input file utilized by 
OMEGA, which characterizes the vehicle fleet, our modeling must and 
does account for the fact that many 2008 MY vehicles are already 
equipped with one or more of the technologies discussed in Section 
III.D.2 above. Because of the choice to apply technologies in packages, 
and 2008 vehicles are equipped with individual technologies in a wide 
variety of combinations, accounting for the presence of specific 
technologies in terms of their proportion of package cost and 
CO2 effectiveness requires careful, detailed analysis. The 
first step in this analysis is to develop a list of individual 
technologies which are either contained in each technology package, or 
would supplant the addition of the relevant portion of each technology 
package. An example would be a 2008 MY vehicle equipped with variable 
valve timing and a 6-speed automatic transmission. The cost and 
effectiveness of variable valve timing would be considered to be 
already present for any technology packages which included the addition 
of variable valve timing or technologies which went beyond this 
technology in terms of engine related CO2 control 
efficiency. An example of a technology which supplants several 
technologies would be a 2008 MY vehicle which was equipped with a 
diesel engine. The effectiveness of this technology would be considered 
to be present for technology packages which included improvements to a 
gasoline engine, since the resultant gasoline engines have a lower 
CO2 control efficiency than the diesel engine. However, if 
these packages which included improvements also included improvements 
unrelated to the engine, like transmission improvements, only the 
engine related portion of the package already present on the vehicle 
would be considered. The transmission related portion of the package's 
cost and effectiveness would be allowed to be applied in order to 
comply with future CO2 emission standards.
    The second step in this process is to determine the total cost and 
CO2 effectiveness of the technologies already present and 
relevant to each available package. Determining the total cost usually 
simply involves adding up the costs of the individual technologies 
present. In order to determine the total effectiveness of the 
technologies already present on each vehicle, the lumped parameter 
model described above is used. Because the specific technologies 
present on each 2008 vehicle are known, the applicable synergies and 
dis-synergies can be fully accounted for.
    The third step in this process is to divide the total cost and 
CO2 effectiveness values determined in step 2 by the total 
cost and CO2 effectiveness of the relevant technology 
packages. These fractions are capped at a value of 1.0 or less, since a 
value of 1.0 causes the OMEGA model to not change either the cost or 
CO2 emissions of a vehicle when that technology package is 
added.
    As described in Section III.D.3 above, technology packages are 
applied to groups of vehicles which generally represent a single 
vehicle platform and which are equipped with a single engine size 
(e.g., compact cars with four cylinder engine produced by Ford). These 
grouping are described in Table III.D.1-1. Thus, the fourth step is to

[[Page 25453]]

combine the fractions of the cost and effectiveness of each technology 
package already present on the individual 2008 vehicles models for each 
vehicle grouping. For cost, percentages of each package already present 
are combined using a simple sales-weighting procedure, since the cost 
of each package is the same for each vehicle in a grouping. For 
effectiveness, the individual percentages are combined by weighting 
them by both sales and base CO2 emission level. This 
appropriately weights vehicle models with either higher sales or 
CO2 emissions within a grouping. Once again, this process 
prevents the model from adding technology which is already present on 
vehicles, and thus ensures that the model does not double count 
technology effectiveness and cost associated with complying with the 
2011 MY CAFE standards and the final CO2 standards.
    Conceptually, the OMEGA model begins by determining the specific 
CO2 emission standard applicable for each manufacturer and 
its vehicle class (i.e., car or truck). Since the final rule allows for 
averaging across a manufacturer's cars and trucks, the model determines 
the CO2 emission standard applicable to each manufacturer's 
car and truck sales from the two sets of coefficients describing the 
piecewise linear standard functions for cars and trucks in the inputs, 
and creates a combined car-truck standard. This combined standard 
considers the difference in lifetime VMT of cars and trucks, as 
indicated in the final regulations which govern credit trading between 
these two vehicle classes. For both the 2011 CAFE and 2016 
CO2 standards, these standards are a function of each 
manufacturer's sales of cars and trucks and their footprint values. 
When evaluating the 2011 MY CAFE standards, the car-truck trading was 
limited to 1.2 mpg. When evaluating the final CO2 standards, 
the OMEGA model was run only for MY 2016. OMEGA is designed to evaluate 
technology addition over a complete redesign cycle and 2016 represents 
the final year of a redesign cycle starting with the first year of the 
final CO2 standards, 2012. Estimates of the technology and 
cost for the interim model years are developed from the model 
projections made for 2016. This process is discussed in Chapter 6 of 
EPA's RIA to this final rule. When evaluating the 2016 standards using 
the OMEGA model, the final CO2 standard which manufacturers 
will otherwise have to meet to account for the anticipated level of A/C 
credits generated was adjusted. On an industry wide basis, the 
projection shows that manufacturers will generate 11 g/mi of A/C credit 
in 2016. Thus, the 2016 CO2 target for the fleet evaluated 
using OMEGA was 261 g/mi instead of 250 g/mi.
    As noted above, EPA estimated separately the cost of the improved 
A/C systems required to generate the 11 g/mi credit. This is consistent 
with our final A/C credit procedures, which will grant manufacturers A/
C credits based on their total use of improved A/C systems, and not on 
the increased use of such systems relative to some base model year 
fleet. Some manufacturers may already be using improved A/C technology. 
However, this represents a small fraction of current vehicle sales. To 
the degree that such systems are already being used, EPA is over-
estimating both the cost and benefit of the addition of improved A/C 
technology relative to the true reference fleet to a small degree.
    The model then works with one manufacturer at a time to add 
technologies until that manufacturer meets its applicable standard. The 
OMEGA model can utilize several approaches to determining the order in 
which vehicles receive technologies. For this analysis, EPA used a 
``manufacturer-based net cost-effectiveness factor'' to rank the 
technology packages in the order in which a manufacturer is likely to 
apply them. Conceptually, this approach estimates the cost of adding 
the technology from the manufacturer's perspective and divides it by 
the mass of CO2 the technology will reduce. One component of 
the cost of adding a technology is its production cost, as discussed 
above. However, it is expected that new vehicle purchasers value 
improved fuel economy since it reduces the cost of operating the 
vehicle. Typical vehicle purchasers are assumed to value the fuel 
savings accrued over the period of time which they will own the 
vehicle, which is estimated to be roughly five years. It is also 
assumed that consumers discount these savings at the same rate as that 
used in the rest of the analysis (3 or 7 percent). Any residual value 
of the additional technology which might remain when the vehicle is 
sold is not considered. The CO2 emission reduction is the 
change in CO2 emissions multiplied by the percentage of 
vehicles surviving after each year of use multiplied by the annual 
miles travelled by age, again discounted to the year of vehicle 
purchase.
    Given this definition, the higher priority technologies are those 
with the lowest manufacturer-based net cost-effectiveness value 
(relatively low technology cost or high fuel savings leads to lower 
values). Because the order of technology application is set for each 
vehicle, the model uses the manufacturer-based net cost-effectiveness 
primarily to decide which vehicle receives the next technology 
addition. Initially, technology package 1 is the only one 
available to any particular vehicle. However, as soon as a vehicle 
receives technology package 1, the model considers the 
manufacturer-based net cost-effectiveness of technology package 
2 for that vehicle and so on. In general terms, the equation 
describing the calculation of manufacturer-based cost effectiveness is 
as follows:
[GRAPHIC] [TIFF OMITTED] TR07MY10.018

Where

ManufCostEff = Manufacturer-Based Cost Effectiveness (in dollars per 
kilogram CO2),
TechCost = Marked up cost of the technology (dollars),
PP = Payback period, or the number of years of vehicle use over 
which consumers value fuel savings when evaluating the value of a 
new vehicle at time of purchase,
dFSi = Difference in fuel consumption due to the addition 
of technology times fuel price in year i,
dCO2 = Difference in CO2 emissions due to the 
addition of technology,
VMTi = product of annual VMT for a vehicle of age i and the 
percentage of vehicles of age i still on the road, and
1- Gap = Ratio of onroad fuel economy to two-cycle (FTP/HFET) fuel 
economy.

[[Page 25454]]

    The OMEGA model does not currently allow for the VMT used in 
determining the various technology ranking factors to be a function of 
the rebound factor. If the user believed that the consideration of 
rebound VMT was important, they could increase their estimate of the 
payback period to simulate the impact of the rebound VMT.
    EPA describes the technology ranking methodology and manufacturer-
based cost effectiveness metric in greater detail in a technical memo 
to the Docket for this final rule (Docket EPA-HQ-OAR-2009-0472).
    When calculating the fuel savings, the full retail price of fuel, 
including taxes is used. While taxes are not generally included when 
calculating the cost or benefits of a regulation, the net cost 
component of the manufacturer-based net cost-effectiveness equation is 
not a measure of the social cost of this final rule, but a measure of 
the private cost, (i.e., a measure of the vehicle purchaser's 
willingness to pay more for a vehicle with higher fuel efficiency). 
Since vehicle operators pay the full price of fuel, including taxes, 
they value fuel costs or savings at this level, and the manufacturers 
will consider this when choosing among the technology options.
    This definition of manufacturer-based net cost-effectiveness 
ignores any change in the residual value of the vehicle due to the 
additional technology when the vehicle is five years old. As discussed 
in Chapter 1 of the RIA, based on historic used car pricing, applicable 
sales taxes, and insurance, vehicles are worth roughly 23% of their 
original cost after five years, discounted to year of vehicle purchase 
at 7% per annum. It is reasonable to estimate that the added technology 
to improve CO2 level and fuel economy will retain this same 
percentage of value when the vehicle is five years old. However, it is 
less clear whether first purchasers, and thus, manufacturers consider 
this residual value when ranking technologies and making vehicle 
purchases, respectively. For this final rule, this factor was not 
included in our determination of manufacturer-based net cost-
effectiveness in the analyses performed in support of this final rule.
    The values of manufacturer-based net cost-effectiveness for 
specific technologies will vary from vehicle to vehicle, often 
substantially. This occurs for three reasons. First, both the cost and 
fuel-saving component cost, ownership fuel-savings, and lifetime 
CO2 effectiveness of a specific technology all vary by the 
type of vehicle or engine to which it is being applied (e.g., small car 
versus large truck, or 4-cylinder versus 8-cylinder engine). Second, 
the effectiveness of a specific technology often depends on the 
presence of other technologies already being used on the vehicle (i.e., 
the dis-synergies). Third, the absolute fuel savings and CO2 
reduction of a percentage on incremental reduction in fuel consumption 
depends on the CO2 level of the vehicle prior to adding the 
technology. Chapter 1 of the RIA of this final rule contains further 
detail on the values of manufacturer-based net cost-effectiveness for 
the various technology packages.
6. Why are the final CO2 standards feasible?
    The finding that the final standards are technically feasible is 
based primarily on two factors. One is the level of technology needed 
to meet the final standards. The other is the cost of this technology. 
The focus is on the final standards for 2016, as this is the most 
stringent standard and requires the most extensive use of technology.
    With respect to the level of technology required to meet the 
standards, EPA established technology penetration caps. As described in 
Section III.D.4, EPA used two constraints to limit the model's 
application of technology by manufacturer. The first was the 
application of common fuel economy enablers such as low rolling 
resistance tires and transmission logic changes. These were allowed to 
be used on all vehicles and hence had no penetration cap. The second 
constraint was applied to most other technologies and limited their 
application to 85% with the exception of the most advanced technologies 
(e.g., power-split hybrid and 2-mode hybrid) and diesel,\255\ whose 
application was limited to 15%.
---------------------------------------------------------------------------

    \255\ While diesel engines are not an ``advanced technology'' 
per se, diesel engines that can meet EPA's light duty Tier 2 Bin 5 
NOX standards have advanced (and somewhat costly) 
aftertreatment systems on them that make this technology penetration 
cap appropriate in addition to their relatively high incremental 
costs.
---------------------------------------------------------------------------

    EPA used the OMEGA model to project the technology (and resultant 
cost) required for manufacturers to meet the current 2011 MY CAFE 
standards and the final 2016 MY CO2 emission standards. Both 
sets of standards were evaluated using the OMEGA model. The 2011 MY 
CAFE standards were applied to cars and trucks separately with the 
transfer of credits from one category to the other allowed up to an 
increase in fuel economy of 1.0 mpg as allowed under the applicable MY 
2011 CAFE regulations. Chrysler, Ford and General Motors are assumed to 
utilize FFV credits up to the maximum of 1.2 mpg for both their car and 
truck sales. Nissan is assumed to utilize FFV credits up to the maximum 
of 1.2 mpg for only their truck sales. The use of any banked credits 
from previous model years was not considered. The modification of the 
reference fleet to comply with the 2011 CAFE standards through the 
application of technology by the OMEGA model is the final step in 
creating the final reference fleet. This final reference fleet forms 
the basis for comparison for the model year 2016 standards.
    Table III.D.6-1 shows the usage level of selected technologies in 
the 2008 vehicles coupled with 2016 sales prior to projecting their 
compliance with the 2011 MY CAFE standards. These technologies include 
converting port fuel-injected gasoline engines to direct injection 
(GDI), adding the ability to deactivate certain engine cylinders during 
low load operation to overhead cam engines (OHC-DEAC), adding a 
turbocharger and downsizing the engine (Turbo), diesel engine 
technology, increasing the number of transmission speeds to 6, or 
converting automatic transmissions to dual-clutch automated manual 
transmissions (Dual-Clutch Trans), adding 42 volt start-stop capability 
(Start-Stop), and converting a vehicle to an intermediate or strong 
hybrid design. This last category includes three current hybrid 
designs: Integrated motor assist (IMA), power-split (PS), 2-mode 
hybrids and electric vehicles.\256\
---------------------------------------------------------------------------

    \256\ EPA did not project reliance on the use of any plug-in 
hybrid or battery electric vehicles when projecting manufacturers' 
compliance with the 2016 standards. However, BMW did sell a battery 
electric vehicle in the 2008 model year, so these sales are included 
in the technology penetration estimates for the reference case and 
the final and alternative standards evaluated for 2016.

[[Page 25455]]

                              Table III.D.6-1--Penetration of Technology in 2008 Vehicles With 2016 Sales: Cars and Trucks
                                                                   [Percent of sales]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        6 Speed    Dual clutch
                                                      GDI        OHC-DEAC      Turbo        Diesel     auto trans     trans      Start-stop     Hybrid
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................          7.5          0.0          6.1          0.0           86          0.9            0          0.1
Chrysler........................................          0.0          0.0          0.5          0.1           14          0.0            0          0.0
Daimler.........................................          0.0          0.0          6.5          5.6           76          7.5            0          0.0
Ford............................................          0.4          0.0          2.2          0.0           29          0.0            0          0.0
General Motors..................................          3.1          0.0          1.4          0.0           15          0.0            0          0.3
Honda...........................................          1.4          7.1          1.4          0.0            0          0.0            0          2.1
Hyundai.........................................          0.0          0.0          0.0          0.0            3          0.0            0          0.0
Kia.............................................          0.0          0.0          0.0          0.0            0          0.0            0          0.0
Mazda...........................................         13.6          0.0         13.6          0.0           26          0.0            0          0.0
Mitsubishi......................................          0.0          0.0          0.0          0.0           10          0.0            0          0.0
Nissan..........................................          0.0          0.0          0.0          0.0            0          0.0            0          0.8
Porsche.........................................         58.6          0.0         14.9          0.0           49          0.0            0          0.0
Subaru..........................................          0.0          0.0          9.8          0.0            0          0.0            0          0.0
Suzuki..........................................          0.0          0.0          0.0          0.0            0          0.0            0          0.0
Tata............................................          0.0          0.0         17.3          0.0           99          0.0            0          0.0
Toyota..........................................          6.8          0.0          0.0          0.0           21          0.0            0         11.6
Volkswagen......................................         50.6          0.0         39.5          0.0           69         13.1            0          0.0
Overall.........................................          3.8          0.8          2.6          0.1         19.1          0.5          0.0          2.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As can be seen, all of these technologies were already being used 
on some 2008 MY vehicles, with the exception of direct injection 
gasoline engines with either cylinder deactivation or turbocharging and 
downsizing. Transmissions with more gearsets were the most prevalent, 
with some manufacturers (e.g., BMW, Suzuki) using them on essentially 
all of their vehicles. Both Daimler and VW equip many of their vehicles 
with automated manual transmissions, while VW makes extensive use of 
direct injection gasoline engine technology. Toyota has converted a 
significant percentage of its 2008 vehicles to strong hybrid design.
    Table III.D.6-2 shows the usage level of the same technologies in 
the reference case fleet after projecting their compliance with the 
2011 MY CAFE standards. Except for mass reduction, the figures shown 
represent the percentages of each manufacturer's sales which are 
projected to be equipped with the indicated technology. For mass 
reduction, the overall mass reduction projected for that manufacturer's 
sales is also shown. The last row in Table III.D.6-2 shows the increase 
in projected technology penetration due to compliance with the 2011 MY 
CAFE standards. The results of DOT's Volpe modeling were used to 
project that all manufacturers would comply with the 2011 MY standards 
in 2016 without the need to pay fines, with one exception. This 
exception was Porsche in the case of their car fleet. When projecting 
Porsche's compliance with the 2011 MY CAFE standard for cars, NHTSA 
projected that Porsche would achieve a CO2 emission level of 
304.3 g/mi instead of the required 284.8 g/mi level (29.2 mpg instead 
of 31.2 mpg), and pay fines in lieu of further control.

                         Table III.D.6-2--Penetration of Technology Under 2011 MY CAFE Standards in 2016 Sales: Cars and Trucks
                                                                   [Percent of sales]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        6 Speed    Dual clutch                   Mass
                                                                   GDI        OHC-DEAC      Turbo      auto trans     trans      Start-stop   reduction
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW..........................................................           44           12           30           53           37           13            2
Chrysler.....................................................            0            0            0           18            0            0            0
Daimler......................................................           23           22            8           52           34           26            2
Ford.........................................................            0            0            3           27            0            0            0
General Motors...............................................            3            0            1           15            0            0            0
Honda........................................................            2            6            2            0            0            0            0
Hyundai......................................................            0            0            0            3            0            0            0
Kia..........................................................            0            0            0            0            0            0            0
Mazda........................................................           13            0           13           20            0            0            0
Mitsubishi...................................................           32            0            2           25           35            0            1
Nissan.......................................................            0            0            0            0            0            0            0
Porsche......................................................           92            0           75            5           55           38            4
Subaru.......................................................            0            0            9            0            0            0            0
Suzuki.......................................................           70            0            0            3           67           67            3
Tata.........................................................           85           54           20           27           73           73            6
Toyota.......................................................            7            0            0           19            0            0            0
Volkswagen...................................................           89            5           81           14           78           18            3
Overall......................................................           10            2            7           16            7            3            0
Increase over 2008 MY........................................            6            1            4           -3            6            3            0
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 25456]]

    As can be seen, the 2011 MY CAFE standards, when evaluated on an 
industry wide basis, require only a modest increase in the use of these 
technologies. The projected MY 2016 fraction of automatic transmission 
with more gearsets actually decreases slightly due to conversion of 
these units to more efficient designs such as automated manual 
transmissions and hybrids. However, the impact of the 2011 MY CAFE 
standards is much greater on selected manufacturers, particularly BMW, 
Daimler, Porsche, Tata (Jaguar/Land Rover) and VW. All of these 
manufacturers are projected to increase their use of direct injection 
gasoline engine technology, advanced transmission technology, and 
start-stop technology. It should be noted that these manufacturers have 
traditionally paid fines under the CAFE program. However, with higher 
fuel prices and the lower cost mature technology projected to be 
available by 2016, these manufacturers would likely find it in their 
best interest to improve their fuel economy levels instead of 
continuing to pay fines (again with the exception of Porsche cars). 
While not shown, no gasoline engines were projected to be converted to 
diesel technology and no hybrid vehicles were projected. Most 
manufacturers do not require the level of CO2 emission 
control associated with either of these technologies. The few 
manufacturers that would were projected to choose to pay CAFE fines in 
2011 in lieu of adding diesel or hybrid technologies.
    This 2008 baseline fleet, modified to meet 2011 standards, becomes 
our ``reference'' case. See Section II.B above. This is the fleet 
against which the final 2016 standards are compared. Thus, it is also 
the fleet that is assumed to exist in the absence of this rule. No air 
conditioning improvements are assumed for model year 2011 vehicles. The 
average CO2 emission levels of this reference fleet vary 
slightly from 2012-2016 due to small changes in the vehicle sales by 
market segments and manufacturer. CO2 emissions from cars 
range from 282-284 g/mi, while those from trucks range from 382-384 g/
mi. CO2 emissions from the combined fleet range from 316-
320. These estimates are described in greater detail in Section 5.3.2.2 
of the EPA RIA.
    Conceptually, both EPA and NHTSA perform the same projection in 
order to develop their respective reference fleets. However, because 
the two agencies use two different models to modify the baseline fleet 
to meet the 2011 CAFE standards, the projected technology that could be 
added will be slightly different. The differences, however, are 
relatively small since most manufacturers only require modest addition 
of technology to meet the 2011 CAFE standards.
    EPA then used the OMEGA model once again to project the level of 
technology needed to meet the final 2016 CO2 emission 
standards. Using the results of the OMEGA model, every manufacturer was 
projected to be able to meet the final 2016 standards with the 
technology described above except for four: BMW, VW, Porsche and Tata 
(which is comprised of Jaguar and Land Rover vehicles in the U.S. 
fleet). For these manufacturers, the results presented below are those 
with the fully allowable application of technology available in EPA's 
OMEGA modeling analysis and not for the technology projected to enable 
compliance with the final standards. Described below are a number of 
potential feasible solutions for how these companies can achieve 
compliance. The overall level of technology needed to meet the final 
2016 standards is shown in Table III.D.6-3. As discussed above, all 
manufacturers are projected to improve the air conditioning systems on 
85% of their 2016 sales.\257\
---------------------------------------------------------------------------

    \257\ Many of the technologies shown in this table are mutually 
exclusive. Thus, 85% penetration might not be possible. For example, 
any use of hybrids will reduce the DEAC, Turbo, 6SPD, DCT, and 42V 
S-S technologies. Additionally, not every technology is available to 
be used on every vehicle type.

                                Table III.D.6-3--Final Penetration of Technology for 2016 CO2 Standards: Cars and Trucks
                                                                   [Percent of sales]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           6 Speed    Dual clutch                                Mass
                                         GDI        OHC-DEAC      Turbo        Diesel     auto trans     trans      Start-stop     Hybrid     Reduction
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW................................           80           21           61            6           13           63           65           14            5
Chrysler...........................           79           13           17            0           31           52           54            0            6
Daimler............................           76           30           53            5           12           72           67           14            5
Ford...............................           84           21           19            0           27           60           61            0            6
General Motors.....................           67           25           14            0            8           61           61            0            6
Honda..............................           43            6            2            0            0           49           18            2            3
Hyundai............................           59            0            1            0            8           52           32            0            3
Kia................................           33            0            1            0            0           52            4            0            2
Mazda..............................           60            0           14            1           17           47           41            0            4
Mitsubishi.........................           74            0           33            0           14           74           74            0            6
Nissan.............................           66            7           11            0            2           62           58            1            5
Porsche............................           83           15           62            8            5           45           62           15            4
Subaru.............................           60            0            9            0            0           58           44            0            3
Suzuki.............................           77            0            0            0           10           67           67            0            4
Tata...............................           85           55           27            0           14           70           70           15            5
Toyota.............................           26            7            3            0           13           40            7           12            2
Volkswagen.........................           82           18           71           11           10           68           60           15            4
Overall............................           60           13           15            1           12           55           42            4            4
Increase over 2011 CAFE............           49           11            9            1           -4           48           39            2            4
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 25457]]

    Table III.D.6-4 shows the 2016 standards, as well as the achieved 
CO2 emission levels for the five manufacturers which are not 
able to meet these standards under the premises of our modeling. It 
should be noted that the two sets of combined emission levels shown in 
Table III.D.6-4 are based on sales weighting car and truck emission 
levels.

                               Table III.D.6-4--Emissions of Manufacturers Unable to Meet Final 2016 Standards (g/mi CO2)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Achieved emissions                          2016 Standards                 Shortfall
                     Manufacturer                      -------------------------------------------------------------------------------------------------
                                                             Car          Truck       Combined         Car          Truck       Combined      Combined
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW...................................................         236.3         278.7         248.5         228.4         282.5         243.9           4.6
Tata..................................................         258.6         323.6         284.2         249.9         272.5         258.8          25.4
Daimler...............................................         246.3         297.8         262.6         238.3         294.3         256.1           6.5
Porsche...............................................         244.1         332.0         273.4         206.1         286.9         233.0          40.4
Volkswagen............................................         223.5         326.6         241.6         218.6         292.7         231.6          10.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As can be seen, BMW and Daimler have the smallest shortfalls, 5-6 
g/mi, while Porsche has the largest, 40 g/mi.
    On an industry average basis, the technology penetrations are very 
similar to those projected in the proposal. There is a slight shift 
from the use of cylinder deactivation to the two advanced transmission 
technologies. This is due to the fact that the estimated costs for 
these three technologies have been updated, and thus, their relative 
cost effectiveness when applied to specific vehicles have also shifted. 
The reader is referred to Section II.E of this preamble as well as 
Chapter 3 of the Joint TSD for a detailed description of the cost 
estimates supporting this final rule and to the RIA for a description 
of the selection of technology packages for specific vehicle types. The 
other technologies shown in Table III.D.6-4 changed by 2 percent or 
less between the proposal and this final rule.
    As can be seen, the overall average reduction in vehicle weight is 
projected to be 4 percent. This reduction varies across the two vehicle 
classes and vehicle base weight. For cars below 2,950 pounds curb 
weight, the average reduction is 2.8 percent (75 pounds), while the 
average was 4.3 percent (153 pounds) for cars above 2,950 curb weight. 
For trucks below 3,850 pounds curb weight, the average reduction is 4.7 
percent (163 pounds), while it was 5.1 percent (240 pounds) for trucks 
above 3,850 curb weight. Splitting trucks at a higher weight, for 
trucks below 5,000 pounds curb weight, the average reduction is 4.4 
percent (186 pounds), while it was 7.0 percent (376 pounds) for trucks 
above 5,000 curb weight.
    The levels of requisite technologies differ significantly across 
the various manufacturers. Therefore, several analyses were performed 
to ascertain the cause. Because the baseline case fleet consists of 
2008 MY vehicle designs, these analyses were focused on these vehicles, 
their technology and their CO2 emission levels.
    Comparing CO2 emissions across manufacturers is not a 
simple task. In addition to widely varying vehicle styles, designs, and 
sizes, manufacturers have implemented fuel efficient technologies to 
varying degrees, as indicated in Table III.D.6-1. The projected levels 
of requisite technology to enable compliance with the final 2016 
standards shown in Table III.D.6-3 account for two of the major factors 
which can affect CO2 emissions (1) Level of technology 
already being utilized and (2) vehicle size, as represented by 
footprint.
    For example, the fuel economy of a manufacturer's 2008 vehicles may 
be relatively high because of the use of advanced technologies. This is 
the case with Toyota's high sales of their Prius hybrid. However, the 
presence of this technology in a 2008 vehicle eliminates the ability to 
significantly reduce CO2 further through the use of this 
technology. In the extreme, if a manufacturer were to hybridize a high 
level of its sales in 2016, it does not matter whether this technology 
was present in 2008 or whether it would be added in order to comply 
with the standards. The final level of hybrid technology would be the 
same. Thus, the level at which technology is present in 2008 vehicles 
does not explain the difference in requisite technology levels shown in 
Table III.D.6-3.
    Similarly, the final CO2 emission standards adjust the 
required CO2 level according to a vehicle's footprint, 
requiring lower absolute emission levels from smaller vehicles. Thus, 
just because a manufacturer produces larger vehicles than another 
manufacturer does not explain the differences seen in Table III.D.6-3.
    In order to remove these two factors from our comparison, the EPA 
lumped parameter model described above was used to estimate the degree 
to which technology present on each 2008 MY vehicle in our reference 
fleet was improving fuel efficiency. The effect of this technology was 
removed and each vehicle's CO2 emissions were estimated as 
if it utilized no additional fuel efficiency technology beyond the 
baseline. The differences in vehicle size were accounted for by 
determining the difference between the sales-weighted average of each 
manufacturer's ``no technology'' CO2 levels to their 
required CO2 emission level under the final 2016 standards. 
The industry-wide difference was subtracted from each manufacturer's 
value to highlight which manufacturers had lower and higher than 
average ``no technology'' emissions. The results are shown in Figure 
III.D.6-1.
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    As can be seen in Table III.D.6-3 the manufacturers projected to 
require the greatest levels of technology also show the highest offsets 
relative to the industry. The greatest offset shown in Figure III.D.6-1 
is for Tata's trucks (Land Rover). These vehicles are estimated to have 
100 g/mi greater CO2 emissions than the average 2008 MY 
truck after accounting for differences in the use of fuel saving 
technology and footprint. The lowest adjustment is for Subaru's trucks, 
which have 50 g/mi CO2 lower emissions than the average 
truck.
    While this comparison confirms the differences in the technology 
penetrations shown in Table III.D.6-3, it does not yet explain why 
these differences exist. Two well-known factors affecting vehicle fuel 
efficiency are vehicle weight and acceleration performance (henceforth 
referred to as ``performance''). The footprint-based form of the final 
CO2 standard accounts for most of the difference in vehicle 
weight seen in the 2008 MY fleet. However, even at the same footprint, 
vehicles can have varying weights. Higher performing vehicles also tend 
to have higher CO2 emissions over the two-cycle fuel economy 
test procedure. So manufacturers with higher average performance levels 
will tend to have higher average CO2 emissions for any given 
footprint. This variability at any given footprint contributes to much 
of the scatter in the data (shown for example on plots like Figures 
II.C.1-3 through II.C.1-6).
    We developed a methodology to assess the impact of these two 
factors on each manufacturer's projected compliance with the 2016 
standards. First, we had to remove (or isolate) the effect of 
CO2 control technology already being employed on 2008 
vehicles. As described above, 2008 vehicles exhibit a wide range of 
control technology and leaving these impacts in place would confound 
the assessment of performance and weight on CO2 emissions. 
Thus, the first step was to estimate each vehicle's ``no technology'' 
CO2 emissions. To do this, we used the EPA lumped parameter 
model (described in the TSD) to estimate the overall percentage 
reduction in CO2 emissions associated with technology 
already on the vehicle and then backed out this effect mathematically. 
Second, we performed a least-square linear regression of these no 
technology CO2 levels against curb weight and the ratio of 
rated engine horsepower to curb weight simultaneously. The ratio of 
rated engine horsepower to curb weight is a good surrogate for 
acceleration performance and the data is available for all vehicles, 
whereas the zero to sixty time is not. Both factors were found to be 
statistically significant at the 95% confidence level. Together, they 
explained over 80% of the variability in vehicles' CO2 
emissions for cars and over 70% for trucks. Third, we determined the 
sales-weighted average curb weight per footprint for cars and trucks, 
respectively, for the fleet as a whole. We also determined the sales-
weighted average of the ratio of rated engine horsepower to curb weight 
for cars and trucks, respectively, for the fleet as a whole. Fourth, we 
adjusted each vehicle's ``no technology'' CO2 emissions to 
eliminate the degree to which the vehicle had higher or lower 
acceleration performance or curb weight per footprint relative to the 
car or truck fleet as a whole. For example, if a car's ratio of 
horsepower to weight was 0.007 and the average ratio for all cars was 
0.006, then the vehicle's ``no technology'' CO2 emission 
level was reduced by the difference between these two values (0.001) 
times the impact of the ratio of horsepower to weight on car 
CO2 emissions from the above linear regression. Finally, we 
substituted these performance and weight adjusted CO2 
emission levels for the original, ``no technology'' CO2 
emission levels shown in Figure III.D.6-1. The results are shown in 
Figure III.D.6-2.
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    First, note that the scale in Figure III.D.6-2 is much smaller by a 
factor of 3 than that in Figure III.D.6-1. In other words, accounting 
for differences in vehicle weight (at constant footprint) and 
performance dramatically reduces the variability among the 
manufacturers' CO2 emissions. Most of the manufacturers with 
high positive offsets in Figure III.D.6-1 now show low or negative 
offsets. For example, BMW's and VW's trucks show very low 
CO2 emissions. Tata's emissions are very close to the 
industry average. Daimler's vehicles are no more than 10 g/mi above the 
average for the industry. This analysis indicates that the primary 
reasons for the differences in technology penetrations shown for the 
various manufacturers in Table III.D.6-3 are weight and acceleration 
performance. EPA has not determined why some manufacturers' vehicle 
weight is relatively high for its footprint value, or whether this 
weight provides additional utility for the consumer. Performance is 
more straightforward. Some consumers desire high-acceleration 
performance and some manufacturers orient their sales towards these 
consumers. However, the cost in terms of CO2 emissions is 
clear. Manufacturers producing relatively heavy or high performance 
vehicles presently (with concomitant increased CO2 
emissions) will require greater levels of technology in order to meet 
the final CO2 standards in 2016.
    As can be seen from Table III.D.6-3 above, widespread use of 
several technologies is projected due to the final standards. The vast 
majority of engines are projected to be converted to direct injection, 
with some of these engines including cylinder deactivation or 
turbocharging and downsizing. More than 60 percent of all transmissions 
are projected to be either 6+ speed automatic transmissions or dual-
clutch automated manual transmissions. More than one-third of the fleet 
is projected to be equipped with 42 volt start-stop capability. This 
technology was not utilized in 2008 vehicles, but as discussed above, 
promises significant fuel efficiency improvement at a moderate cost.
    In their comments, Porsche stated that their vehicles have twice 
the power-to-weight ratio as the fleet average and that their vehicles 
presently have a high degree of technology penetration, which allows 
them to meet the 2009 CAFE standards. Porsche also commented that the 
2016 standards are not feasible for their firm, in part due to the high 
level of technologies already present in their vehicles and due to 
their ``very long production life cycles''. BMW in their comments 
stated that their vehicles are ``feature-dense'' thus ``requiring 
additional efforts to comply'' with future standards.\258\ Ferrari, in 
their comments, states that the standards are not feasible for high-
performance sports cars without compromising on their 
``distinctiveness''. They also state that because they already have 
many technologies on the vehicles, ``there are limited possibilities 
for further improvements.'' Finally Ferrari states that smaller volume 
manufacturers have higher costs ``because they can be distributed over 
very limited production volumes'', and they have longer product 
lifecycles. The latter view was also shared by Lotus. These comments 
will be addressed below, but are cited here as supporting the 
conclusions from the above analysis that high-performance and feature-
dense vehicles have a greater challenge meeting the 2016 standards. In 
general, other manufacturers covering the rest of the fleet and other 
commenters agreed with EPA's analysis in the proposal of projected 
technology usage, and supported the view that the 2016 model year 
standards were feasible in the lead-time provided.
---------------------------------------------------------------------------

    \258\ As a side note, one of the benefits for the off-cycle 
technology credits allowed in this final rule is the opportunity 
this flexibility provides for some of these `feature-dense' vehicles 
to generate such credits to assist, to some extent, in the 
companies' ability to comply.
---------------------------------------------------------------------------

    In response to the comments above, EPA foresees no significant 
technical or engineering issues with the projected deployment of these 
technologies across the fleet by MY 2016, with their incorporation 
being folded into the vehicle redesign process (with the exception of 
some of the small volume manufacturers). All of these technologies are 
commercially available now. The automotive industry has already begun 
to convert its port fuel-injected gasoline engines to direct injection. 
Cylinder deactivation and turbocharging technologies are already 
commercially available. As indicated in Table III.D.6-1, high-speed 
transmissions are already widely used. However, while more common in 
Europe, automated manual transmissions are not currently used 
extensively in the U.S. Widespread use of this technology would require 
significant capital investment but does not present any significant 
technical or engineering issues. Start-stop systems based on a 42-volt 
architecture also represent a challenge because of the complications 
involved in a changeover to a higher voltage electrical architecture. 
However, with appropriate capital investments (which are captured in 
the EPA estimated costs), these technology penetration rates are 
achievable within the timeframe of this rule. While most manufacturers 
have some plans for these systems, our projections indicate that their 
use may exceed 35% of sales, with some manufacturers projected to use 
higher levels.
    Most manufacturers are not projected to hybridize any vehicles to 
comply with the final standards. The hybrids shown for Toyota are 
projected to be sold even in the absence of the final standards. 
However the relatively high hybrid penetrations (14-15%) projected for 
BMW, Daimler, Porsche, Tata and Volkswagen deserve further discussion. 
These manufacturers are all projected by the OMEGA model to utilize the 
maximum application of full hybrids allowed by our model in this 
timeframe, which is 15 percent.
    As discussed in the EPA RIA, a maximum 2016 technology penetration 
rate of 85% is projected for the vast majority of available 
technologies, however, for full hybrid systems the projection shows 
that given the available lead-time full hybrids can only be applied to 
approximately 15% of a manufacturer's fleet. This number of course can 
vary by manufacturer. Hybrids are a relatively costly technology option 
which requires significant changes to a vehicle's powertrain design, 
and EPA estimates that manufacturers will require a significant amount 
of lead time and capital investment to introduce this technology into 
the market in very large numbers. Thus the EPA captures this 
significant change in production facilities with a lower penetration 
cap. A more thorough discussion of lead time limitations can be found 
below and in Section III.B.5.
    While the hybridization levels of BMW, Daimler, Porsche, Tata and 
Volkswagen are relatively high, the sales levels of these five 
manufacturers are relatively low. Thus, industry-wide, hybridization 
reaches only 4 percent, compared with 3 percent in the reference case. 
This 4 percent level is believed to be well within the capability of 
the hybrid component industry by 2016. Thus, the primary challenge for 
these five companies would be at the manufacturer level, redesigning a 
relatively large percentage of sales to include hybrid technology. The 
final TLAAS provisions will provide significant needed lead time to 
these manufacturers for pre-2016 compliance, since all qualified 
companies are able to take advantage of these provisions.
    By 2016, it is likely that these manufacturers would also be able 
to

[[Page 25462]]

change vehicle characteristics which currently cause their vehicles to 
emit much more CO2 than similar sized vehicles produced by 
other manufacturers. These factors may include changes in model mix, 
further mass reduction, electric and/or plug-in hybrid vehicles as well 
as technologies that may not be included in our packages. Also, 
companies may have technology penetration rates of less costly 
technologies (listed in the above tables) greater than 85%, and they 
may also be able to apply hybrid technology to more than 15 percent of 
their fleet (while the 15% cap on the application of hybrid technology 
is reasonable for the industry as a whole, higher percentages are 
certainly possible for individual manufacturers, particularly those 
with small volumes). For example, a switch to a low GWP alternative 
refrigerant in a large fraction of a fleet can replace many other much 
more costly technologies, but this option is not captured in the 
modeling. In addition, these manufacturers can also take advantage of 
flexibilities, such as early credits for air conditioning and trading 
with other manufacturers.
    EPA believes it is likely that there will be certain high volume 
manufacturers that will earn a significant amount of early GHG credits 
starting in 2010 that would expire 5 years later, by 2015, unused. It 
is possible that these manufacturers may be willing to sell these 
credits to manufacturers with whom there is little or no direct 
competition.\259\ Furthermore, a large number of manufacturers have 
also stated publicly that they support the 2016 standards. The 
following companies have all submitted letters in support of the 
national program, including the 2016 MY levels discussed above: BMW, 
Chrysler, Daimler, Ford, GM, Nissan, Honda, Mazda, Toyota, and 
Volkswagen. This supports the view that the emissions reductions needed 
to achieve the standards are technically and economically feasible for 
all these companies, and that EPA's projection of model year 2016 non-
compliance for BMW, Daimler, and Volkswagen is based on an inability of 
our model at this time to fully account for the full flexibilities of 
the EPA program as well as the potentially unique technology approaches 
or new product offerings which these manufacturers are likely to 
employ.
---------------------------------------------------------------------------

    \259\ For example, a manufacturer that only sells electric 
vehicles may very well sell the credits they earn to another 
manufacturer that does not sell any electric vehicles.
---------------------------------------------------------------------------

    In addition, manufacturers do not need to apply technology exactly 
according to our projections. Our projections simply indicate one path 
which would achieve compliance. Those manufacturers whose vehicles are 
heavier (feature dense) and higher performing than average in 
particular have additional options to facilitate compliance and reduce 
their technological burden closer to the industry average. These 
options include decreasing the mass of the vehicles and/or decreasing 
the power output of the engines. Finally, EPA allows compliance to be 
shown through the use of emission credits obtained from other 
manufacturers. Especially for the lower volume sales of some 
manufacturers that could be one component of an effective compliance 
strategy, reducing the technology that needs to be employed on their 
vehicles.
    For light-duty cars and trucks, manufacturers have available to 
them a range of technologies that are currently commercially available 
and can feasibly be employed in their vehicles by MY 2016. Our modeling 
projects widespread use of these technologies as a technologically 
feasible approach to complying with the final standards. Comments from 
the manufacturers provided broad support for this conclusion. A limited 
number of commenters presented specific concerns about their technology 
opportunities, and EPA has described above (and elsewhere in the rule) 
the paths available for them to comply.
    In sum, EPA believes that the emissions reductions called for by 
the final standards are technologically feasible, based on projections 
of widespread use of commercially available technology, as well as use 
by some manufacturers of other technology approaches and compliance 
flexibilities not fully reflected in our modeling.
    EPA also projected the cost associated with these projections of 
technology penetration. Table III.D.6-4 shows the cost of technology in 
order for manufacturers to comply with the 2011 MY CAFE standards, as 
well as those associated with the final 2016 CO2 emission 
standards. The latter costs are incremental to those associated with 
the 2011 MY standards and also include $60 per vehicle, on average, for 
the cost of projected use of improved air-conditioning systems.\260\
---------------------------------------------------------------------------

    \260\ Note that the actual cost of the A/C technology is 
estimated at $71 per vehicle as shown in Table III.D.2-3. However, 
we expect only 85 percent of the fleet to add that technology. 
Therefore, the cost of the technology when spread across the entire 
fleet is $60 per vehicle ($71 x 85% = $60).

                                             Table III.D.6-4--Cost of Technology per Vehicle in 2016 ($2007)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           2011 MY CAFE standards, relative to  2008 MY   Final 2016 CO2 standards, relative to  2011 MY
                                                         ------------------------------------------------                 CAFE standards
                                                                                                         -----------------------------------------------
                                                               Cars           Trucks            All            Cars           Trucks            All
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.....................................................            $346            $423            $368          $1,558          $1,195          $1,453
Chrysler................................................              33             116              77           1,129           1,501           1,329
Daimler.................................................             468             683             536           1,536             931           1,343
Ford....................................................              73             161             106           1,108           1,442           1,231
General Motors..........................................              31             181             102             899           1,581           1,219
Honda...................................................               0               0               0             635             473             575
Hyundai.................................................               0              69              10             802             425             745
Kia.....................................................               0              42               7             667             247             594
Mazda...................................................               0               0               0             855             537             808
Mitsubishi..............................................             328             246             295             817           1,218             978
Nissan..................................................               0              61              18             686           1,119             810
Porsche.................................................             473             706             550           1,506             759           1,257
Subaru..................................................              68              62              66             962             790             899
Suzuki..................................................              49             232              79           1,015             537             937
Tata....................................................             611           1,205             845           1,181             680             984
Toyota..................................................               0               0               0             381             609             455
Volkswagen..............................................             228             482             272           1,848             972           1,694

[[Page 25463]]

Overall.................................................              63             138              89             870           1,099             948
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As can be seen, the industry average cost of complying with the 
2011 MY CAFE standards is quite low, $89 per vehicle. This cost is $11 
per vehicle higher than that projected in the NPRM. This change is very 
small and is due to several factors, mainly changes in the projected 
sales of each manufacturer's specific vehicles, and changes in 
estimated technology costs. Similar to the costs projected in the NPRM, 
the range of costs across manufacturers is quite large. Honda, Mazda 
and Toyota are projected to face no cost. In contrast, Mitsubishi, 
Porsche, Tata and Volkswagen face costs of at least $272 per vehicle. 
As described above, three of these last four manufacturers (all but 
Mitsubishi) face high costs to meet even the 2011 MY CAFE standards due 
to either their vehicles' weight per unit footprint or performance. 
Porsche would have been projected to face lower costs in 2016 if they 
were not expected to pay CAFE fines in 2011.
    As shown in the last row of Table III.D.6-4, the average cost of 
technology to meet the final 2016 standards for cars and trucks 
combined relative to the 2011 MY CAFE standards is $948 per vehicle. 
This is $103 lower than that projected in the NPRM, due primarily to 
lower technology cost projections for the final rule compared to the 
NPRM for certain technologies. (See Chapter 1 of the Joint TSD for a 
detailed description of how our technology costs for the final rule 
differ from those used in the NPRM). As was the case in the NPRM, Table 
III.D.6-4 shows that the average cost for cars would be slightly lower 
than that for trucks. Toyota and Honda show projected costs 
significantly below the average, while BMW, Porsche, Tata and 
Volkswagen show significantly higher costs. On average, the $948 per 
vehicle cost is significant, representing 3.4 percent of the total cost 
of a new vehicle. However, as discussed below, the fuel savings 
associated with the final standards exceed this cost significantly. In 
general, commenters supported EPA's cost projections, as discussed in 
Section II.
    While the CO2 emission compliance modeling using the 
OMEGA model focused on the final 2016 MY standards, the final standards 
for 2012-2015 are also feasible. As discussed above, manufacturers 
develop their future vehicle designs with several model years in view. 
Generally, the technology estimated above for 2016 MY vehicles 
represents the technology which would be added to those vehicles which 
are being redesigned in 2012-2015. The final CO2 standards 
for 2012-2016 reduce CO2 emissions at a fairly steady rate. 
Thus, manufacturers which redesign their vehicles at a fairly steady 
rate will automatically comply with the interim standard as they plan 
for compliance in 2016.
    Manufacturers which redesign much fewer than 20% of their sales in 
the early years of the final program would face a more difficult 
challenge, as simply implementing the ``2016 MY'' technology as 
vehicles are redesigned may not enable compliance in the early years. 
However, even in this case, manufacturers would have several options to 
enable compliance. One, they could utilize the debit carry-forward 
provisions described above. This may be sufficient alone to enable 
compliance through the 2012-2016 MY time period, if their redesign 
schedule exceeds 20% per year prior to 2016. If not, at some point, the 
manufacturer might need to increase their use of technology beyond that 
projected above in order to generate the credits necessary to balance 
the accrued debits. For most manufacturers representing the vast 
majority of U.S. sales, this would simply mean extending the same 
technology to a greater percentage of sales. The added cost of this in 
the later years of the program would be balanced by lower costs in the 
earlier years. Two, the manufacture could take advantage of the many 
optional credit generation provisions contained in this final rule, 
including early-credit generation for model years 2009-2011, credits 
for advanced technology vehicles, and credits for the application of 
technology which result in off-cycle GHG reductions. Finally, the 
manufacturer could buy credits from another manufacturer. As indicated 
above, several manufacturers are projected to require less stringent 
technology than the average. These manufacturers would be in a position 
to provide credits at a reasonable technology cost. Thus, EPA believes 
the final standards for 2012-2016 would be feasible. Further discussion 
of the technical feasibility of the interim year standards, including 
for smaller volume manufacturers can be found in Section III.B, in the 
discussion on the Temporary Leadtime Allowance Alternative Standards.
7. What other fleet-wide CO2 levels were considered?
    Two alternative sets of CO2 standards were considered. 
One set would reduce CO2 emissions at a rate of 4 percent 
per year. The second set would reduce CO2 emissions at a 
rate of 6 percent per year. The analysis of these standards followed 
the exact same process as described above for the final standards. The 
only difference was the level of CO2 emission standards. The 
footprint-based standard coefficients of the car and truck curves for 
these two alternative control scenarios were discussed above. The 
resultant projected CO2 standards in 2016 for each 
manufacturer under these two alternative scenarios and under the final 
rule are shown in Table III.D.7-1.

                 Table III.D.7-1--Overall Average CO2 Emission Standards by Manufacturer in 2016
----------------------------------------------------------------------------------------------------------------
                                                               4% per year       Final Rule        6% per year
----------------------------------------------------------------------------------------------------------------
BMW.......................................................               248               244               224
Chrysler..................................................               270               266               245
Daimler...................................................               260               256               236
Ford......................................................               261               257               237
General Motors............................................               275               271               250
Honda.....................................................               248               244               224

[[Page 25464]]

Hyundai...................................................               234               231               212
Kia.......................................................               239               236               217
Mazda.....................................................               232               228               210
Mitsubishi................................................               244               239               219
Nissan....................................................               250               245               226
Porsche...................................................               237               233               213
Subaru....................................................               238               234               214
Suzuki....................................................               222               218               199
Tata......................................................               263               259               239
Toyota....................................................               249               245               225
Volkswagen................................................               236               232               213
Overall...................................................               254               250               230
----------------------------------------------------------------------------------------------------------------

    Tables III.D.7-2 and III.D.7-3 show the technology penetration 
levels for the 4 percent per year and 6 percent per year standards in 
2016.

                          Table III.D.7-2--Technology Penetration--4% per Year CO2 Standards in 2016: Cars and Trucks Combined
                                                                      [In percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Dual                                Mass
                                                  GDI      OHC-DEAC      Turbo      Diesel      6 Speed     clutch    Start-stop    Hybrid     reduction
                                                                                              auto trans     trans                                (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.........................................          80          21          61           6          13          63          65          14           5
Chrysler....................................          67          13          17           0          26          52          54           0           6
Daimler *...................................          76          30          53           5          12          72          67          14           5
Ford........................................          77          18          16           0          25          58          59           0           5
General Motors..............................          62          24          11           0           7          57          57           0           5
Honda.......................................          44           6           2           0           0          49          15           2           2
Hyundai.....................................          52           0           1           0           3          52          28           0           3
Kia.........................................          37           0           1           0           0          57           0           0           2
Mazda.......................................          79           0          14           1          17          66          60           0           5
Mitsubishi..................................          85           0          31           0          16          72          72           0           6
Nissan......................................          69           7          11           0           2          64          61           1           6
Porsche *...................................          83          15          62           8           5          45          62          15           4
Subaru......................................          72           0           9           0           0          70          37           0           3
Suzuki......................................          70           0           0           0           3          67          67           0           3
Tata *......................................          85          55          27           0          14          70          70          15           5
Toyota......................................          15           7           0           0          13          30           7          12           1
Volkswagen *................................          82          18          71          11          10          68          60          15           4
Overall.....................................          56          13          14           1          11          53          41           4           4
Increase over 2011 CAFE.....................          46          11           7           1          -5          46          38           2           4
--------------------------------------------------------------------------------------------------------------------------------------------------------
\*\ These manufacturers were unable to meet the final 2016 standards with the imposed caps on technology.

                      Table III.D.7-3--Technology Penetration--6% per Year Alternative Standards in 2016: Cars and Trucks Combined
                                                                      [In percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Dual                                Mass
                                                  GDI      OHC-DEAC      Turbo      Diesel      6 Speed     clutch    Start-stop    Hybrid     reduction
                                                                                              auto trans     trans                                (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW *.......................................          80          21          61           6          13          63          65          14           5
Chrysler....................................          85          13          50           0           3          82          83           2           8
Daimler *...................................          76          30          53           5          12          72          67          14           5
Ford*.......................................          85          13          57           0           4          74          75          10           7
General Motors..............................          85          25          43           0           2          83          83           2           8
Honda.......................................          68           6          10           0           1          65          65           2           6
Hyundai.....................................          73           1          12           0           9          64          64           0           5
Kia.........................................          62           0           1           0           0          62          61           0           5
Mazda.......................................          85           0          19           1           4          80          82           0           7
Mitsubishi *................................          85           4          42           0           4          75          75          10           7
Nissan......................................          85           8          38           0           0          78          81           4           8
Porsche *...................................          83          15          62           8           5          45          62          15           4
Subaru......................................          84           0          18           1           3          79          80           0           6
Suzuki......................................          85           0          85           0           0          85          85           0           8
Tata *......................................          85          55          27           0          14          70          70          15           5
Toyota......................................          71           7           5           0          20          49          47          12           4

[[Page 25465]]

Volkswagen *................................          82          18          71          11          10          68          60          15           4
Overall.....................................          79          12          33           1           7          69          69           6           6
Increase over 2011 CAFE.....................          69          10          26           1          -9          62          66           4           6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* These manufacturers were unable to meet the final 2016 standards with the imposed caps on technology.

    With respect to the 4 percent per year standards, the levels of 
requisite control technology are lower than those under the final 
standards, as would be expected. Industry-wide, the largest decreases 
were a 7 percent decrease in use of gasoline direct injection engines, 
a 4 percent decrease in the use of dual clutch transmissions, and a 2 
percent decrease in the application of start-stop technology. On a 
manufacturer specific basis, the most significant decreases were a 10 
percent or larger decrease in the use of stop-start technology for 
Honda, Kia, Mitsubishi and Suzuki and a 12 percent drop in turbocharger 
use for Mitsubishi. These are relatively small changes and are due to 
the fact that the 4 percent per year standards only require 4 g/mi 
CO2 less control than the final standards in 2016. Porsche, 
Tata and Volkswagen continue to be unable to comply with the 
CO2 standards in 2016, even under the 4 percent per year 
standard scenario. BMW just complied under this scenario, so its costs 
and technology penetrations are the same as under the final standards.
    With respect to the 6 percent per year standards, the levels of 
requisite control technology increased substantially relative to those 
under the final standards, as again would be expected. Industry-wide, 
the largest increase was a 25 percent increase in the application of 
start-stop technology and 13-17 percent increases in the use of 
gasoline direct injection engines, turbocharging and dual clutch 
transmissions. On a manufacturer specific basis, the most significant 
increases were a 10 percent increase in hybrid penetration for Ford and 
Mitsubishi. These are more significant changes and are due to the fact 
that the 6 percent per year standards require 20 g/mi CO2 
more control than the final standards in 2016. Our projections for BMW, 
Porsche, Tata and Volkswagen continue to show they are unable to comply 
with the CO2 standards in 2016, so our projections for these 
manufacturers do not differ relative to the final standards, though the 
amount of short-fall for each firm increases significantly, by an 
additional 20 g/mi CO2 per firm. However, Ford and 
Mitsubishi join this list as can be seen from Figure III.D.6-2. The 
CO2 emissions from Ford's cars are very similar to those of 
the industry when adjusted for technology, weight and performance. 
However, their trucks emit more than 25% more CO2 per mile 
than the industry average. It is possible that addressing this issue 
would resolve their difficulty in complying with the 6 percent per year 
scenario. Both Mitsubishi's cars and truck emit roughly 10% more than 
the industry average vehicles after adjusting for technology, weight 
and performance. Again, addressing this issue could resolve their 
difficulty in complying with the 6 percent per year scenario. Five 
manufacturers are projected to need to increase their use of start-stop 
technology by at least 30 percent.
    Table III.D.7-4 shows the projected cost of the two alternative 
sets of standards.

                                   Table III.D.7-4--Technology Cost per Vehicle in 2016--Alternative Standards ($2007)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          4 Percent per year standards, relative to 2011  6 Percent per year standards, relative to 2011
                                                                         MY CAFE standards                               MY CAFE standards
                                                         -----------------------------------------------------------------------------------------------
                                                               Cars           Trucks            All            Cars           Trucks            All
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.....................................................          $1,558          $1,195          $1,453          $1,558          $1,195          $1,453
Chrysler................................................           1,111           1,236           1,178           1,447           2,156           1,827
Daimler.................................................           1,536             931           1,343           1,536             931           1,343
Ford....................................................           1,013           1,358           1,140           1,839           2,090           1,932
General Motors..........................................             834           1,501           1,148           1,728           2,030           1,870
Honda...................................................             598             411             529             894             891             893
Hyundai.................................................             769             202             684           1,052           1,251           1,082
Kia.....................................................             588             238             527           1,132             247             979
Mazda...................................................             766             537             733           1,093           1,083           1,092
Mitsubishi..............................................             733           1,164             906           1,224           1,840           1,471
Nissan..................................................             572           1,119             729           1,151           1,693           1,306
Porsche.................................................           1,506             759           1,257           1,506             759           1,257
Subaru..................................................             962             616             836           1,173           1,316           1,225
Suzuki..................................................           1,015             179             879           1,426           1,352           1,414
Tata....................................................           1,181             680             984           1,181             680             984
Toyota..................................................             323             560             400             747             906             799
Volkswagen..............................................           1,848             972           1,694           1,848             972           1,694
Overall.................................................             811           1,020             883           1,296           1,538           1,379
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 25466]]

    As can be seen, the average cost of the 4 percent per year 
standards is only $65 per vehicle less than that for the final 
standards. This incremental cost is very similar to that projected in 
the NPRM. In contrast, the average cost of the 6 percent per year 
standards is over $430 per vehicle more than that for the final 
standards, which is $80 less than that projected in the NPRM (again due 
to lower technology costs). Compliance costs are entering the region of 
non-linearity. The $65 cost savings of the 4 percent per year standards 
relative to the final rule represents $19 per g/mi CO2 
increase. The $430 cost increase of the 6 percent per year standards 
relative to the final rule represents a 25 per g/mi CO2 
increase. More importantly, two additional manufacturers, Ford and 
Mitsubishi, are projected to be unable to comply with the 6% per year 
standards. In addition, under the 6% per year standards, four 
manufacturers (Chrysler, General Motors, Suzuki and Nissan) are within 
2 g/mi CO2 of the minimum achievable levels projected by 
EPA's OMEGA model analysis for 2016.
    EPA does not believe the 4% per year alternative is an appropriate 
standard for the MY 2012-2016 time frame. As discussed above, the 250 
g/mi final rule is technologically feasible in this time frame at 
reasonable costs, and provides higher GHG emission reductions at a 
modest cost increase over the 4% per year alternative (less than $100 
per vehicle). In addition, the 4% per year alternative does not result 
in a harmonized National Program for the country. Based on California's 
letter of May 18, 2009, the emission standards under this alternative 
would not result in the State of California revising its regulations 
such that compliance with EPA's GHG standards would be deemed to be in 
compliance with California's GHG standards for these model years. Thus, 
the consequence of promulgating a 4% per year standard would be to 
require manufacturers to produce two vehicle fleets: A fleet meeting 
the 4% per year Federal standard, and a separate fleet meeting the more 
stringent California standard for sale in California and the section 
177 states. This further increases the costs of the 4% per year 
standard and could lead to additional difficulties for the already 
stressed automotive industry.
    EPA also does not believe the 6% per year alternative is an 
appropriate standard for the MY 2012-2016 time frame. As shown in 
Tables III.D.7-3 and III.D.7-4, the 6% per year alternative represents 
a significant increase in both the technology required and the overall 
costs compared to the final standards. In absolute percent increases in 
the technology penetration, compared to the final standards the 6% per 
year alternative requires for the industry as a whole: An 18% increase 
in GDI fuel systems, an 11% increase in turbo-downsize systems, a 6% 
increase in dual-clutch automated manual transmissions (DCT), and a 9% 
increase in start-stop systems. For a number of manufacturers the 
expected increase in technology is greater: For GM, a 15% increase in 
both DCTs and start-stop systems, for Nissan a 9% increase in full 
hybrid systems, for Ford an 11% increase in full hybrid systems, for 
Chrysler a 34% increase in both DCT and start-stop systems and for 
Hyundai a 23% increase in the overall penetration of DCT and start-stop 
systems. For the industry as a whole, the per-vehicle cost increase for 
the 6% per year alternative is nearly $500. On average this is a 50% 
increase in costs compared to the final standards. At the same time, 
CO2 emissions would be reduced by about 8%, compared to the 
250 g/mi target level.
    As noted above, EPA's OMEGA model predicts that for model year 
2016, Ford, Mitsubishi, Mercedes, BMW, Volkswagen, Jaguar-Land Rover, 
and Porsche do not meet their target under the 6 percent per year 
scenario. In addition, Chrysler, General Motors, Suzuki and Nissan all 
are within 2 grams/mi CO2 of maximizing the applicable 
technology allowed under EPA's OMEGA model--that is, these companies 
have almost no head-room for compliance. In total, these 11 companies 
represent more than 58 percent of total 2016 projected U.S. light-duty 
vehicle sales. This provides a strong indication that the 6 percent per 
year standard is much more stringent than the final standards, and 
presents a significant risk of non-compliance for many firms, including 
four of the seven largest firms by U.S. sales.
    These technology and cost increases are significant, given the 
amount of lead-time between now and model years 2012-2016. In order to 
achieve the levels of technology penetration for the final standards, 
the industry needs to invest significant capital and product 
development resources right away, in particular for the 2012 and 2013 
model year, which is only 2-3 years from now. For the 2014-2016 time 
frame, significant product development and capital investments will 
need to occur over the next 2-3 years in order to be ready for 
launching these new products for those model years. Thus a major part 
of the required capital and resource investment will need to occur now 
and over the next few years, under the final standards. EPA believes 
that the final rule (a target of 250 gram/mile in 2016) already 
requires significant investment and product development costs for the 
industry, focused on the next few years.
    It is important to note, and as discussed later in this preamble, 
as well as in the Joint Technical Support Document and the EPA 
Regulatory Impact Analysis document, the average model year 2016 per-
vehicle cost increase of nearly $500 includes an estimate of both the 
increase in capital investments by the auto companies and the suppliers 
as well as the increase in product development costs. These costs can 
be significant, especially as they must occur over the next 2-3 years. 
Both the domestic and transplant auto firms, as well as the domestic 
and world-wide automotive supplier base, is experiencing one of the 
most difficult markets in the U.S. and internationally that has been 
seen in the past 30 years. One major impact of the global downturn in 
the automotive industry and certainly in the U.S. is the significant 
reduction in product development engineers and staffs, as well as a 
tightening of the credit markets which allow auto firms and suppliers 
to make the near-term capital investments necessary to bring new 
technology into production. The 6% per year alternative standard would 
impose significantly increased pressure on capital and other resources, 
indicating it is too stringent for this time frame, given both the 
relatively limited amount of lead-time between now and model years 
2012-2016, the need for much of these resources over the next few 
years, as well the current financial and related circumstances of the 
automotive industry. EPA is not concluding that the 6% per year 
alternative standards are technologically infeasible, but EPA believes 
such standards for this time frame would be overly stringent given the 
significant strain it would place on the resources of the industry 
under current conditions. EPA believes this degree of stringency is not 
warranted at this time. Therefore EPA does not believe the 6% per year 
alternative would be an appropriate balance of various relevant factors 
for model years 2012-1016.
    Jaguar/Land Rover, in their comments, agreed that the more 
stringent standards would not be economically practicable, and several 
automotive firms indicated that the proposed standards, while feasible, 
would be overly challenging.\261\ On the other hand, the Center for 
Biological Diversity (henceforth referred to here as CBD), strongly 
urged EPA to adopt more

[[Page 25467]]

stringent standards. CBD gives examples of higher standards in other 
nations to support their contention that the standards should be more 
stringent. CBD also claims that the agencies are ``setting standards 
that deliberately delay implementation of technology that is available 
now'' by setting lead time for the rule greater than 18 months. CBD 
also accuses the agencies of arbitrarily ``adhering to strict five-year 
manufacturer `redesign cycles.' '' CBD notes that the agencies have 
stated that all of the ``technologies are already available today,'' 
and EPA and NHTSA's assessment is that manufacturers ``would be able to 
meet the proposed standards through more widespread use of these 
technologies across the fleet.'' Based on the agencies' previous 
statements, CBD concludes that the fleet can meet the 250 g/mi target 
in 2010. EPA believes that in all cases, CBD's analysis for feasibility 
and necessary lead time is flawed.
---------------------------------------------------------------------------

    \261\ See comments from Toyota, General Motors.
---------------------------------------------------------------------------

    Other countries' absolute fleetwide standards are not a reliable or 
directly relevant comparison. The fleet make-up in other nations is 
quite different than that of the United States. CBD primarily cites the 
European Union and Japan as examples. Both of these regions have a 
large fraction of small vehicles (with lower average weight, and 
footprint size) when compared to vehicles in the U.S. Also the U.S. has 
a much greater fraction of light-duty trucks. In particular in Europe, 
there is a much higher fraction of diesel vehicles in the existing 
fleet, which leads to lower CO2 emissions in the baseline 
fleet as compared to the U.S. This is in large part due to the 
significantly different fuel prices seen in Europe as compared to the 
U.S. The European fleet also has a much higher penetration of manual 
transmission than the U.S., which also results in lower CO2 
emissions. Moreover, these countries use different test cycles, which 
bias CO2 emissions relative to the EPA 2 cycle test cycles. 
When looked at from a technology-basis, with the exception of the 
existing large penetration of diesels and manual transmissions in the 
European fleet--there is no ``magic'' in the European and Japanese 
markets which leads to lower fleet-wide CO2 emissions. In 
fact, from a technology perspective, the standards contained in this 
final rule are premised to a large degree on the same technologies 
which the European and Japanese governments have relied upon to 
establish their CO2 and fuel economy limits for this same 
time frame and for the fleet mixes in their countries. That is for 
example, large increases in the use of 6+ speed transmissions, 
automated manual transmissions, gasoline direct injection, engine 
downsizing and turbocharging, and start-stop systems. CBD has not 
provided any detailed analysis of what technologies are available in 
Europe which EPA is not considering--and there are no such ``magic'' 
technologies. The vast majority of the differences between the current 
and future CO2 performance of the Japanese and European 
light-duty vehicle fleets are due to differences in the size and 
current composition of the vehicle fleets in those two regions--not 
because EPA has ignored technologies which are available for 
application to the U.S. market in the 2012-2016 time frame.
    If CBD is advocating a radical reshifting of domestic fleet 
composition, (such as requiring U.S. consumers to purchase much smaller 
vehicles and requiring U.S. consumers to purchase vehicles with manual 
transmissions), it is sufficient to say that standards forcing such a 
result are not compelled under section 202(a), where reasonable 
preservation of consumer choice remains a pertinent factor for EPA to 
consider in balancing the relevant statutory factors. See also 
International Harvester (478 F. 2d at 640 (Administrator required to 
consider issues of basic demand for new passenger vehicles in making 
technical feasibility and lead time determinations). Thus EPA believes 
that the standard is at the proper level of stringency for the 
projected domestic fleet in the 2012-2016 model years taking into 
account the wide variety of consumer choice that is reflected in this 
projection of the domestic fleet.
    As mentioned earlier (in III.D.4), CBD's comments on available lead 
time also are inaccurate. Under section 202(a), standards are to take 
effect only ``after providing 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.'' Having sufficient lead time includes among other 
things, the time required to certify vehicles. For example, model year 
2012 vehicles will be tested and certified for the EPA within a short 
time after the rule is finalized, and this can start as early as 
calendar year 2010, for MY 2012 vehicles that can be produced in 
calendar year 2011. In addition, these 2012 MY vehicles have already 
been fully designed, with prototypes built several years earlier. It 
takes several years to redesign a vehicle, and several more to design 
an entirely new vehicle not based on an existing platform. Thus, 
redesign cycles are an inextricable component of adequate lead time 
under the Act. A full line manufacturer only has limited staffing and 
financial resources to redesign vehicles, therefore the redesigns are 
staggered throughout a multi-year period to optimize human 
capital.\262\ Furthermore, redesigns require a significant outlay of 
capital from the manufacturer. This includes research and development, 
material and equipment purchasing, overhead, benefits, etc. These costs 
are significant and are included in the cost estimates for the 
technologies in this rule. Because of the manpower and financial 
capital constraints, it would only be possible to redesign all the 
vehicles across a manufacturer's line simultaneously if the 
manufacturer has access to tremendous amounts of ready capital and an 
unrealistically large engineering staff. However no major automotive 
firm in the world has the capability to undertake such an effort, and 
it is unlikely that the supplier basis could support such an effort if 
it was required by all major automotive firms. Even if this unlikely 
condition were possible, the large engineering staff would then have to 
be downsized or work on the next redesign of the entire line another 
few years later. This would have the effect of increasing the cost of 
the vehicles.
---------------------------------------------------------------------------

    \262\ See for example ``How Automakers Plan Their Products'', 
Center for Automotive Research, July 2007.
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    There is much evidence to indicate that the average redesign cycle 
in the industry is about 5 years.\263\ There are some manufacturers who 
have longer cycles (such as smaller manufacturers described above), and 
there are others who have shorter cycles for some of their products. 
EPA believes that there are no full line manufacturers who can maintain 
significant redesigns of vehicles (with relative large sales) in 1 or 2 
years, and CBD has provided no evidence indicating this is technically 
feasible. A complete redesign of the entire U.S. light-duty fleet by 
model year 2012 is clearly infeasible, and EPA believes that several 
model years additional lead time is necessary in order for the 
manufacturers to meet the standards. The graduated increase in the 
stringency of the standards from MYs 2012 through 2016 accounts for 
this needed lead time.
---------------------------------------------------------------------------

    \263\ See for example ``Car Wars 2010-2013, The U.S. automotive 
product pipeline'', John Murphy, Research Analyst, Bank of America/
Merrill Lynch research paper, July 15, 2009.
---------------------------------------------------------------------------

    There are other reasons that the fleet cannot meet the 250g/mi 
CO2 target in 2012 (much less in 2010). The commenter 
reasons that if technology is in use now--even if limited use--it can

[[Page 25468]]

be utilized across the fleet nearly immediately. This is not the case. 
An immediate demand from original equipment manufacturers (OEMs) to 
supply 100% of the fleet with these technologies in 2012 would cause 
their suppliers to encounter the same lead time issues discussed above. 
Suppliers have limited capacity to change their current production over 
to the newer technologies quickly. Part of this reason is due to 
engineering, cost and manpower constraints as described above, but 
additionally, the suppliers face an issue of ``stranded capital''. This 
is when the basic tooling and machines that produce the technologies in 
question need to be replaced. If these tools and machines are replaced 
before they near the end of their useful life, the suppliers are left 
with ``stranded capital'' i.e., a significant financial loss because 
they are replacing perfectly good equipment with newer equipment. This 
situation can also occur for the OEMs. In an extreme example, a plant 
that switches over from building port fuel injected gasoline engines to 
building batteries and motors, will require a nearly complete retooling 
of the plant. In a less extreme example, a plant that builds that same 
engine and switches over to suddenly building smaller turbocharged 
direct injection engines with starter alternators might have 
significant retooling costs as well as stranded capital. Finally, it 
takes a significant amount of time to retool a factory and smoothly 
validate the tooling and processes to mass produce a replacement 
technology. This is why most manufacturers do this process over time, 
replacing equipment as they wear out. CBD has not accounted for any of 
these considerations. EPA believes that attempting to force the types 
of massive technology penetration needed in the early model years of 
the standard to achieve the 2016 standards would be physically and cost 
prohibitive.
    A number of automotive firms and associations (including the 
Alliance of Automobile Manufacturers, Mercedes, and Toyota) commented 
that the standards during the early model years, in particular MY 2012, 
are too stringent, and that a more linear phase-in of the standards 
beginning with the MY 2011 CAFE standards and ending with the 250 gram/
mi proposed EPA projected fleet-wide level in MY 2016 is more 
appropriate. In the May 19, 2009 Joint Notice of Intent, EPA and NHTSA 
stated that the standards would have ``* * * a generally linear phase-
in from MY 2012 through to model year 2016.'' (74 FR 24008). The 
Alliance of Automobile Manufacturers stated that the phase-in of the 
standards is not linear, and they proposed a methodology for the CAFE 
standards to be a linear progression from MY 2011 to MY 2016. The 
California Air Resources Board commented that the proposed level of 
stringency, including the EPA proposed standards for MY 2012-2015, were 
appropriate and urged EPA to finalize the standards as proposed and not 
reduce the stringency in the early model years as this would result in 
a large loss of the GHG reductions from the National Program. EPA 
agrees with the comments from CARB, and we have not reduced the 
stringency of the program for the early model years. While some 
automotive firms indicated a desire to see a linear transition from the 
Model Year 2011 CAFE standards, our technology and cost analysis 
indicates that our standards are appropriate for these interim years. 
As shown in Section III.H of this final rule, the final standards 
result in significant GHG reductions, including the reductions from MY 
2012-2015, and at reasonable costs, providing appropriate lead time. 
The automotive industry commenters did not point to a specific 
technical issue with the standards, but rather their desire for a 
linear phase-in from the existing 2011 CAFE standards.
    In summary, the EPA believes that the MY 2012-2016 standards 
finalized are feasible and that there are compelling reasons not to 
adopt more stringent standards, based on a reasonable weighing of the 
statutory factors, including available technology, its cost, and the 
lead time necessary to permit its development and application. For 
further discussion of these issues, see Chapter 4 of the RIA as well as 
the response to comments.

E. Certification, Compliance, and Enforcement

1. Compliance Program Overview
    This section describes EPA's comprehensive program to ensure 
compliance with emission standards for carbon dioxide (CO2), 
nitrous oxide (N2O), and methane (CH4), as 
described in Section III.B. An effective compliance program is 
essential to achieving the environmental and public health benefits 
promised by these mobile source GHG standards. EPA's GHG compliance 
program is designed around two overarching priorities: (1) To address 
Clean Air Act (CAA) requirements and policy objectives; and (2) to 
streamline the compliance process for both manufacturers and EPA by 
building on existing practice wherever possible, and by structuring the 
program such that manufacturers can use a single data set to satisfy 
both the new GHG and Corporate Average Fuel Economy (CAFE) testing and 
reporting requirements. The EPA and NHTSA programs recognize, and 
replicate as closely as possible, the compliance protocols associated 
with the existing CAA Tier 2 vehicle emission standards, and with CAFE 
standards. The certification, testing, reporting, and associated 
compliance activities closely track current practices and are thus 
familiar to manufacturers. EPA already oversees testing, collects and 
processes test data, and performs calculations to determine compliance 
with both CAFE and CAA standards. Under this coordinated approach, the 
compliance mechanisms for both programs are consistent and non-
duplicative.
    Vehicle emission standards established under the CAA apply 
throughout a vehicle's full useful life. Today's rule establishes fleet 
average greenhouse gas standards where compliance with the fleet 
average is determined based on the testing performed at time of 
production, as with the current CAFE fleet average. EPA is also 
establishing in-use standards that apply throughout a vehicle's useful 
life, with the in-use standard determined by adding an adjustment 
factor to the emission results used to calculate the fleet average. 
EPA's program will thus not only assess compliance with the fleet 
average standards described in Section III.B, but will also assess 
compliance with the in-use standards. As it does now, EPA will use a 
variety of compliance mechanisms to conduct these assessments, 
including pre-production certification and post-production, in-use 
monitoring once vehicles enter customer service. Specifically, EPA is 
establishing a compliance program for the fleet average that utilizes 
CAFE program protocols with respect to testing, a certification 
procedure that operates in conjunction with the existing CAA Tier 2 
certification procedures, and an assessment of compliance with the in-
use standards concurrent with existing EPA and manufacturer Tier 2 
emission compliance testing programs. Under this compliance program 
manufacturers will also be afforded numerous flexibilities to help 
achieve compliance, both stemming from the program design itself in the 
form of a manufacturer-specific CO2 fleet average standard, 
as well as in various credit banking and trading opportunities, as 
described in Section III.C. EPA received broad comment from regulated 
industry and from the public interest community supporting this overall 
compliance program structure.

[[Page 25469]]

The compliance program is outlined in further detail below.
2. Compliance With Fleet-Average CO2 Standards
    Fleet average emission levels can only be determined when a 
complete fleet profile becomes available at the close of the model 
year. Therefore, EPA will determine compliance with the fleet average 
CO2 standards when the model year closes out, as is 
currently the protocol under EPA's Tier 2 program as well as under the 
current CAFE program. The compliance determination will be based on 
actual production figures for each model and on model-level emissions 
data collected through testing over the course of the model year. 
Manufacturers will submit this information to EPA in an end-of-year 
report which is discussed in detail in Section III.E.5.h below.
    Manufacturers currently conduct their CAFE testing over an entire 
model year to maximize efficient use of testing and engineering 
resources. Manufacturers submit their CAFE test results to EPA and EPA 
conducts confirmatory fuel economy testing at its laboratory on a 
subset of these vehicles under EPA's Part 600 regulations. EPA's 
proposal to extend this approach to the GHG program received 
overwhelming support from vehicle manufacturers. EPA is finalizing GHG 
requirements under which manufacturers will continue to perform the 
model-level testing currently required for CAFE fuel economy 
performance and measure and report the CO2 values for all 
tests conducted.\264\ Manufacturers will submit one data set in 
satisfaction of both CAFE and GHG requirements such that EPA's program 
will not impose additional timing or testing requirements on 
manufacturers beyond that required by the CAFE program. For example, 
manufacturers currently submit fuel economy test results at the 
subconfiguration and configuration levels to satisfy CAFE requirements. 
Now manufacturers will also submit CO2 values for the same 
vehicles. Section III.E.3 discusses how this will be implemented in the 
certification process.
---------------------------------------------------------------------------

    \264\ As discussed in Section III.B.1, vehicle and fleet average 
compliance will be based on a combination of CO2, HC, and 
CO emissions. This is consistent with the carbon balance methodology 
used to determine fuel consumption for the labeling and CAFE 
programs. The final regulations account for these total carbon 
emissions appropriately and refer to the sum of these emissions as 
the ``carbon-related exhaust emissions'' (CREE). Although regulatory 
text uses the more accurate term ``CREE'' to represent the 
CO2-equivalent sum of carbon emissions, the term 
CO2 is used as shorthand throughout Section III.E as a 
more familiar term for most readers.
---------------------------------------------------------------------------

a. Compliance Determinations
    As described in Section III.B above, the fleet average standards 
will be determined on a manufacturer by manufacturer basis, separately 
for cars and trucks, using the footprint attribute curves. EPA will 
calculate the fleet average emission level using actual production 
figures and, for each model type, CO2 emission test values 
generated at the time of a manufacturer's CAFE testing. EPA will then 
compare the actual fleet average to the manufacturer's footprint 
standard to determine compliance, taking into consideration use of 
averaging and credits.
    Final determination of compliance with fleet average CO2 
standards may not occur until several years after the close of the 
model year due to the flexibilities of carry-forward and carry-back 
credits and the remediation of deficits (see Section III.C). A failure 
to meet the fleet average standard after credit opportunities have been 
exhausted could ultimately result in penalties and injunctive orders 
under the CAA as described in Section III.E.6 below.
    EPA received considerable comment about the need for transparency 
in its implementation of the greenhouse gas program and specifically 
about the need for public access to information about Agency compliance 
determinations. Many comments emphasized the importance of making 
greenhouse gas compliance information publicly available to ensure such 
transparency. EPA also received comment from industry about the need to 
protect confidential business information. Both transparency and 
protection of confidential information are longstanding EPA practices, 
and both will remain priorities in EPA's implementation of the 
greenhouse gas program. EPA periodically provides mobile source 
emissions and fuel economy information to the public, for example 
through the annual Compliance Report \265\ and Fuel Economy Trends 
Report.\266\ As proposed, EPA plans to expand these reports to include 
GHG performance and compliance trends information, such as annual 
status of credit balances or debits, use of various credit programs, 
attained fleet average emission levels compared with standards, and 
final compliance status for a model year after credit reconciliation 
occurs. EPA intends to regularly disseminate non-confidential, model-
level and fleet information for each manufacturer after the close of 
the model year. EPA will reassess data release needs and opportunities 
once the program is underway.
---------------------------------------------------------------------------

    \265\ 2007 Progress Report Vehicle and Engine Compliance 
Activities; EPA-420-R-08-011; October 2008. This document is 
available electronically at http://www.epa.gov/otaq/about/
420r08011.pdf.
    \266\ Light-Duty Automotive Technology and Fuel-Economy Trends: 
1975 Through 2008; EPA-420-S-08-003; September 2008. This document 
is available electronically at http://www.epa.gov/otaq/fetrends.htm.
---------------------------------------------------------------------------

    Beyond transparency in reporting emissions data and compliance 
status, EPA is concerned, as a matter of principle moving into a new 
era of greenhouse gas control, that greenhouse gas reductions reported 
for purposes of compliance with the standards adopted in this rule will 
be reflected in the real world and not just as calculated fleet average 
emission levels or measured certification test results. Therefore EPA 
will pay close attention to technical details behind manufacturer 
reports. For example, EPA intends to look closely at each 
manufacturer's certification testing procedures, GHG calculation 
procedures, and laboratory correlation with EPA's laboratory, and to 
carefully review manufacturer pre-production, production, and in-use 
testing programs. In addition, EPA plans to monitor GHG performance 
through its own in-use surveillance program in the coming years. This 
will ensure that the environmental benefits of the rule are achieved as 
well as ensure a level playing field for all.
b. Required Minimum Testing for Fleet Average CO2
    EPA received no public comment on provisions that would extend 
current CAFE testing requirements and flexibilities to the GHG program, 
and is finalizing as proposed minimum testing requirements for fleet 
average CO2 determination. EPA will require and use the same 
test data to determine a manufacturer's compliance with both the CAFE 
standard and the fleet average CO2 emissions standard. CAFE 
requires manufacturers to submit test data representing at least 90% of 
the manufacturer's model year production, by configuration.\267\ The 
CAFE testing covers the vast majority of models in a manufacturer's 
fleet. Manufacturers industry-wide currently test more than 1,000 
vehicles each year to meet this requirement. EPA believes this minimum 
testing requirement is necessary and applicable for calculating 
accurate CO2 fleet average emissions. Manufacturers may test 
additional

[[Page 25470]]

vehicles, at their option. As described above, EPA will use the 
emissions results from the model-level testing to calculate a 
manufacturer's fleet average CO2 emissions and to determine 
compliance with the CO2 fleet average standard.
---------------------------------------------------------------------------

    \267\ See 40 CFR 600.010-08(d).
---------------------------------------------------------------------------

    EPA will continue to allow certain testing flexibilities that exist 
under the CAFE program. EPA has always permitted manufacturers some 
ability to reduce their test burden in tradeoff for lower fuel economy 
numbers. Specifically the practice of ``data substitution'' enables 
manufacturers to apply fuel economy test values from a ``worst case'' 
configuration to other configurations in lieu of testing them. The 
substituted values may only be applied to configurations that would be 
expected to have better fuel economy and for which no actual test data 
exist. EPA will continue to accept use of substituted data in the GHG 
program, but only when the substituted data are also used for CAFE 
purposes.
    EPA regulations for CAFE testing permit the use of analytically 
derived fuel economy data in lieu of conducting actual fuel economy 
tests in certain situations.\268\ Analytically derived data are 
generated mathematically using expressions determined by EPA and are 
allowed on a limited basis when a manufacturer has not tested a 
specific vehicle configuration. This has been done as a way to reduce 
some of the testing burden on manufacturers without sacrificing 
accuracy in fuel economy measurement. EPA has issued guidance that 
provides details on analytically derived data and that specifies the 
conditions when analytically derived fuel economy data may be used. EPA 
will apply the same guidance to the GHG program and will allow any 
analytically derived data used for CAFE to also satisfy the GHG data 
reporting requirements. EPA will revise the terms in the current 
equations for analytically derived fuel economy to specify them in 
terms of CO2. Analytically derived CO2 data will 
not be permitted for the Emission Data Vehicle representing a test 
group for pre-production certification, only for the determination of 
the model level test results used to determine actual fleet-average 
CO2 levels.
---------------------------------------------------------------------------

    \268\ 40 CFR 600.006-08(e).
---------------------------------------------------------------------------

    EPA is retaining the definitions needed to determine CO2 
levels of each model type (such as ``subconfiguration,'' 
``configuration,'' ``base level,'' etc.) as they are currently defined 
in EPA's fuel economy regulations.
3. Vehicle Certification
    CAA section 203(a)(1) prohibits manufacturers from introducing a 
new motor vehicle into commerce unless the vehicle is covered by an 
EPA-issued certificate of conformity. Section 206(a)(1) of the CAA 
describes the requirements for EPA issuance of a certificate of 
conformity, based on a demonstration of compliance with the emission 
standards established by EPA under section 202 of the Act. The 
certification demonstration requires emission testing, and must be done 
for each model year.\269\
---------------------------------------------------------------------------

    \269\ CAA section 206(a)(1).
---------------------------------------------------------------------------

    Under Tier 2 and other EPA emission standard programs, vehicle 
manufacturers certify a group of vehicles called a test group. A test 
group typically includes multiple vehicle car lines and model types 
that share critical emissions-related features.\270\ The manufacturer 
generally selects and tests one vehicle to represent the entire test 
group for certification purposes. The test vehicle is the one expected 
to be the worst case for the emission standard at issue. Emission 
results from the test vehicle are used to assign the test group to one 
of several specified bins of emissions levels, identified in the Tier 2 
rule, and this bin level becomes the in-use emissions standard for that 
test group.\271\
---------------------------------------------------------------------------

    \270\ The specific test group criteria are described in 40 CFR 
86.1827-01, car lines and model types have the meaning given in 40 
CFR 86.1803-01.
    \271\ Initially in-use standards were different from the bin 
level determined at certification as the useful life level. The 
current in-use standards, however, are the same as the bin levels. 
In all cases, the bin level, reflecting useful life levels, has been 
used for determining compliance with the fleet average.
---------------------------------------------------------------------------

    Since compliance with the Tier 2 fleet average depends on actual 
test group sales volumes and bin levels, it is not possible to 
determine compliance with the fleet average at the time the 
manufacturer applies for and receives a certificate of conformity for a 
test group. Instead, EPA requires the manufacturer to make a good faith 
demonstration in the certification application that vehicles in the 
test group will both (1) comply throughout their useful life with the 
emissions bin assigned, and (2) contribute to fleet-wide compliance 
with the Tier 2 average when the year is over. EPA issues a certificate 
for the vehicles included in the test group based on this 
demonstration, and includes a condition in the certificate that if the 
manufacturer does not comply with the fleet average, then production 
vehicles from that test group will be treated as not covered by the 
certificate to the extent needed to bring the manufacturer's fleet 
average into compliance with Tier 2.
    The certification process often occurs several months prior to 
production and manufacturer testing may occur months before the 
certificate is issued. The certification process for the Tier 2 program 
is an efficient way for manufacturers to conduct the needed testing 
well in advance of certification, and to receive the needed 
certificates in a time frame which allows for the orderly production of 
vehicles. The use of a condition on the certificate has been an 
effective way to ensure compliance with the Tier 2 fleet average.
    EPA will similarly condition each certificate of conformity for the 
GHG program upon a manufacturer's demonstration of compliance with the 
manufacturer's fleet-wide average CO2 standard. The 
following discussion explains how EPA will integrate the new GHG 
vehicle certification program into the existing certification program.
a. Compliance Plans
    In an effort to expedite the Tier 2 program certification process 
and facilitate early resolution of any compliance related concerns, EPA 
conducts annual reviews of each manufacturer's certification, in-use 
compliance and fuel economy plans for upcoming model year vehicles. EPA 
meets with each manufacturer individually, typically before the 
manufacturer begins to submit applications for certification for the 
new model year. Discussion topics include compliance plans for the 
upcoming model year, any new product offerings/new technologies, 
certification and/or testing issues, phase-in and/or ABT plans, and a 
projection of potential EPA confirmatory test vehicles. EPA has been 
conducting these compliance preview meetings for more than 10 years and 
has found them to be very useful for both EPA and manufacturers. 
Besides helping to expedite the certification process, certification 
preview meetings provide an opportunity to resolve potential issues 
before the process begins. The meetings give EPA an early opportunity 
to assess a manufacturer's compliance strategy, which in turn enables 
EPA to address any potential concerns before plans are finalized. The 
early interaction reduces the likelihood of unforeseen issues occurring 
during the actual certification of a test group which can result in the 
delay or even termination of the certification process.
    For the reasons discussed above, along with additional factors, EPA 
believes it is appropriate for manufacturers to include their GHG 
compliance plan information as part of

[[Page 25471]]

the new model year compliance preview process. This requirement is both 
consistent with existing practice under Tier 2 and very similar to the 
pre-model year report required under existing and new CAFE regulation. 
Furthermore, in light of the production weighted fleet average program 
design in which the final compliance determination cannot be made until 
after the end of the model year, EPA believes it is especially 
important for manufacturers to demonstrate that they have a credible 
compliance plan prior to the beginning of certification.
    Several commenters raised concerns about EPA's proposal for 
requiring manufacturers to submit GHG compliance plans. AIAM stated 
that EPA did not identify a clear purpose for the review of the plans, 
criteria for evaluating the plans, or consequences if EPA found the 
plans to be unacceptable. AIAM also expressed concern over the 
appropriateness of requiring manufacturers to prepare regulatory 
compliance plans in advance, since vicissitudes of the market and other 
factors beyond a manufacturer's direct control may change over the 
course of the year and affect the model year outcome. Finally, AIAM 
commented that EPA should not attempt to take any enforcement action 
based on an asserted inadequacy of a plan. The comments stated that 
compliance should be determined only after the end of a model year and 
the subsequent credit earning period. The Alliance commented that there 
was an inconsistency between the proposed preamble language and the 
regulatory language in 600.514-12(a)(2)(i). The preamble language 
indicated that the compliance report should be submitted prior to the 
beginning of the model year and prior to the certification of any test 
group, while the regulatory language stated that the pre-model year 
report must be submitted during the month of December. The Alliance 
pointed out that if EPA wanted GHG compliance plan information before 
the certification of any test groups, the regulatory language would 
need to be corrected.
    EPA understands that a manufacturer's plan may change over the 
course of a model year and that compliance information manufacturers 
present prior to the beginning of a new model year may not represent 
the final compliance outcome. Rather, EPA views the compliance plan as 
a manufacturer's good-faith projection of strategy for achieving 
compliance with the greenhouse gas standard. It is not EPA's intent to 
base compliance action solely on differences between projections in the 
compliance plan and end of year results. EPA understands that 
compliance with the GHG program will be determined at the end of the 
model year after all appropriate credits have been taken into 
consideration.
    As stated earlier, a requirement to include GHG compliance 
information in the new model year compliance preview meetings is 
consistent with long standing EPA policy. The information will provide 
EPA with an early overview of the manufacturer's GHG compliance plan 
and allow EPA to make an early assessment as to possible issues, 
questions, or concerns with the program in order to expedite the 
certification process and help manufacturers better understand overall 
compliance provisions of the GHG program. Therefore, EPA is finalizing 
revisions to 40 CFR 600.514-12 which will require manufacturers to 
submit a compliance plan to EPA prior to the beginning of the model 
year and prior to the certification of any test group. The compliance 
plan must, at a minimum, include a manufacturer's projected footprint 
profile, projected total and model-level production volumes, projected 
fleet average and model-level CO2 emission values, projected 
fleet average CO2 standards and projected fleet average 
CO2 credit status. In addition, EPA will expect the 
compliance plan to explain the various credit, transfer and trading 
options that will be used to comply with the standard, including the 
amount of credit the manufacturer intends to generate for air 
conditioning leakage, air conditioning efficiency, off-cycle 
technology, and various early credit programs. The compliance plan 
should also indicate how and when any deficits will be paid off through 
accrual of future credits.
    EPA has corrected the inconsistency between the proposed preamble 
and regulatory language with respect to when the compliance report must 
be submitted and what level of information detail it must contain. EPA 
is finalizing revisions to 40 CFR 600.514-12 which require the 
compliance plan to be submitted to EPA prior to the beginning of the 
model year and prior to the certification of any test group. Today's 
action will also finalize simplified reporting requirements as 
discussed above.
b. Certification Test Groups and Test Vehicle Selection
    Manufacturers currently divide their fleet into ``test groups'' for 
certification purposes. The test group is EPA's unit of certification; 
one certificate is issued per test group. These groupings cover 
vehicles with similar emission control system designs expected to have 
similar emissions performance.\272\ The factors considered for 
determining test groups include combustion cycle, engine type, engine 
displacement, number of cylinders and cylinder arrangement, fuel type, 
fuel metering system, catalyst construction and precious metal 
composition, among others. Vehicles having these features in common are 
generally placed in the same test group.\273\ Cars and trucks may be 
included in the same test group as long as they have similar emissions 
performance (manufacturers frequently produce cars and trucks that have 
identical engine designs and emission controls).
---------------------------------------------------------------------------

    \272\ 40 CFR 86.1827-01.
    \273\ EPA provides for other groupings in certain circumstances, 
and can establish its own test groups in cases where the criteria do 
not apply. 40 CFR 86.1827-01(b), (c) and (d).
---------------------------------------------------------------------------

    EPA recognizes that the Tier 2 test group criteria do not 
necessarily relate to CO2 emission levels. For instance, 
while some of the criteria, such as combustion cycle, engine type and 
displacement, and fuel metering, may have a relationship to 
CO2 emissions, others, such as those pertaining to the 
catalyst, may not. In fact, there are many vehicle design factors that 
affect CO2 generation and emissions but are not included in 
EPA's test group criteria.\274\ Most important among these may be 
vehicle weight, horsepower, aerodynamics, vehicle size, and performance 
features.
---------------------------------------------------------------------------

    \274\ EPA noted this potential lack of connection between fuel 
economy testing and testing for emissions standard purposes when it 
first adopted fuel economy test procedures. See 41 FR at 38677 
(Sept. 10, 1976).
---------------------------------------------------------------------------

    As described in the proposal, EPA considered but did not propose a 
requirement for separate CO2 test groups established around 
criteria more directly related to CO2 emissions. Although 
CO2-specific test groups might more consistently predict 
CO2 emissions of all vehicles in the test group, the 
addition of a CO2 test group requirement would greatly 
increase the pre-production certification burden for both manufacturers 
and EPA. For example, a current Tier 2 test group would need to be 
split into two groups if automatic and manual transmissions models had 
been included in the same group. Two- and four-wheel drive vehicles in 
a current test group would similarly require separation, as would 
weight differences among vehicles. This would at least triple the 
number of test groups. EPA believes that the added burden of creating 
separate CO2 test groups is not warranted or necessary to 
maintain an appropriately rigorous certification

[[Page 25472]]

program because the test group data are later replaced by model 
specific data which are used as the basis for determining compliance 
with a manufacturer's fleet average standard.
    For these reasons, EPA will retain the current Tier 2 test group 
structure for cars and light trucks in the certification requirements 
for CO2. EPA believes that the current test group concept is 
also appropriate for N20 and CH4 because the 
technologies that are employed to control N2O and 
CH4 emissions will generally be the same as those used to 
control the criteria pollutants. Vehicle manufacturers agreed with this 
assessment and universally supported the use of current Tier 2 test 
groups in lieu of developing separate CO2 test groups.
    At the time of certification, manufacturers may use the 
CO2 emission level from the Tier 2 Emission Data Vehicle as 
a surrogate to represent all of the models in the test group. However, 
following certification further testing will generally be required for 
compliance with the fleet average CO2 standard as described 
below. EPA's issuance of a certificate will be conditioned upon the 
manufacturer's subsequent model level testing and attainment of the 
actual fleet average. Further discussion of these requirements is 
presented in Section III.E.6.
    As just discussed, the ``worst case'' Emissions Data Vehicle 
selected to represent a test group under Tier 2 (40 CFR 86.1828-01) may 
not have the highest levels of CO2 in that group. For 
instance, there may be a heavier, more powerful configuration that 
emits higher CO2, but may, due to the way the catalytic 
converter has been matched to the engine, actually have lower 
NOX, CO, PM or HC.
    Therefore, in lieu of a separate CO2 specific test 
group, EPA considered requiring manufacturers to select a 
CO2 test vehicle from within the Tier 2 test group that 
would be expected, based on good engineering judgment, to have the 
highest CO2 emissions within that test group. The 
CO2 emissions results from this vehicle would be used to 
establish an in-use CO2 emission standard for the test 
group. The requirement for a separate, worst case CO2 
vehicle would provide EPA with some assurance that all vehicles within 
the test group would have CO2 emission levels at or below 
those of the selected vehicle, even if there is some variation in the 
CO2 control strategies within the test group (such as 
different transmission types). Under this approach, the test vehicle 
might or might not be the same one that would be selected as worst case 
for criteria pollutants. Vehicle manufacturers expressed concern with 
this approach as well, and EPA ultimately rejected this approach 
because it could have required manufacturers to test two vehicles in 
each test group, rather than a single vehicle. This would represent an 
added timing burden to manufacturers because they might need to build 
additional test vehicles at the time of certification that previously 
weren't required to be tested.
    Instead, EPA proposed and will adopt provisions that allow a single 
Emission Data Vehicle to represent the test group for both Tier 2 and 
CO2 certification. The manufacturer will be allowed to 
initially apply the Emission Data Vehicle's CO2 emissions 
value to all models in the test group, even if other models in the test 
group are expected to have higher CO2 emissions. However, as 
a condition of the certificate, this surrogate CO2 emissions 
value will generally be replaced with actual, model-level 
CO2 values based on results from CAFE testing that occurs 
later in the model year. This model-level data will become the official 
certification test results (as per the conditioned certificate) and 
will be used to determine compliance with the fleet average. Only if 
the test vehicle is in fact the worst case CO2 vehicle for 
the test group could the manufacturer elect to apply the Emission Data 
Vehicle emission levels to all models in the test group for purposes of 
calculating fleet average emissions. Manufacturers would be unlikely to 
make this choice, because doing so would ignore the emissions 
performance of vehicle models in their fleet with lower CO2 
emissions and would unnecessarily inflate their CO2 fleet 
average. Testing at the model level already occurs and data are already 
being submitted to EPA for CAFE and labeling purposes, so it would be 
an unusual situation that would cause a manufacturer to ignore these 
data and choose to accept a higher CO2 fleet average.
    Manufacturers will be subject to two standards, the fleet average 
standard and the in-use standard for the useful life of the vehicle. 
Compliance with the fleet average standard is based on production-
weighted averaging of the test data applied to each model. For each 
model, the in-use standard will generally be set at 10% higher than the 
level used for that model in calculating the fleet average (see Section 
III.E.4).\275\ The certificate will cover both of these standards, and 
the manufacturer will have to demonstrate compliance with both of these 
standards for purposes of receiving a certificate of conformity. The 
certification process for the in-use standard is discussed below in 
Section III.E.4.
---------------------------------------------------------------------------

    \275\ In cases where configuration or sub-configuration level 
data exist, the in-use standard will be set at 10% higher than those 
emissions test results. See Section III.E.4.
---------------------------------------------------------------------------

c. Certification Testing Protocols and Procedures
    To be consistent with CAFE, EPA will combine the CO2 
emissions results from the FTP and HFET tests using the same 
calculation method used to determine fuel economy for CAFE purposes. 
This approach is appropriate for CO2 because CO2 
and fuel economy are so closely related. Other than the fact that fuel 
economy is calculated using a harmonic average and CO2 
emissions can be calculated using a conventional average, the 
calculation methods are very similar. The FTP CO2 data will 
be weighted at 55%, and the highway CO2 data at 45%, and 
then averaged to determine the combined number. See Section III.B.1 for 
more detailed information on CO2 test procedures, Section 
III.C.1 on Air Conditioning Emissions, and Section III.B.7 for 
N2O and CH4 test procedures.
    For the purposes of compliance with the fleet average and in-use 
standards, the emissions measured from each test vehicle will include 
hydrocarbons (HC) and carbon monoxide (CO), in addition to 
CO2. All three of these exhaust constituents are currently 
measured and used to determine the amount of fuel burned over a given 
test cycle using a ``carbon balance equation'' defined in the 
regulations, and thus measurement of these is an integral part of 
current fuel economy testing. As explained in Section III.C, it is 
important to account for the total carbon content of the fuel. 
Therefore the carbon-related combustion products HC and CO must be 
included in the calculations along with CO2, and any other 
carbon-containing exhaust components such as aldehyde emissions from 
alcohol-fueled vehicles. CO emissions are adjusted by a coefficient 
that reflects the carbon weight fraction (CWF) of the CO molecule, and 
HC emissions are adjusted by a coefficient that reflects the CWF of the 
fuel being burned (the molecular weight approach doesn't work since 
there are many different hydrocarbon compounds being accounted for). 
Thus, EPA will calculate the carbon-related exhaust emissions, also 
known as ``CREE,'' of each test vehicle according to the following 
formula, where HC, CO, and CO2 are in units of grams per 
mile:

[[Page 25473]]

carbon-related exhaust emissions (grams/mile) = CWF*HC + 1.571*CO + 
CO2

Where:

CWF = the carbon weight fraction of the test fuel.

    As part of the current CAFE and Tier 2 compliance programs, EPA 
selects a subset of vehicles for confirmatory testing at its National 
Vehicle and Fuel Emissions Laboratory. The purpose of confirmatory 
testing is to validate the manufacturer's emissions and/or fuel economy 
data. Under this rule, EPA will add CO2, N2O, and 
CH4 to the emissions measured in the course of Tier 2 and 
CAFE confirmatory testing. The N2O and methane measurement 
requirements will begin for model year 2015, when requirements for 
manufacturer measurement to comply with the standard also take effect. 
The emission values measured at the EPA laboratory will continue to 
stand as official, as under existing regulatory programs.
    Under current practice, if during EPA's confirmatory fuel economy 
testing, the EPA fuel economy value differs from the manufacturer's 
value by more than 3%, manufacturers can request a re-test. The re-test 
results stand as official, even if they differ by more than 3% from the 
manufacturer's value. EPA proposed extending this practice to 
CO2 results, but manufacturers commented that this could 
lead to duplicative testing and increased test burden. EPA agrees that 
the close relationship between CO2 and fuel economy 
precludes the need to conduct additional confirmatory tests for both 
fuel economy and CO2 to resolve potential discrepancies. 
Therefore EPA will continue to allow a re-test request based on a 3% or 
greater disparity in manufacturer and EPA confirmatory fuel economy 
test values, since a manufacturer's fleet average emissions level would 
be established on the basis of model-level testing only (unlike Tier 2 
for which a fixed bin standard structure provides the opportunity for a 
compliance buffer).
4. Useful Life Compliance
    Section 202(a)(1) of the CAA requires emission standards to apply 
to vehicles throughout their statutory useful life, as further 
described in Section III.A. For emission programs that have fleet 
average standards, such as Tier 2 NOX fleet average 
standards and the new CO2 standards, the useful life 
requirement applies to individual vehicles rather than to the fleet 
average standard. For example, in Tier 2 the useful life requirements 
apply to the individual emission standard levels or ``bins'' that the 
vehicles are certified to, not the fleet average standard. For Tier 2, 
the useful life requirement is 10 years \276\ or 120,000 miles with an 
optional 15 year or 150,000 mile provision. A similar approach is used 
for heavy-duty engines, however a specific Family Emissions Level is 
assigned to the engine family at certification, as compared to a pre-
defined bin emissions level as in Tier 2.
---------------------------------------------------------------------------

    \276\ 11 years for heavy-light-duty trucks, ref. 40 CFR 86.1805-
12.
---------------------------------------------------------------------------

    As noted above, the in-use CO2 standard under the 
greenhouse gas program, like Tier 2, will apply to individual vehicles 
and is separate from the fleet-average standard. However, unlike the 
Tier 2 program and other EPA fleet average standards, the model-level 
CO2 test results are themselves used to calculate the fleet 
average standard for compliance purposes. This is consistent with the 
current CAFE practice, but it means the fleet average standard and the 
emission test results used to calculate compliance with the fleet 
average standard do not take into account test-to-test variability and 
production variability that can affect in-use levels. Since the 
CO2 fleet average uses the model level emissions test 
results themselves for purposes of calculating the fleet average, EPA 
proposed an adjustment factor for the in-use standard to provide some 
margin for production and test-to-test variability that could result in 
differences between the initial emission test results used to calculate 
the fleet average and emission results obtained during subsequent in-
use testing. EPA proposed that each model's in-use CO2 
standard would be the model specific level used in calculating the 
fleet average, adjusted to be 10% higher.
    EPA received significant comment from industry expressing concern 
with the in-use standard. The comments focused on concerns about 
manufacturer liability for in-use CO2 performance and for 
the most part did not address the proposed 10% adjustment level or even 
the need for an adjustment to account for variability. Some comments 
suggested that an in-use standard is not necessary because in-use 
testing is not mandated in the CAA. Others stated that since there is 
no evidence that CO2 emission levels increase over time, 
there is no need for an in-use standard. Finally, there was a general 
concern that failure to meet the in-use standard would result in recall 
liability and that recall can only be used in cases where it can be 
demonstrated that a ``repair'' can remedy the nonconformity. One 
manufacturer provided comments supporting the use of a 10% adjustment 
factor for the in-use standard. These comments also recommended that 
the 10% adjustment factor be applied to configuration or 
subconfiguration data rather than to model-level data unless the lower-
level data were not available. Finally, the manufacturer expressed 
concern that a straight 10% adjustment would result in inequity between 
high- and low-emitting vehicles.
    Section 202(a)(1) specifies that emissions standards are to be 
applicable for the useful life of the vehicle. The in-use emissions 
standard for CO2 implements this provision. While EPA agrees 
that the CAA does not require the Agency to perform in-use testing to 
monitor compliance with in-use standards, the Act clearly authorizes 
in-use testing. EPA has a long tradition of performing in-use testing 
and has found it to be an effective tool in the overall light-duty 
vehicle compliance program. EPA continues to believe that it is 
appropriate to perform in-use testing and that the evaluation of 
individual vehicle performance for all regulated emission constituents, 
including CO2, N2O and CH4, is 
necessary to ensure compliance with all light-duty requirements. EPA 
also believes that the CAA clearly mandates that all emission standards 
apply for a vehicle's useful life and that an in-use standard is 
therefore necessary.
    EPA agrees with industry commenters that there is little evidence 
to indicate that CO2 emission levels from current-technology 
vehicles increase over time. However, as stated above, the CAA mandates 
that all emission standards apply for a vehicle's useful life 
regardless of whether the emissions increase over time. In addition, 
there are factors other than emission deterioration over time that can 
cause in-use emissions to be greater than emission standards. The most 
obvious are component defects, production mistakes, and the stacking of 
component production and design tolerances. Any one of these can cause 
an exceedance of emission standards for individual vehicles or whole 
model lines. Finally EPA believes that it is essential to monitor in-
use GHG emissions performance of new technologies, for which there is 
currently no in-use experience, as they enter the market. Thus EPA 
believes that the value in establishing an in-use standard extends 
beyond just addressing emission deterioration over time from current 
technology vehicles.
    The concern over recall liability in cases where there is no 
effective repair remedy has some legitimate basis. For

[[Page 25474]]

example, EPA agrees there would be a concern if a number of vehicles 
for a particular model were to have in-use emissions that exceed the 
in-use standard, with no effective repair available to remedy the 
noncompliance. However, EPA does not anticipate a scenario involving 
exceedance of the in-use standard that would cause the Agency to pursue 
a recall unless there is a repairable cause of the exceedance. At the 
same time, failures to emission-related components, systems, software, 
and calibrations do occur that could result in a failure of the in-use 
CO2 standard. For example, a defective oxygen sensor that 
causes a vehicle to burn excessive fuel could result in higher 
CO2 levels that would exceed the in-use standard. While it 
is likely that such a problem would affect other emissions as well, 
there would still be a demonstratable, repairable problem such that a 
recall might be valid. Therefore, EPA believes that a CO2 
in-use standard is statutorily required and can serve as a useful tool 
for determining compliance with the GHG program.
    EPA agrees with the industry comment that it is appropriate where 
possible to apply the 10% adjustment factor to the vehicle-level 
emission test results, rather than to a model-type value that includes 
production weighting factors. If no subconfiguration test data are 
available, then the adjustment factor will be applied to the model-type 
value. Therefore, EPA is finalizing an in-use standard based on a 10% 
multiplicative adjustment factor but the adjustment will be applied to 
emissions test results for the vehicle subconfiguration if such data 
exist, or to the model-type emissions level used to calculate the fleet 
average if subconfiguration test data are not available.
    EPA believes that the useful life period established for criteria 
pollutants under Tier 2 is also appropriate for CO2. Data 
from EPA's current in-use compliance test program indicate that 
CO2 emissions from current technology vehicles increase very 
little with age and in some cases may actually improve slightly. The 
stable CO2 levels are expected because unlike criteria 
pollutants, CO2 emissions in current technology vehicles are 
not controlled by after treatment systems that may fail with age. 
Rather, vehicle CO2 emission levels depend primarily on 
fundamental vehicle design characteristics that do not change over 
time. Therefore, vehicles designed for a given CO2 emissions 
level will be expected to sustain the same emissions profile over their 
full useful life.
    The CAA requires emission standards to be applicable for the 
vehicle's full useful life. Under Tier 2 and other vehicle emission 
standard programs, EPA requires manufacturers to demonstrate at the 
time of certification that the new vehicles being certified will 
continue to meet emission standards throughout their useful life. EPA 
allows manufacturers several options for predicting in-use 
deterioration, including full vehicle testing, bench-aging specific 
components, and application of a deterioration factor based on data 
and/or engineering judgment.
    In the specific case of CO2, EPA does not currently 
anticipate notable deterioration and has therefore determined that an 
assigned deterioration factor be applied at the time of certification. 
At this time EPA will use an additive assigned deterioration factor of 
zero, or a multiplicative factor of one. EPA anticipates that the 
deterioration factor will be updated from time to time, as new data 
regarding emissions deterioration for CO2 are obtained and 
analyzed. Additionally, EPA may consider technology-specific 
deterioration factors, should data indicate that certain CO2 
control technologies deteriorate differently than others.
    During compliance plan discussions prior to the beginning of the 
certification process, EPA will explore with each manufacturer any new 
technologies that could warrant use of a different deterioration 
factor. For any vehicle model determined likely to experience increases 
in CO2 emissions over the vehicle's useful life, 
manufacturers will not be allowed to use the assigned deterioration 
factor but rather will be required to establish an appropriate factor. 
If such an instance were to occur, EPA would allow manufacturers to use 
the whole-vehicle mileage accumulation method currently offered in 
EPA's regulations.\277\
---------------------------------------------------------------------------

    \277\ 40 CFR 86.1823-08.
---------------------------------------------------------------------------

    N2O and CH4 emissions are directly affected 
by vehicle emission control systems. Any of the durability options 
offered under EPA's current compliance program can be used to determine 
how emissions of N2O and CH4 change over time. 
EPA recognizes that manufacturers have not been required to account for 
durability effects of N2O and CH4 prior to now. 
EPA also realizes that industry will need sufficient time to explore 
durability options and become familiar with procedures for determining 
deterioration of N2O and CH4. Therefore, until 
the 2015 model year, rather than requiring manufacturers to establish a 
durability program for N2O and CH4, EPA will 
allow manufacturers to attest that vehicles meet the deteriorated, full 
useful life standard. If manufacturers choose to comply with the 
optional CO2 equivalent standard, EPA will allow the use of 
the manufacturer's existing NOX deterioration factor for 
N2O and the existing NMOG deterioration factor for 
CH4.
a. Ensuring Useful Life Compliance
    The CAA requires a vehicle to comply with emission standards over 
its regulatory useful life and affords EPA broad authority for the 
implementation of this requirement. As such, EPA has authority to 
require a manufacturer to remedy any noncompliance issues. The remedy 
can range from adjusting a manufacturer's credit balance to the 
voluntary or mandatory recall of noncompliant vehicles. These potential 
remedies provide manufacturers with a strong incentive to design and 
build complying vehicles.
    Currently, EPA regulations require manufacturers to conduct in-use 
testing as a condition of certification. Specifically, manufacturers 
must commit to later procure and test privately-owned vehicles that 
have been normally used and maintained. The vehicles are tested to 
determine the in-use levels of criteria pollutants when they are in 
their first and fourth years of service. This testing is referred to as 
the In-Use Verification Program (IUVP) testing, which was first 
implemented as part of EPA's CAP 2000 certification program.\278\ The 
emissions data collected from IUVP serve several purposes. IUVP results 
provide EPA with annual real-world in-use data representing the 
majority of certified vehicles. EPA uses IUVP data to identify in-use 
problems, validate the accuracy of the certification program, verify 
manufacturer durability processes, and support emission modeling 
efforts. Manufacturers are required to test low mileage and high 
mileage vehicles over the FTP and US06 test cycles. They are also 
required to provide evaporative emissions, onboard refueling vapory 
recovery (ORVR) emissions and on-board diagnostics (OBD) data.
---------------------------------------------------------------------------

    \278\ 64 FR 23906, May 4, 1999.
---------------------------------------------------------------------------

    Manufacturers are required to provide data for all regulated 
criteria pollutants. Some manufacturers have voluntarily submitted 
CO2 data as part of IUVP. EPA proposed that manufacturers 
provide CO2, N2O, and CH4 data as part 
of the IUVP. EPA also proposed that in order to adequately analyze and 
assess

[[Page 25475]]

in-use CO2 results, which are based on the combination of 
FTP and highway cycle test results, the highway fuel economy test would 
also need to be part of IUVP. The University of California, Santa 
Barbara expressed support for including N2O and 
CH4 emissions as part of the IUVP. Manufacturer comments 
were almost unanimously opposed to including any GHG as part of the 
IUVP. Specifically, industry commented that CO2 emissions do 
not deteriorate over time and in some cases actually improve. Ford 
provided data for several 2004 through 2007 model year vehicles that 
indicate CO2 emissions improved an average of 1.42% when 
vehicles were tested over 5,000 miles. Manufacturers commented that the 
inclusion of a greenhouse gas emissions requirement and the highway 
test cycle as part of the IUVP would unnecessarily increase burden on 
manufacturers and provide no benefit, since CO2 emissions do 
not deteriorate over time. Manufacturers also commented that 
N2O and CH4 emissions are very low and by EPA's 
own account only represent about 1% of total light-duty vehicle GHG 
emissions. They also expressed concern over the cost and burden of 
measuring N2O for IUVP, since many manufacturers use 
contractor laboratories to assist in their IUVP testing and many of 
these facilities do not have the necessary equipment to measure 
N2O. They stated that since it was unnecessary to include 
CO2 emissions as part of IUVP and since N2O and 
CH4 were such small contributors to GHG emissions, it did 
not make sense to include N2O and CH4 as part of 
the IUVP either. They felt that N2O and CH4 could 
be more appropriately handled through attestation or an annual 
unregulated emissions report.
    As discussed above, although EPA shares the view expressed in 
manufacturer comments that historical data demonstrate little 
CO2 deterioration, in-use emissions can increase for a 
number of reasons other than deterioration over time. For example, 
production or design errors can result in increased GHG emissions. 
Components that aren't built as they were designed or vehicles 
inadvertently assembled improperly or with the wrong parts or with 
parts improperly designed can result in GHG emissions greater than 
those demonstrated to EPA during the certification process and used in 
calculating the manufacturer's fleet average. The ``stacking'' of 
component design and production tolerances can also result in in-use 
emissions that are greater than those used in calculating a 
manufacturer's fleet average.
    EPA believes IUVP testing is also important to monitor in-use 
versus certification emission levels. Because the emphasis of the GHG 
program is on a manufacturer's fleet average standard, it is difficult 
for EPA to make an assessment as to whether manufacturer's vehicles are 
actually producing the GHG levels claimed in their fleet average 
without some in-use data for comparison. For example, EPA has expressed 
concern that with the in-use standard based on a 10% adjustment factor, 
there would be an incentive for manufacturers to develop their fleet 
average utilizing the full range of the 10% in-use standard. The only 
way for EPA to assess whether manufacturers are designing and producing 
vehicles that meet their respective fleet average standards is for EPA 
to be able to review in-use GHG emissions from the IUVP.
    Finally EPA does have some concern about potential CO2 
emissions deterioration in advanced technologies for which we currently 
have no in-use experience or data. Since CAFE has never had an in-use 
requirement and today's final regulations are the first ever GHG 
standards, there has been no need to focus on GHG emissions in-use as 
there will be with the new GHG standards. Many of the advanced 
technologies that EPA expects manufacturers to use to meet the GHG 
standards have been introduced in production vehicles, but until now 
not for the purpose of controlling greenhouse gas emissions. For 
example, advanced dual-clutch or seven-speed automatic transmissions, 
and start-stop technologies have not been broadly tested in the field 
for their long-term CO2 performance. In-use GHG performance 
information for vehicles using these technologies is needed for many 
reasons, including evaluation of whether allowing use of assigned 
deterioration factors for CO2 in lieu of actual 
deterioration factors will continue to be appropriate.
    Therefore, EPA is finalizing the requirement that all manufacturers 
must provide IUVP emissions data for CO2. EPA will also 
require manufacturers to perform the highway test cycle as part of 
IUVP. Since the CO2 standard reflects a combined value of 
FTP and highway results, it is necessary to include the highway 
emission test in IUVP to enable EPA to compare an in-use CO2 
level with a vehicle's in-use standard. EPA understands that requiring 
manufacturers to also measure N2O and CH4 will be 
initially challenging, since many manufacturer facilities do not 
currently have the proper analytical equipment. To be consistent with 
timing of the N2O and CH4 emissions standards for 
this rule, N2O and CH4 will not be required for 
IUVP until the 2015 model year.
    Another component of the CAP 2000 certification program is the In-
Use Confirmatory Program (IUCP). This is a manufacturer-conducted 
recall quality in-use test program that can be used as the basis for 
EPA to order an emission recall. In order for vehicles tested in the 
IUVP to qualify for IUCP, there is a threshold of 1.30 times the 
certification emission standard and an additional requirement that at 
least 50% of the test vehicles for the test group fail for the same 
substance. EPA proposed to exclude IUVP data for CO2, 
N2O, and CH4 emissions from the IUCP thresholds. 
EPA felt that there was not sufficient data to determine if the 
existing IUCP thresholds were appropriate or even applicable to those 
emissions. The University of California, Santa Barbara disagreed with 
EPA's concerns and recommended that CO2, N2O, and 
CH4 emissions all be subject to the IUVP threshold criteria. 
Manufacturers commented that since CO2 performance is a 
function of vehicle design and cannot be remedied in the field with the 
addition or replacement of emissions control devices like traditional 
criteria pollutants, it would not be appropriate or necessary to 
include IUCP threshold criteria for GHG emissions.
    EPA continues to believe that the IUCP is an important part of 
EPA's in-use compliance program for traditional criteria pollutants. 
For GHG emissions, EPA believes the IUCP will also be a valuable future 
tool for achieving compliance. However, there are insufficient data 
today to determine whether the current IUCP threshold criteria are 
appropriate for GHG emissions. Once EPA can gather more data from the 
IUVP program and from EPA's internal surveillance program described 
below, EPA will reassess the need to exclude IUCP thresholds, and if 
warranted, propose a separate rulemaking establishing IUCP threshold 
criteria which may include CO2, N2O, and 
CH4 emissions. Therefore, for today's final action, EPA will 
exclude IUVP data for CO2, N2O, and 
CH4 emissions from the IUCP thresholds.
    EPA has also administered its own in-use testing program for light-
duty vehicles under authority of section 207(c) of the CAA for more 
than 30 years. In this program, EPA procures and tests representative 
privately owned vehicles to determine whether they are complying with 
emission standards.

[[Page 25476]]

When testing indicates noncompliance, EPA works with the manufacturer 
to determine the cause of the problem and to conduct appropriate 
additional testing to determine its extent or the effectiveness of 
identified remedies. This program operates in conjunction with the IUVP 
program and other sources of information to provide a comprehensive 
picture of the compliance profile for the entire fleet and address 
compliance problems that are identified. EPA will add CO2, 
N2O, and CH4 to the emissions measurements it 
collects during surveillance testing.
b. In-Use Compliance Standard
    For Tier 2, the in-use standard and the standard used for fleet 
average calculation are the same. In-use compliance for an individual 
vehicle is determined by comparing the vehicle's in-use emission 
results with the emission standard levels or ``bin'' to which the 
vehicle is certified rather than to the Tier 2 fleet average standard 
for the manufacturer. This is because as part of a fleet average 
standard, individual vehicles can be certified to various emission 
standard levels, which could be higher or lower than the fleet average 
standard. Thus, it would be inappropriate to compare an individual 
vehicle to the fleet average, since that vehicle could have been 
certified to an emission level that is different than the fleet average 
level.
    This will also be true for the CO2 fleet average 
standard. Therefore, to ensure that an individual vehicle complies with 
the CO2 standards in-use, it is necessary to compare the 
vehicle's in-use CO2 emission result with the appropriate 
model-level certification CO2 level used in determining the 
manufacturer's fleet average result.
    There is a fundamental difference between the CO2 
standards and Tier 2 standards. For Tier 2, the standard level used for 
the fleet average calculation is one of eight different emission 
levels, or ``bins,'' whereas for the CO2 fleet average 
standard, the standard level used for the fleet average calculation is 
the model-level certification CO2 result. The Tier 2 fleet 
average standard is calculated using the ``bin'' emission level or 
standard, not the actual certification emission level of the 
certification test vehicle. So no matter how low a manufacturer's 
actual certification emission results are, the fleet average is still 
calculated based on the ``bin'' level rather than the lower 
certification result.\279\ In contrast, the CO2 fleet 
average standard will be calculated using the actual vehicle model-
level CO2 values from the certification test vehicles. With 
a specified certification emission standard, such as the Tier 2 
``bins,'' manufacturers typically attempt to over-comply with the 
standard to give themselves some cushion for potentially higher in-use 
testing results due to emissions performance deterioration and/or 
variability that could result in higher emission levels during 
subsequent in-use testing. For our CO2 standards, the 
emission level used to calculate the fleet average is the actual 
certification vehicle test result, thus manufacturers cannot over 
comply since the certification test vehicle result will always be the 
value used in determining the CO2 fleet average. If the 
manufacturer attempted to design the vehicle to achieve a lower 
CO2 value, similar to Tier 2 for in-use purposes, the new 
lower CO2 value would simply become the new value used for 
calculating the fleet average.
---------------------------------------------------------------------------

    \279\ In a similar fashion, the fleet average for heavy-duty 
engines is calculated using a Family Emission Level, determined by 
the manufacturer, which is different from the emission level of the 
test engine.
---------------------------------------------------------------------------

    The CO2 fleet average standard is based on the 
performance of pre-production technology that is representative of the 
point of production, and while there is expected to be limited if any 
deterioration in effectiveness for any vehicle during the useful life, 
the fleet average standard does not take into account the test-to-test 
variability or production variability that can affect in-use levels. 
Therefore, EPA believes that unlike Tier 2, it is necessary to have a 
different in-use standard for CO2 to account for these 
variabilities. EPA proposed an in-use standard that was 10% higher than 
the appropriate model-level certification CO2 level used in 
determining the manufacturer's fleet average result.
    As described above, manufacturers typically design their vehicles 
to emit at emission levels considerably below the certification 
standards. This intentional difference between the actual emission 
level and the emission standard is referred to as ``certification 
margin,'' since it is typically the difference between the 
certification emission level and the emission standard. The 
certification margin can provide manufacturers with some protection 
from exceeding emission standards in-use, since the in-use standards 
are typically the levels used to calculate the fleet average. For Tier 
2, the certification margin is the delta between the specific emission 
standard level, or ``bin,'' to which the vehicle is certified, and the 
vehicle's certification emission level.
    Since the level of the fleet average standard does not reflect this 
kind of variability, EPA believes it is appropriate to set an in-use 
standard that provides a reasonable cushion for in-use variability that 
is beyond a manufacturer's control. EPA proposed a factor of 10% that 
would act as a surrogate for a certification margin. The factor would 
only be applicable to CO2 emissions, and would be applied to 
the model-level test results that are used to establish the model-level 
in-use standard.
    EPA selected a value of 10% for the in-use standard based on a 
review of EPA's fuel economy labeling and CAFE confirmatory test 
results for the past several vehicle model years. The EPA data indicate 
that it is common for test variability to range between three to six 
percent and only on rare occasions to exceed 10%. EPA believes that a 
value of 10% should be sufficient to account for testing variability 
and any production variability that a manufacturer may encounter. EPA 
considered both higher and lower values. The Tier 2 fleet as a whole, 
for example, has a certification margin approaching 50%.\280\ However, 
there are some fundamental differences between CO2 emissions 
and other criteria pollutants in the magnitude of the compounds. Tier 2 
NMOG and NOX emission standards are hundredths of a gram per 
mile (e.g., 0.07 g/mi NOX & 0.09 g/mi NMOG), whereas the 
CO2 standards are four orders of magnitude greater (e.g., 
250 g/mi). Thus EPA does not believe it is appropriate to consider a 
value on the order of 50 percent. In addition, little deterioration in 
emissions control is expected in-use. The adjustment factor addresses 
only one element of what is usually built into a compliance margin.
---------------------------------------------------------------------------

    \280\ See pages 39-41 of EPA's Vehicle and Engine Compliance 
Activities 2007 Progress Report (EPA-420-R-08-011) published in 
October, 2008. This document is available electronically at http://
epa.gov/otaq/about/420r08011.pdf.
---------------------------------------------------------------------------

    The intent of the separate in-use standard, based on a 10% 
compliance factor adjustment, is to provide a reasonable margin such 
that vehicles are not automatically deemed as exceeding standards 
simply because of normal variability in test results. EPA has some 
concerns however that this in-use compliance factor could be perceived 
as providing manufacturers with the ability to design their fleets to 
generate CO2 emissions up to 10% higher than the actual 
values they use to certify and to calculate the year end fleet average 
value that determines compliance with the fleet average standard. This 
concern provides additional rationale for

[[Page 25477]]

requiring FTP and HFET IUVP data for CO2 emissions to ensure 
that in-use values are not regularly 10% higher than the values used in 
the fleet average calculation. If in the course of reviewing a 
manufacturer's IUVP data it becomes apparent that a manufacturer's 
CO2 results are consistently higher than the values used for 
calculation of the fleet average, EPA will discuss the matter with the 
manufacturer and consider possible resolutions such as changes to 
ensure that the emissions test data more accurately reflect the 
emissions level of vehicles at the time of production, increased EPA 
confirmatory testing, and other similar measures.
    Commenters generally did not comment on whether 10% was the 
appropriate level for the adjustment factor. Honda did support use of 
the proposed 10% adjustment factor for the in-use standard. But Honda 
also recommended that the 10% adjustment factor be applied to 
subconfiguration data rather than the model-level data unless there was 
no subconfiguration data available. Honda also expressed some concern 
over the inequity a straight 10% adjustment would incur between high- 
and low-emitting vehicles. They suggested that rather than using an 
across-the-board 10% multiplicative adjustment factor applied to the 
model-level CO2 value for all vehicles, it would be more 
equitable to take the sum of a 5% multiplicative factor applied to the 
model-level CO2 value and a 5% factor applied to the 
manufacturer's fleet CO2 target.
    EPA understands that use of a multiplicative adjustment factor 
would result in a higher absolute in-use value for a vehicle that has 
higher CO2 than for a vehicle with a lower CO2. 
However, this difference is not relevant to the purpose of the 
adjustment factor, which is to provide some cushion for test and 
production variability. EPA does not believe the difference would be 
great enough to confer the higher-emitting vehicles with an unfair 
advantage with respect to emissions variability.
    Given that the purpose of the in-use standard is to enable a fair 
comparison between certification and in-use emission levels, EPA agrees 
that it is appropriate to apply the 10% adjustment factor to actual 
emission test results rather than to model-type emission levels which 
are production weighted. Therefore, EPA is finalizing an in-use 
standard that applies a multiplicative 10% adjustment factor to the 
subconfiguration emissions values, if such are available. (For 
flexible-fuel and dual-fuel vehicles the multiplicative factor will be 
applied to the test results on each fuel. In other words, these 
vehicles will have two applicable in-use emission standards; one for 
operation on the conventional fuel and one for operation on the 
alternative fuel.) If no emissions data exist at the subconfiguration 
level the adjustment will be applied to the model-type value as 
originally proposed. If the in-use emission result for a vehicle 
exceeds the emissions level, as applicable, adjusted as just described 
by 10%, then the vehicle will have exceeded the in-use emission 
standard. The in-use standard will apply to all in-use compliance 
testing including IUVP, selective enforcement audits, and EPA's 
internal test program.
5. Credit Program Implementation
    As described in Section III.E.2 above, for each manufacturer's 
model year production, the manufacturer will average the CO2 
emissions within each of the two averaging sets (passenger cars and 
trucks) and compare that with its respective fleet average standards 
(which in turn will have been determined from the appropriate footprint 
curve applicable to that model year). In addition to this within-
company averaging, when a manufacturer's fleet average CO2 
values of vehicles produced in an averaging set over-complies compared 
to the applicable fleet average standard, the manufacturer could 
generate credits that it could save for later use (banking) or could 
sell or otherwise distribute to another manufacturer (trading). Section 
III.C discusses opportunities for manufacturers to improve their fleet 
average, beyond the credits that are simply calculated by over-
achieving their applicable fleet average standard. Implementation of 
the credit program generally involves two steps: calculation of the 
credit amount and reporting the amount and the associated data and 
calculations to EPA.
    EPA is promulgating two broad types of credit programs under this 
rulemaking. One type of credit directly lowers a manufacturer's actual 
fleet average by virtue of being applied within the methodology for 
calculating the fleet average emissions. Examples of this type of 
credit include the credits available for alternative fuel vehicles and 
the advanced technology vehicle provisions. The second type of credit 
is independent of the calculation of a manufacturer's fleet average. 
Rather than giving credit by lowering a manufacturer's fleet average 
via a credit mechanism, these credits (in megagrams) are calculated 
separately and are simply added to the manufacturer's overall ``bank'' 
of credits (or debits). Using a fictional example, the remainder of 
this section reviews the different types of credits and shows where and 
how they are calculated and how they impact a manufacturer's available 
credits.
a. Basic Credits: Fleet Average Emissions Are Below the Standard
    As just noted, basic credits are earned by a manufacturer's fleet 
that performs better than the applicable fleet average standard. 
Manufacturers will calculate their fleet average standards (separate 
standards are calculated for cars and trucks) using the footprint-based 
equations described in Section III.B. A manufacturer's actual end-of-
year fleet average is calculated similarly to the way in which CAFE 
values are currently calculated; in fact, the regulations are 
essentially identical. The current CAFE calculation methods are in 40 
CFR Part 600. As part of this rulemaking, EPA has amended key subparts 
and sections of Part 600 to require that fleet average CO2 
emissions be calculated in a manner parallel to the way CAFE values are 
calculated. First, manufacturers will determine a CO2-
equivalent value for each model type. The CO2-equivalent 
value is a summation of the carbon-containing constituents of the 
exhaust emissions on a CO2-equivalent basis. For gasoline 
and diesel vehicles this simply involves measurement of total 
hydrocarbons and carbon monoxide in addition to CO2. The 
calculation becomes somewhat more complex for alternative fuel vehicles 
due to the different nature of their exhaust emissions. For example, 
for ethanol-fueled vehicles, the emission tests must measure ethanol, 
methanol, formaldehyde, and acetaldehyde in addition to CO2. 
However, all these measurements are currently necessary to determine 
fuel economy for the labeling and CAFE programs, and thus no new 
testing or data collection will be required.\281\ Second, manufacturers 
will calculate a fleet average by weighting the CO2 value 
for each model type by the production of that model type, as they 
currently do for the CAFE program. Again, this will be done separately 
for cars and trucks. Finally, the manufacturer will compare the 
calculated standard with the fleet average that is actually achieved to 
determine the credits (or debits) that are generated. Both the 
determination of the applicable standard and the actual fleet average 
will be done after the model

[[Page 25478]]

year is complete and using final model year vehicle production data.
---------------------------------------------------------------------------

    \281\ Note that the final rule also provides an option for 
manufacturers to incorporate N2O and CH4 in 
this calculation at their CO2-equivalent values.
---------------------------------------------------------------------------

    Consider a basic hypothetical example where Manufacturer ``A'' has 
calculated a car fleet average standard of 300 grams/mile and a car 
fleet average of 290 grams/mile (Table III.E.5-1). Further assume that 
the manufacturer produced 500,000 cars. The credit is calculated by 
taking the difference between the standard and the fleet average (300-
290=10) and multiplying it by the manufacturer's production of 500,000. 
This result is then multiplied by the assigned lifetime vehicle miles 
travelled (for cars this is 195,264 miles, as discussed in Joint TSD 
Chapter 4), then finally divided by 1,000,000 to convert from grams to 
total megagrams. The result is the total number of megagrams of credit 
generated by the manufacturer's car fleet. The same methodology is used 
to calculate the total number of megagrams of deficit, if the 
manufacturer was not able to comply with the fleet average standard. In 
this example, the result is 976,320 megagrams of credits, as shown in 
Table III.E.5-1.

                       Table III.E.5-1--Summary for Manufacturer A: Earning Basic Credits
----------------------------------------------------------------------------------------------------------------
                                                                          CO2                     Totals
----------------------------------------------------------------------------------------------------------------
Total production...................  Conventional: 500,000......  290 g/mi                500,000
Fleet average standard.............  ...........................  300 g/mi
Fleet average......................  ...........................  290 g/mi
Credits............................  [(300-290) x 500,000 x       ..................   =  954,855 Mg
                                      195,264] / 1,000,000.
----------------------------------------------------------------------------------------------------------------

b. Interim Advanced Technology Vehicle Provisions
    The lower exhaust greenhouse gas emissions of some advanced 
technology vehicles can directly benefit a manufacturer's fleet 
average, thus increasing the amount of fleet average-based credits they 
earn (or reducing the amount of debits that would otherwise accrue). 
Manufacturers that produce electric vehicles, plug-in hybrid electric 
vehicles, or fuel cell electric vehicles will include these vehicles in 
the fleet average calculation with their model type emission values. As 
described in detail in Section III.C.3, the emissions from electric 
vehicles and plug-in hybrid electric vehicles when operating on 
electricity will be accounted for by assuming zero emissions (0 g/mi 
CO2) for a limited number of vehicles through the 2016 model 
year. This interim limited use of 0 g/mi will be allowed for the 
technologies specifically noted above and as defined in the 
regulations, with the limitation that the vehicles must be certified to 
Tier 2 Bin 5 emission standards or cleaner (i.e., advanced technology 
vehicles must contribute to criteria pollutant reductions as well as to 
greenhouse gas emission reductions).
    EPA proposed specific definitions for the vehicle technologies 
eligible for these provisions. One manufacturer suggested the following 
changes in their comments:
     Insert an additional criterion for electric vehicles that 
specifically states that an electric vehicle may not have an onboard 
combustion engine/generator system.
     A minor deletion of text from the definition for ``Fuel 
cell.''
     The deletion of the requirement that a PHEV have an 
equivalent all-electric range of more than 10 miles.
    EPA agrees with the first comment. As written in the proposal, a 
vehicle with an onboard combustion engine that serves as a generator 
would not have been excluded from the definition of electric vehicle. 
However, EPA believes it should be. Although such a vehicle might be 
propelled by an electric motor directly, if the indirect source of 
electricity is an onboard combustion engine then the vehicle is 
fundamentally not an electric vehicle. EPA is also adopting the 
commenter's proposed rephrasing of the definition for ``Fuel cell,'' 
which is simpler and clearer. Finally, in the context of the advanced 
technology incentive provisions in this final rule, EPA concurs with 
the commenter that the requirement that a PHEV have an equivalent all-
electric range of at least ten miles is unnecessary. In the context of 
the proposed credit multiplier EPA was concerned that some vehicles 
could install a charging system on a limited battery and gain credit 
beyond what the limited technology would deserve simply by virtue of 
being defined as a PHEV. However, because EPA is not finalizing the 
proposed multiplier provisions (see Section III.C.3) and is instead 
using as the sole incentive the zero emission tailpipe level as the 
compliance value for a manufacturer's fleetwide average, this concern 
is no longer valid. Since EPA is not promulgating multipliers, the 
concern expressed at proposal no longer applies, and each PHEV will get 
a benefit from electricity commensurate with its measured use of grid 
electricity, thus EPA is no longer concerned about the multiplier 
effect. Thus, EPA is finalizing the following definitions in the 
regulations:
     Electric vehicle means a motor vehicle that is powered 
solely by an electric motor drawing current from a rechargeable energy 
storage system, such as from storage batteries or other portable 
electrical energy storage devices, including hydrogen fuel cells, 
provided that:
    [cir] Recharge energy must be drawn from a source off the vehicle, 
such as residential electric service;
    [cir] The vehicle must be certified to the emission standards of 
Bin 1 of Table S04-1 in paragraph (c)(6) of Sec.  86.1811; and
    [cir] The vehicle does not have an onboard combustion engine/
generator system as a means of providing electrical energy.
     Fuel cell electric vehicle means a motor vehicle propelled 
solely by an electric motor where energy for the motor is supplied by a 
fuel cell.
     Fuel cell means an electrochemical cell that produces 
electricity via the non-combustion reaction of a consumable fuel, 
typically hydrogen.
     Plug-in hybrid electric vehicle (PHEV) means a hybrid 
electric vehicle that has the capability to charge the battery from an 
off-vehicle electric source, such that the off-vehicle source cannot be 
connected to the vehicle while the vehicle is in motion.
    With some simplifying assumptions, assume that 25,000 of 
Manufacturer A's fleet are now plug-in hybrid electric vehicles with a 
calculated CO2 value of 80 g/mi, and the remaining 475,000 
are conventional technology vehicles with an average CO2 
value of 290 grams/mile. By including the advanced technology PHEVs in 
their fleet, Manufacturer A now has more than 2.9 million credits 
(Table III.E.5-2).

[[Page 25479]]

       Table III.E.5-2--Summary for Manufacturer A: Earning Basic and Interim Advanced Technology Credits
----------------------------------------------------------------------------------------------------------------
                                                                       CO2                       Totals
----------------------------------------------------------------------------------------------------------------
Total production..................  Conventional: 475,000.....  290 g/mi           ..  500,000
                                    PHEV: 25,000..............  80 g/mi
Fleet average standard............  ..........................  300 g/mi
Fleet average.....................  [(475,000 x 290) + (25,000  280 g/mi
                                     x 80)] / [500,000].
Credits...........................  [(300-280) x 500,000 x      .................   =  1,952,640 Mg
                                     195,264] / 1,000,000.
----------------------------------------------------------------------------------------------------------------

c. Flexible-Fuel Vehicle Credits
    As noted in Section III.C, treatment of flexible-fuel vehicle (FFV) 
credits differs between model years 2012-2015 and 2016 and later. For 
the 2012 through 2015 model years the FFV credits will be calculated as 
they are in the CAFE program for the same model years, except that 
formulae in the final regulations have been modified as needed to do 
the calculations in terms of grams per mile of CO2 values 
rather than miles per gallon. These credits are integral to the fleet 
average calculation and allow the vehicles to be represented by 
artificially reduced emissions. To use this credit program, the 
CO2 values of FFVs will be represented by the average of two 
things: the CO2 value while operating on gasoline and the 
CO2 value while operating on the alternative fuel multiplied 
by 0.15.
    For MY 2012 to 2015 for example, Manufacturer A makes 30,000 FFVs 
with CO2 values of 280 g/mi using gasoline and 260 g/mi 
using E85. The CO2 value that would represent the FFVs in 
the fleet average calculation would be calculated as follows:

FFV emissions = [280 + (260 x 0.15)] / 2 = 160 g/mi

    Including these FFVs with the applicable credit in Manufacturer A's 
fleet average, as shown below in Table III.E.5-3, further reduces the 
fleet average to 256 grams/mile and increases the manufacturer's 
credits to about 4.2 million megagrams.

    Table III.E.5-3 Summary for Manufacturer A: Earning Basic, Interim Advanced Technology, and Flexible Fuel
                                                 Vehicle Credits
----------------------------------------------------------------------------------------------------------------
                                                                       CO2                       Totals
----------------------------------------------------------------------------------------------------------------
Total production..................  Conventional: 445,000.....  290 g/mi           ..  500,000
                                    PHEV: 25,000..............  80 g/mi
                                    FFV: 30,000...............  160 g/mi
Fleet average standard............  ..........................  300 g/mi
Fleet average.....................  [(445,000 x 290) + (25,000  272 g/mi
                                     x 80) + 30,000 x 160] /
                                     [500,000].
Credits...........................  [(300 - 272) x 500,000 x    .................   =  2,733,696 Mg
                                     195,264] / 1,000,000.
----------------------------------------------------------------------------------------------------------------

    In the 2016 and later model years, the calculation of FFV emissions 
differ substantially from prior years in that the determination of the 
CO2 value to represent an FFV model type will be based upon 
the actual use of the alternative fuel and on actual emissions while 
operating on that fuel. EPA's default assumption in the regulations is 
that the alternative fuel is used negligibly, and the CO2 
value that will apply to an FFV by default would be the value 
determined for operation on conventional fuel. However, if the 
manufacturer believes that the alternative fuel is used in real-world 
driving and that accounting for this use could improve the fleet 
average, the manufacturer has two options. First, the regulations allow 
a manufacturer to request that EPA determine an appropriate weighting 
value for an alternative fuel to reflect the degree of use of that fuel 
in FFVs relative to real-world use of the conventional fuel. Section 
III.C describes how EPA might make this determination. Any value 
determined by EPA will be published by EPA, and that weighting value 
would be available for all manufacturers to use for that fuel. The 
second option allows a manufacturer to determine the degree of 
alternative fuel use for their own vehicle(s), using a variety of 
potential methods. Both the method and the use of the final results 
must be approved by EPA before their use is allowed. In either case, 
whether EPA supplies the weighting factors or EPA approves a 
manufacturer's alternative fuel weighting factors, the CO2 
emissions of an FFV in 2016 and later would be as follows (assuming 
non-zero use of the alternative fuel):

(W1 x CO2conv) + (W2 x CO2alt),

Where W1 and W2 are the proportion of miles driven using 
conventional fuel and alternative fuel, respectively, CO2conv is the 
CO2 value while using conventional fuel, and CO2alt is 
the CO2 value while using the alternative fuel. In the 
example above, for instance, the default CO2 value for 
the fictional FFV described above would be the gasoline value of 280 
g/mi, and the resulting fleet average and total credits would be 279 
g/mi and 2,050,272 megagrams, respectively. However, if the EPA 
determines that real-world ethanol use amounts to 40 percent of 
driving, then using the equation above the FFV would be included in 
the fleet average calculation with a CO2 value of 272 g/
mi, resulting in an overall fleet average of 278 g/mi and total 
credit accumulation of 2,147,904 megagrams.
d. Dedicated Alternative Fuel Vehicle Credits
    Like the FFV credit program described above, these credits will be 
treated differently in the first years of the program than in the 2016 
and later model years. In fact, these credits are essentially identical 
to the FFV credits except for two things: (1) There is no need to 
average CO2 values for gasoline and alternative fuel, and 
(2) in 2016 and later there is no demonstration needed to get a benefit 
from the alternative fuel. The CO2 values are essentially 
determined the same way they are for FFVs operating on the alternative 
fuel. For the 2012 through 2015 model years the CO2 test 
results are multiplied by the credit adjustment factor of 0.15, and the 
result is production-weighted in the fleet average calculation. For 
example, assume that Manufacturer A now produces 20,000 dedicated CNG 
vehicles with CO2 emissions of 220 grams/mile, in addition 
to the FFVs and PHEVs already included in their fleet (Table III.E.5-
4). Prior to the 2016 model year the CO2 emissions

[[Page 25480]]

representing these CNG vehicles will be 33 grams/mile (220 x 0.15).

   Table III.E.5-4--Summary for Manufacturer A: Earning Basic, Advanced Technology, Flexible Fuel Vehicle, and
                                   Dedicated Alternative Fuel Vehicle Credits
----------------------------------------------------------------------------------------------------------------
                                                                      CO2                        Totals
----------------------------------------------------------------------------------------------------------------
Total production..................  Conventional: 425,000....  290 g/mi           ...  500,000
                                    PHEV: 25,000.............  80 g/mi            ...  .........................
                                    FFV: 30,000..............  160 g/mi           ...  .........................
                                    CNG: 20,000..............  33 g/mi            ...  .........................
Fleet average standard............  .........................  300 g/mi           ...  .........................
Fleet average.....................  [(425,000 x 290) +         261 g/mi           ...  .........................
                                     (25,000 x 80) + (30,000
                                     x 160) + (20,000 x 33)] /
                                      [500,000].
Credits...........................  [(300-261) x 500,000 x     .................   =   3,807,648 Mg
                                     195,264] / 1,000,000.
----------------------------------------------------------------------------------------------------------------

    The calculation for 2016 and later will be the same except the 0.15 
credit adjustment factor is removed from the equation, and the CNG 
vehicles in this example would simply be production-weighted in the 
equation using their actual emissions value of 220 grams/mile instead 
of the ``credited'' value of 33 grams/mile.
e. Air Conditioning Leakage Credits
    Unlike the credit programs described above, air conditioning-
related credits do not affect the overall calculation of the fleet 
average or fleet average standard. Whether a manufacturer generates 
zero air conditioning credits or many, the calculated fleet average 
remains the same. Air conditioning credits are calculated and added to 
any credits (or deficit) that results from the fleet average 
calculations shown above. Thus, these credits can increase a 
manufacturer's credit balance or offset a deficit, but their 
calculation is external to the fleet average calculation. As noted in 
Section III.C, manufacturers can generate credits for reducing the 
leakage of refrigerant from their air conditioning systems. To do this 
the manufacturer will identify an air conditioning system improvement, 
indicate that they intend to use the improvement to generate credits, 
and then calculate an annual leakage rate (grams/year) for that system 
based on the method defined by the regulations. Air conditioning 
credits will be determined separately for cars and trucks using the car 
and truck-specific equations described in Section III.C.
    In order to put these credits on the same basis as the basic and 
other credits described above, the air conditioning leakage credits 
will need to be calculated separately for cars and trucks. Thus, the 
resulting grams per mile credit determined from the appropriate car or 
truck equation will be multiplied by the lifetime VMT assigned by EPA 
(195,264 for cars; 225,865 for trucks), and then divided by 1,000,000 
to get the total megagrams of CO2 credits generated by the 
improved air conditioning system. Although the calculations are done 
separately for cars and trucks, the total megagrams will be summed and 
then added to the overall credit balance maintained by the 
manufacturer.
    For example, assume that Manufacturer A has improved an air 
conditioning system that is installed in 250,000 cars and that the 
calculated leakage rate is 12 grams/year. Assume that the manufacturer 
has also implemented a new refrigerant with a Global Warming Potential 
of 850. In this case the credit per air conditioning unit, rounded to 
the nearest gram per mile would be:

[13.8 x [1 - (12/16.6 x 850/1,430)] = 7.9 g/mi.

    Total megagrams of credits would then be:

[7.9 x 250,000 x 195,264] / 1,000,000 = 385,646 Mg.

    These credits would be added directly to a manufacturer's total 
balance; thus in this example Manufacturer A would now have, after 
consideration of all the above credits, a total of 4,193,294 megagrams 
of credits.
f. Air Conditioning Efficiency Credits
    As noted in Section III.C.1.b, manufacturers may earn credits for 
improvements in air conditioning efficiency that reduce the impact of 
the air conditioning system on fuel consumption. These credits are 
similar to the air conditioning leakage credits described above, in 
that these credits are determined independently from the manufacturer's 
fleet average calculation, and the resulting credits are added to the 
manufacturer's overall balance for the respective model year. Like the 
air conditioning leakage credits, these credits can increase a 
manufacturer's credit balance or offset a deficit, but their 
calculation is external to the fleet average calculation.
    In order to put these credits on the same basis as the basic and 
other credits describe above, the air conditioning efficiency credits 
are calculated separately for cars and trucks. Thus, the resulting 
grams per mile credit determined in the above equation is multiplied by 
the lifetime VMT, and then divided by 1,000,000 to get the total 
megagrams of efficiency credits generated by the improved air 
conditioning system. Although the calculations are done separately for 
cars and trucks, the total megagrams can be summed and then added to 
the overall credit balance maintained by the manufacturer.
    As described in Section III.C, manufacturers will determine their 
credit based on selections from a menu of technologies, each of which 
provides a gram per mile credit amount. The credits will be summed for 
all the technologies implemented by the manufacturer, but cannot exceed 
5.7 grams per mile. Once this is done, the calculation is a 
straightforward translation of a gram per mile credit to total car or 
truck megagrams, using the same methodology described above. For 
example, if Manufacturer A implements enough technologies to get the 
maximum 5.7 grams per mile for an air conditioning system that sells 
250,000 units in cars, the calculation of total credits would be as 
follows:

[5.7 x 250,000 x 195,264] / 1,000,000 = 278,251 Mg.

    These credits would be added directly to a manufacturer's total 
balance; thus in this example Manufacturer A would now have, after 
consideration of all the above credits, a total of 4,471,545 megagrams 
of credits.
g. Off-Cycle Technology Credits
    As described in Section III.C, these credits will be available for 
certain new or innovative technologies that achieve

[[Page 25481]]

real-world CO2 reductions that aren't adequately captured on 
the city or highway test cycles used to determine compliance with the 
fleet average standards. Like the air conditioning credits, these 
credits are independent of the fleet average calculation. Section 
III.C.4 describes two options for generating these credits: Either 
using EPA's 5-cycle fuel economy labeling methodology, or if that 
method fails to capture the CO2-reducing impact of the 
technology, the manufacturer could propose and use, with EPA approval, 
a different analytical approach to determining the credit amount. Like 
the air conditioning credits above, these credits will have to be 
determined separately for cars and trucks because of the differing 
lifetime mileage assumptions between cars and trucks.
    Using the 5-cycle approach is relatively straightforward, and 
because the 5-cycle formulae account for nationwide variations in 
driving conditions, no additional adjustments to the test results would 
be necessary. The manufacturer would simply calculate a 5-cycle 
CO2 value with the technology installed and operating and 
compare it with a 5-cycle CO2 value determined without the 
technology installed and/or operating. Existing regulations describe 
how to calculate 5-cycle fuel economy values, and the GHG regulations 
contain provisions that describe how to calculate 5-cycle 
CO2 values (see 40 CFR 600.114-08). The manufacturer will 
have to design a test program that accounts for vehicle differences if 
the technology is installed in different vehicle types, and enough data 
will have to be collected to address data uncertainty issues. 
Manufacturers seeking to generate off-cycle credits based on a 5-cycle 
analysis will be required to submit a description of their test program 
and the results to EPA for approval.
    As noted in Section III.C.4, a manufacturer-developed testing, data 
collection, and analysis program will require additional EPA approval 
and oversight. EPA received considerable comment from environmental and 
public interest organizations suggesting that EPA's decisions about 
which technologies merit off-cycle credit should be open and public. 
EPA agrees that a public process will help ensure a fair review and 
alleviate concerns about potential misuse of the off-cycle credit 
flexibility. Therefore EPA intends to seek public comment on 
manufacturer proposals for off-cycle credit that do not use the 5-cycle 
approach to quantify emission reductions. EPA will consider any 
comments it receives in determining whether and how much credit is 
appropriate. Manufacturers should submit proposals well in advance of 
their desired decision date to allow time for these public and EPA 
reviews.
    Once the demonstration of the CO2 reduction of an off-
cycle technology is complete, and the resulting value accounts for 
variations in driving, climate and other conditions across the country, 
the two approaches are treated fundamentally the same way and in a way 
that parallels the approach for determining the air conditioning 
credits described above. Once a gram per mile value is approved by the 
EPA, the manufacturer will determine the total credit value by 
multiplying the gram per mile per vehicle credit by the production 
volume of vehicles with that technology and approved for use of the 
credit. This would then be multiplied by the lifetime vehicle miles for 
cars or trucks, whichever applies, and divided by 1,000,000 to obtain 
total megagrams of CO2 credits. These credits would then be 
added to the manufacturer's total balance for the given model year. 
Just like the above air conditioning case, an off-cycle technology that 
is demonstrated to achieve an average CO2 reduction of 4.4 
grams/mile and that is installed in 175,000 cars would generate credits 
as follows:

[4.4 x 175,000 x 195,264] / 1,000,000 = 150,353 Mg.
h. End-of-Year Reporting
    In general, implementation of the averaging, banking, and trading 
(ABT) program, including the calculation of credits and deficits, will 
be accomplished via existing reporting mechanisms. EPA's existing 
regulations define how manufacturers calculate fleet average miles per 
gallon for CAFE compliance purposes. Today's action modifies these 
regulations to also require the parallel calculation of fleet average 
CO2 levels for car and light truck compliance categories. 
These regulations already require an end-of-year report for each model 
year, submitted to EPA, which details the test results and calculations 
that determine each manufacturer's CAFE levels. EPA will now require a 
similar report that includes fleet average CO2 levels and 
related information. That can be integrated with the CAFE report at the 
manufacturer's option. In addition to requiring reporting of the actual 
fleet average achieved, this end-of-year report will also contain the 
calculations and data determining the manufacturer's applicable fleet 
average standard for that model year. As under the existing Tier 2 
program, the report will be required to contain the fleet average 
standard, all values required to calculate the fleet average standard, 
the actual fleet average CO2 that was achieved, all values 
required to calculate the actual fleet average, the number of credits 
generated or debits incurred, all the values required to calculate the 
credits or debits, the number of credits bought or sold, and the 
resulting balance of credits or debits.
    Because of the multitude of credit programs that are available 
under the greenhouse gas program, the end-of-year report will be 
required to have more data and a more defined and specific structure 
than the CAFE end-of-year report does today. Although requiring ``all 
the data required'' to calculate a given value should be inclusive, the 
report will contain some requirements specific to certain types of 
credits. For advanced technology credits that apply to vehicles like 
electric vehicles and plug-in hybrid electric vehicles, manufacturers 
will be required to identify the number and type of these vehicles and 
the effect of these credits on their fleet average. The same will be 
true for credits due to flexible-fuel and alternative-fuel vehicles, 
although for 2016 and later flexible-fuel credits manufacturers may 
also have to provide a demonstration of the actual use of the 
alternative fuel in-use and the resulting calculations of 
CO2 values for such vehicles. For air conditioning leakage 
credits manufacturers will have to include a summary of their use of 
such credits that will include which air conditioning systems were 
subject to such credits, information regarding the vehicle models which 
were equipped with credit-earning air conditioning systems, the 
production volume of these air conditioning systems, the leakage score 
of each air conditioning system generating credits, and the resulting 
calculation of leakage credits. Air conditioning efficiency reporting 
will be somewhat more complicated given the phase-in of the efficiency 
test procedure, and reporting will have to detail compliance with the 
phase-in as well as the test results and the resulting efficiency 
credits generated. Similar reporting requirements will also apply to 
the variety of possible off-cycle credit options, where manufacturers 
will have to report the applicable technology, the amount of credit per 
unit, the production volume of the technology, and the total credits 
from that technology.
    Although it is the final end-of-year report, when final production 
numbers are known, that will determine the degree of compliance and the 
actual values of any credits being generated by

[[Page 25482]]

manufacturers, EPA will expect manufacturers to be prepared to discuss 
their compliance approach and their potential use of the variety of 
credit options in pre-certification meetings that EPA routinely has 
with manufacturers. In addition, and in conjunction with a pre-model 
year report required under the CAFE program, the manufacturer will be 
required to submit projections of all of the elements described above, 
plus any projected credit trading transactions (described below).
    Finally, to the extent that there are any credit transactions, the 
manufacturer will have to detail in the end-of-year report 
documentation on all credit transactions that the manufacturer has 
engaged in. Information for each transaction will include: the name of 
the credit provider, the name of the credit recipient, the date the 
transfer occurred, the quantity of credits transferred, and the model 
year in which the credits were earned. The final report is due to EPA 
within 90 days of the end of the model year, or no later than March 31 
in the calendar year after the calendar year named for the model year. 
For example, the final GHG report for the 2012 model year is due no 
later than March 31, 2013. Failure by the manufacturer to submit the 
annual report in the specified time period will be considered to be a 
violation of section 203(a)(1) of the Clean Air Act.
6. Enforcement
    As discussed above in Section III.E.5, manufacturers will report to 
EPA their fleet average and fleet average standard for a given model 
year (reporting separately for each of the car and truck averaging 
sets), the credits or deficits generated in the current year, the 
balance of credit balances or deficits (taking into account banked 
credits, deficit carry-forward, etc. see Section III.E.5), and whether 
they were in compliance with the fleet average standard under the terms 
of the regulations. EPA will review the annual reports, figures, and 
calculations submitted by the manufacturer to determine any 
nonconformance.
    Each certificate, required prior to introduction into commerce, 
will be conditioned upon the manufacturer attaining the CO2 
fleet average standard. If a manufacturer fails to meet this condition 
and has not generated or purchased enough credits to cover the fleet 
average exceedance following the three year deficit carry-forward 
(Section III.B.4, then EPA will review the manufacturer's production 
for the model year in which the deficit originated and designate which 
vehicles caused the fleet average standard to be exceeded.
    EPA proposed that the vehicles that would be identified as 
nonconforming would come from the most recent model year, and some 
comments pointed out that this was inconsistent with how the NLEV and 
Tier 2 programs were structured. EPA agrees with these comments and is 
finalizing an enforcement structure that is essentially identical to 
the one in place for existing programs. EPA would designate as 
nonconforming those vehicles with the highest emission values first, 
continuing until a number of vehicles equal to the calculated number of 
non-complying vehicles as determined above is reached. Those vehicles 
would be considered to be not covered by the certificates of conformity 
covering those model types. In a test group where only a portion of 
vehicles would be deemed nonconforming, EPA would determine the actual 
nonconforming vehicles by counting backwards from the last vehicle 
produced in that model type. A manufacturer would be subject to 
penalties and injunctive orders on an individual vehicle basis for sale 
of vehicles not covered by a certificate. This is the same general 
mechanism used for the National LEV and Tier 2 corporate average 
standards.
    Section 205 of the CAA authorizes EPA to assess penalties of up to 
$37,500 per vehicle for violations of the requirements or prohibitions 
of this rule.\282\ This section of the CAA provides that the agency 
shall take the following penalty factors into consideration in 
determining the appropriate penalty for any specific case: the gravity 
of the violation, the economic benefit or savings (if any) resulting 
from the violation, the size of the violator's business, the violator's 
history of compliance with this title, action taken to remedy the 
violation, the effect of the penalty on the violator's ability to 
continue in business, and such other matters as justice may require.
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    \282\ 42 U.S.C. 7524(a), Civil Monetary Penalty Inflation 
Adjustment, 69 FR 7121 (Feb. 13, 2004) and Civil Monetary Penalty 
Inflation Adjustment Rule, 73 FR 75340 (Dec. 11, 2008).
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    Manufacturer comments expressed concern about potential enforcement 
action for violations of the greenhouse gas standards, and the 
circumstances under which EPA would impose penalties. Manufacturers 
also suggested that EPA should adopt a penalty structure similar to the 
one in place under CAFE.
    The CAA specifies different civil penalty provisions for 
noncompliance than EPCA does, and EPA cannot therefore adopt the CAFE 
penalty structure. However, EPA recognizes that it may be appropriate, 
should a manufacturer fail to comply with the NHTSA fuel economy 
standards as well as the CO2 standard in a case arising out 
of the same facts and circumstances, to take into account the civil 
penalties that NHTSA has assessed for violations of the CAFE standards 
when determining the appropriate penalty amount for violations of the 
CO2 emissions standards. This approach is consistent with 
EPA's broad discretion to consider ``such other matters as justice may 
require,'' and will allow EPA to exercise its discretion to prevent 
injustice and ensure that penalties for violations of the 
CO2 rule are assessed in a fair and reasonable manner.
    The statutory penalty factor that allows EPA to consider ``such 
other matters as justice may require'' vests EPA with broad discretion 
to reduce the penalty when other adjustment factors prove insufficient 
or inappropriate to achieve justice.\283\ The underlying principle of 
this penalty factor is to operate as a safety mechanism when necessary 
to prevent injustice.\284\
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    \283\ In re Spang & Co., 6 E.A.D. 226, 249 (EAB 1995).
    \284\ B.J. Carney Industries, 7 E.A.D. 171, 232, n. 82 (EAB 
1997).
---------------------------------------------------------------------------

    In other environmental statutes, Congress has specifically required 
EPA to consider penalties assessed by other government agencies where 
violations arise from the same set of facts. For instance, section 
311(b)(8) of the Clean Water Act, 33 U.S.C. 1321(b)(8) authorizes EPA 
to consider any other penalty for the same incident when determining 
the appropriate Clean Water Act penalty. Likewise, section 113(e) of 
the CAA authorizes EPA to consider ``payment by the violator of 
penalties previously assessed for the same violation'' when assessing 
penalties for certain violations of Title I of the Act.
7. Prohibited Acts in the CAA
    Section 203 of the Clean Air Act describes acts that are prohibited 
by law. This section and associated regulations apply equally to the 
greenhouse gas standards as to any other regulated emission. Acts that 
are prohibited by section 203 of the Clean Air Act include the 
introduction into commerce or the sale of a vehicle without a 
certificate of conformity, removing or otherwise defeating emission 
control equipment, the sale or installation of devices designed to 
defeat emission controls, and other actions. EPA proposed to include in 
the

[[Page 25483]]

regulations a new section that details these prohibited acts. Prior 
regulations, such as the NLEV program, had included such a section, and 
although there is no burden associated with the regulations or any 
specific need to repeat what is in the Clean Air Act, EPA believes that 
including this language in the regulations provides clarity and 
improves the ease of use and completeness of the regulations. No 
comments were received on the proposal, and EPA is finalizing the 
section on prohibited acts (see 40 CFR 86.1854-12).
8. Other Certification Issues
a. Carryover/Carry Across Certification Test Data
    EPA's certification program for vehicles allows manufacturers to 
carry certification test data over and across certification testing 
from one model year to the next, when no significant changes to models 
are made. EPA will also apply this policy to CO2, 
N2O and CH4 certification test data. A 
manufacturer may also be eligible to use carryover and carry across 
data to demonstrate CO2 fleet average compliance if they 
have done so for CAFE purposes.
b. Compliance Fees
    The CAA allows EPA to collect fees to cover the costs of issuing 
certificates of conformity for the classes of vehicles and engines 
covered by this rule. On May 11, 2004, EPA updated its fees regulation 
based on a study of the costs associated with its motor vehicle and 
engine compliance program (69 FR 51402). At the time that cost study 
was conducted the current rulemaking was not considered.
    At this time the extent of any added costs to EPA as a result of 
this rule is not known. EPA will assess its compliance testing and 
other activities associated with the rule and may amend its fees 
regulations in the future to include any warranted new costs.
c. Small Entity Exemption
    EPA is exempting small entities, and these entities (necessarily) 
would not be subject to the certification requirements of this rule.
    As discussed in Section III.B.8, businesses meeting the Small 
Business Administration (SBA) criterion of a small business as 
described in 13 CFR 121.201 would not be subject to the GHG 
requirements, pending future regulatory action. EPA proposed that such 
entities instead be required to submit a declaration to EPA containing 
a detailed written description of how that manufacturer qualifies as a 
small entity under the provisions of 13 CFR 121.201. EPA has 
reconsidered the need for this additional submission under the 
regulations and is deleting it as not necessary. We already have 
information on the limited number of small entities that we expect 
would receive the benefits of the exemption, and do not need the 
proposed regulatory requirement to be able to effectively implement 
this exemption for those parties who in fact meet its terms. Small 
entities are currently covered by a number of EPA motor vehicle 
emission regulations, and they routinely submit information and data on 
an annual basis as part of their compliance responsibilities.
    As discussed in detail in Section III.B.6, small volume 
manufacturers with annual sales volumes of less than 5,000 vehicles 
will also be deferred from the CO2 standards, pending future 
regulatory action. These manufacturers would still be required to meet 
N2O and CH4 standards, however. To qualify for 
CO2 standard deferral, manufacturers would need to submit a 
declaration to EPA, and would also be required to demonstrate due 
diligence in having attempted to first secure credits from other 
manufacturers. This declaration would have to be signed by a chief 
officer of the company, and would have to be made at least 30 days 
prior to the introduction into commerce of any vehicles for each model 
year for which the small volume manufacturer status is requested, but 
not later than December of the calendar year prior to the model year 
for which deferral is requested. For example, if a manufacturer will be 
introducing model year 2012 vehicles in October of 2011, then the small 
volume manufacturer declaration would be due in September, 2011. If 
2012 model year vehicles are not planned for introduction until March, 
2012, then the declaration would have to be submitted in December, 
2011. Such manufacturers are not automatically exempted from other EPA 
regulations for light-duty vehicles and light-duty trucks; therefore, 
absent this annual declaration EPA would assume that each manufacturer 
was not deferred from compliance with the greenhouse gas standards.
d. Onboard Diagnostics (OBD) and CO2 Regulations
    The light-duty on-board diagnostics (OBD) regulations require 
manufacturers to detect and identify malfunctions in all monitored 
emission-related powertrain systems or components.\285\ Specifically, 
the OBD system is required to monitor catalysts, oxygen sensors, engine 
misfire, evaporative system leaks, and any other emission control 
systems directly intended to control emissions, such as exhaust gas 
recirculation (EGR), secondary air, and fuel control systems. The 
monitoring threshold for all of these systems or components is 1.5 
times the applicable standards, which typically include NMHC, CO, 
NOX, and PM. EPA did not propose that CO2 
emissions would become one of the applicable standards required to be 
monitored by the OBD system. EPA did not propose CO2 become 
an applicable standard for OBD because it was confident that many of 
the emission-related systems and components currently monitored would 
effectively catch any malfunctions related to CO2 emissions. 
For example, malfunctions resulting from engine misfire, oxygen 
sensors, the EGR system, the secondary air system, and the fuel control 
system would all have an impact on CO2 emissions. Thus, 
repairs made to any of these systems or components should also result 
in an improvement in CO2 emissions. In addition, EPA did not 
have data on the feasibility or effectiveness of monitoring various 
emission systems and components for CO2 emissions and did 
not believe that it would be prudent to include CO2 
emissions without such information.
---------------------------------------------------------------------------

    \285\ 40 CFR 86.1806-04.
---------------------------------------------------------------------------

    EPA did not address whether N2O or CH4 
emissions should become applicable standards for OBD monitoring in the 
proposal. Several manufacturers felt that EPA's silence on this issue 
implied that EPA was proposing that N2O and CH4 
emissions become applicable OBD standards. They commented that EPA 
should not include them as part of OBD. They felt that adding 
N2O and CH4 would significantly increase OBD 
development burden, without significant benefit, since any malfunctions 
that increase N2O and CH4 would likely be caught 
by current OBD system designs. EPA agrees with the manufacturer's 
comments on including N2O and CH4 as applicable 
standards. Therefore, at this time, EPA is not requiring 
CO2, N2O, and CH4 emissions as one of 
the applicable standards required for the OBD monitoring threshold. EPA 
plans to evaluate OBD monitoring technology, with regard to monitoring 
these GHG emissions-related systems and components, and may choose to 
propose to include CO2, N2O, and CH4 
emissions as part of the OBD requirements in a future regulatory 
action.

[[Page 25484]]

e. Applicability of Current High Altitude Provisions to Greenhouse 
Gases
    Vehicles covered by this rule must meet the CO2, 
N2O and CH4 standard at altitude. The CAA 
requires emission standards under section 202 for light-duty vehicles 
and trucks to apply at all altitudes.\286\ EPA does not expect vehicle 
CO2, CH4, or N2O emissions to be 
significantly different at high altitudes based on vehicle calibrations 
commonly used at all altitudes. Therefore, EPA will retain its current 
high altitude regulations so manufacturers will not normally be 
required to submit vehicle CO2 test data for high altitude. 
Instead, they must submit an engineering evaluation indicating that 
common calibration approaches will be utilized at high altitude. Any 
deviation in emission control practices employed only at altitude will 
need to be included in the auxiliary emission control device (AECD) 
descriptions submitted by manufacturers at certification. In addition, 
any AECD specific to high altitude will be required to include 
emissions data to allow EPA evaluate and quantify any emission impact 
and validity of the AECD.
---------------------------------------------------------------------------

    \286\ See CAA 206(f).
---------------------------------------------------------------------------

f. Applicability of Standards to Aftermarket Conversions
    With the exception of the small entity and small volume exemptions, 
EPA's emission standards, including greenhouse gas standards, will 
continue to apply as stated in the applicability sections of the 
relevant regulations. The greenhouse gas standards are being 
incorporated into 40 CFR part 86, subpart S, which includes exhaust and 
evaporative emission standards for criteria pollutants. Subpart S 
includes requirements for new light-duty vehicles, light-duty trucks, 
medium-duty passenger vehicles, Otto-cycle complete heavy-duty 
vehicles, and some incomplete light-duty trucks. Subpart S is currently 
specifically applicable to aftermarket conversion systems, aftermarket 
conversion installers, and aftermarket conversion certifiers, as those 
terms are defined in 40 CFR 85.502. EPA expects that some aftermarket 
conversion companies will qualify for and seek the small entity and/or 
small volume exemption, but those that do not qualify will be required 
to meet the applicable emission standards, including the greenhouse gas 
standards.
g. Geographical Location of Greenhouse Gas Fleet Vehicles
    One manufacturer commented that the CAFE sales area location 
defined by Department of Transportation regulations is different than 
the EPA sales area location defined by the CAA. DOT regulations require 
CAFE compliance \287\ in the 50 states, the District of Columbia, and 
Puerto Rico. However, EPA emission certification regulations require 
emission compliance \288\ in the 50 states, the District of Columbia, 
the Puerto Rico, the Virgin Islands, Guam, American Samoa and the 
Commonwealth of the Northern Mariana Islands.
---------------------------------------------------------------------------

    \287\ DOT regulations at 49 CFR 525.4(a)(5) read ``The term 
customs territory of the United States is used as defined in 19 
U.S.C. 1202.'' Section 19 U.S.C. 1202 has been replaced by the 
Harmonized Tariff Schedule of the United States. The Harmonized 
Tariff Schedule reads in part that ``The term `customs territory of 
the United States' * * * includes only the States, the District of 
Columbia, and Puerto Rico.''
    \288\ Section 216 of the Clean Air Act defines the term commerce 
to mean ``(A) commerce between any place in any State and any place 
outside thereof; and (B) commerce wholly within the District of 
Columbia.''
    Section 302(d) of the Clean Air Act reads ``The term `State' 
means a State, the District of Columbia, the Commonwealth of Puerto 
Rico, the Virgin Islands, Guam, and American Samoa and includes the 
Commonwealth of the Northern Mariana Islands.'' In addition, 40 CFR 
85.1502(14) regarding the importation of motor vehicles and motor 
vehicle engines defines the United States to include ``the States, 
the District of Columbia, the Commonwealth of Puerto Rico, the 
Commonwealth of the Northern Mariana Islands, Guam, American Samoa, 
and the U.S. Virgin Islands.''
---------------------------------------------------------------------------

    The comment stated that EPA has the discretion under the CAA to 
align the sales area location of production vehicles for the greenhouse 
gas fleet with the sales area location for the CAFE fleet and 
recommended that EPA amend the definitions in 40 CFR 86.1803 
accordingly. This would exclude from greenhouse gas requirements 
production vehicles that are introduced into commerce in the Virgin 
Islands, Guam, American Samoa, and the Commonwealth of the Northern 
Mariana.
    Although EPA has tried to harmonize greenhouse gas and CAFE 
requirements in this rule to the extent possible, EPA believes that the 
approach suggested in comment would be contrary to the requirements of 
the Act. EPA does not believe that the Agency has discretion under the 
CAA to exclude from greenhouse gas requirements production vehicles 
introduced into commerce in the Virgin Islands, Guam, American Samoa, 
and the Commonwealth of the Northern Mariana Islands. In addition, this 
change would introduce an undesirable level of complexity into the 
certification process and result in confusion due to vehicles intended 
for commerce in separate geographical locations being covered under a 
single certificate. For these reasons, EPA will retain the proposed 
greenhouse gas production vehicle sales area location as defined in the 
CAA.
9. Miscellaneous Revisions to Existing Regulations
a. Revisions and Additions to Definitions
    EPA has amended its definitions of ``engine code,'' ``transmission 
class,'' and ``transmission configuration'' in its vehicle 
certification regulations (part 86) to conform to the definitions for 
those terms in its fuel economy regulations (part 600). The exact terms 
in part 86 are used for reporting purposes and are not used for any 
compliance purpose (e.g., an engine code will not determine which 
vehicle is selected for emission testing). However, the terms are used 
for this purpose in part 600 (e.g., engine codes, transmission class, 
and transmission configurations are all criteria used to determine 
which vehicles are to be tested for the purposes of establishing 
corporate average fuel economy). Since the same vehicles tested to 
determine corporate average fuel economy will also be tested to 
determine fleet average CO2, the same definitions will 
apply. Thus EPA has amended its part 86 definitions of the above terms 
to conform to the definitions in part 600.
    Two provisions have been amended to bring EPA's fuel economy 
regulations in Part 600 into conformity with the fleet average 
CO2 requirement contained in this rulemaking and with 
NHTSA's reform truck regulations. First, the definition of 
``footprint'' in this rule is also being added to EPA's part 86 and 600 
regulations. This definition is based on the definition promulgated by 
NHTSA at 49 CFR 523.2. Second, EPA is amending its model year CAFE 
reporting regulations to include the footprint information necessary 
for EPA to determine the reformed truck standards and the corporate 
average fuel economy. This same information is included in this rule 
for fleet average CO2 and fuel economy compliance.
b. Addition of Ethanol Fuel Economy Calculation Procedures
    EPA has amended part 600 to add calculation procedures for 
determining the carbon-related exhaust emissions and calculating the 
fuel economy of vehicles operating on ethanol fuel. Manufacturers have 
been using these procedures as needed, but the regulatory

[[Page 25485]]

language--which specifies how to determine the fuel economy of 
gasoline, diesel, compressed natural gas, and methanol fueled 
vehicles--has not previously been updated to specify procedures for 
vehicles operating on ethanol. Under today's rule EPA is requiring use 
of a carbon balance approach for ethanol-fueled vehicles that is 
similar to the way carbon-related exhaust emissions are calculated for 
vehicles operating on other fuels for the purpose of determining fuel 
economy and for compliance with the fleet average CO2 
standards. The carbon balance formula is similar to the one in place 
for methanol, except that ethanol and acetaldehyde emissions must also 
be measured for ethanol-fueled vehicles. The carbon balance equation 
for determining fuel economy is as follows, where CWF is the carbon 
weight fraction of the fuel and CWFexHC is the carbon weight 
fraction of the exhaust hydrocarbons:

mpg = (CWF x SG x 3781.8)/((CWFexHC x HC) + (0.429 x CO) + 
(0.273 x CO2) + (0.375 x CH3OH) + (0.400 x HCHO) 
+ (0.521 x C2H5OH) + (0.545 x 
C2H4O)).

The equation for determining the total carbon-related exhaust emissions 
for compliance with the CO2 fleet average standards is the 
following, where CWFexHC is the carbon weight fraction of 
the exhaust hydrocarbons:

CO2-eq = (CWFexHC x HC) + (0.429 x CO) + (0.375 x 
CH3OH) + (0.400 x HCHO) + (0.521 x 
C2H5OH) + (0.545 x C2H4O) + 
CO2.
c. Revision of Electric Vehicle Applicability Provisions
    In 1980, EPA issued a rule that provided for the inclusion of 
electric vehicles in the CAFE program.\289\ EPA now believes that 
certain provisions of the regulations should be updated to reflect the 
current state of motor vehicle emission and fuel economy regulations. 
In particular, EPA believes that the exemption of electric vehicles in 
certain cases from fuel economy labeling and CAFE requirements should 
be reevaluated and revised.
---------------------------------------------------------------------------

    \289\ 45 FR 49256, July 24, 1980.
---------------------------------------------------------------------------

    The 1980 rule created an exemption for electric vehicles from fuel 
economy labeling in the following cases: (1) If the electric vehicles 
are produced by a company that produces only electric vehicles; and (2) 
if the electric vehicles are produced by a company that produces fewer 
than 10,000 vehicles of all kinds worldwide. EPA believes that this 
exemption language is no longer appropriate and is deleting it from the 
affected regulations. First, since 1980 many regulatory provisions have 
been put in place to address the concerns of small manufacturers and 
enable them to comply with fuel economy and emission programs with 
reduced burden. EPA believes that all small volume manufacturers should 
compete on a fair and level regulatory playing field and that there is 
no longer a need to treat small volume electric vehicles any 
differently than small volume manufacturers of other types of vehicles. 
Current regulations contain streamlined certification procedures for 
small companies, and because electric vehicles emit no direct pollution 
there is effectively no certification emission testing burden. For 
example, the greenhouse gas regulations contain a provision allowing 
the exemption of certain small entities. Meeting the requirements for 
fuel economy labeling and CAFE will entail a testing, reporting, and 
labeling burden, but these burdens are not extraordinary and should be 
applied equally to all small volume manufacturers, regardless of the 
fuel that moves their vehicles. EPA has been working with existing 
electric vehicle manufacturers on fuel economy labeling, and EPA 
believes it is important for the consumer to have impartial, accurate, 
and useful label information regarding the energy consumption of these 
vehicles. Second, EPCA does not provide for an exemption of electric 
vehicles from NHTSA's CAFE program, and NHTSA regulations regarding the 
applicability of the CAFE program do not provide an exemption for 
electric vehicles. Third, the blanket exemption for any manufacturer of 
only electric vehicles assumed at the time that these companies would 
all be small, but the exemption language inappropriately did not 
account for size and would allow large manufacturers to be exempt as 
well. Finally, because of growth expected in the electric vehicle 
market in the future, EPA believes that the labeling and CAFE 
regulations need to be designed to more specifically accommodate 
electric vehicles and to require that consumers be provided with 
appropriate information regarding these vehicles. For these reasons EPA 
has revised 40 CFR Part 600 applicability regulations such that these 
electric vehicle exemptions are deleted starting with the 2012 model 
year.
d. Miscellaneous Conforming Regulatory Amendments
    EPA has made a number of minor amendments to update the regulations 
as needed or to ensure that the regulations are consistent with changes 
discussed in this preamble. For example, for consistency with the 
ethanol fuel economy calculation procedures discussed above, EPA has 
amended regulations where necessary to require the collection of 
emissions of ethanol and acetaldehyde. Other changes are made to 
applicable sections to remove obsolete regulatory requirements such as 
phase-ins related to EPA's Tier 2 emission standards program, and still 
other changes are made to better accommodate electric vehicles in EPA 
emission control regulations. Not all of these minor amendments are 
noted in this preamble, thus the reader should carefully evaluate 
regulatory text to ensure a complete understanding of the regulatory 
changes being promulgated by EPA.
    In the process of amending regulations that vary in applicability 
by model year, EPA has several approaches that can be taken. The first 
option is to amend an existing section of the regulations. For example, 
EPA did this in the final regulations with Sec.  86.111-94. In this 
case EPA chose to directly amend this section--which applies to 1994 
and later model years as indicated by the suffix after the hyphen--but 
ensure that the model year of applicability of the amendments (2015 and 
later for N2O measurement) is stated clearly in the 
regulatory text. A second option is to create a new section with 
specific applicability to the 2012 and later model years; i.e., a 
section number with a ``12'' following the hyphen. This approach 
typically involves pulling forward all the language from an earlier 
model year section, then amending as needed (but it could also involve 
a wholesale revision and replacement with entirely new language). For 
example, EPA took this approach with Sec.  86.1809-12. Although only 
paragraphs (d) and (e) contain revisions pertaining to this greenhouse 
gas rule, the remainder of the section is ``pulled forward'' from a 
prior model year section (in this case, Sec.  86.1809-10) for 
completeness. Thus paragraphs (a) through (c) are unchanged relative to 
the prior model year section. Readers should therefore be aware that 
sections that are indicated as taking effect in the 2012 model year may 
differ in only subtle ways from the prior model year section being 
superseded. A third approach (not used in this regulation) is to use 
the ``Reserved. For guidance see * * *'' technique. For example, in the 
Sec.  86.1809-12, rather than bring forward the existing language from 
paragraphs (a) through (c), EPA could have simply put a statement in 
the regulations

[[Page 25486]]

directing the reader to refer back to Sec.  86.1809-10 for those 
requirements. This method has been used in the past, but is not being 
used in this regulation.
10. Warranty, Defect Reporting, and Other Emission-Related Components 
Provisions
    As outlined in the proposal, Section 207(a) of the Clean Air Act 
(CAA) requires manufacturers to provide a defect warranty that warrants 
a vehicle is designed to comply with emission standards and will be 
free from defects that may cause noncompliance over the specified 
warranty period which is 2 years/24,000 miles (whichever is first) or, 
for major emission control components, 8 years/80,000 miles. The 
warranty covers parts which must function properly to assure continued 
compliance with emission standards. The proposal explained that under 
the greenhouse gas rule, this coverage would include compliance with 
the proposed CO2, CH4, and N2O 
standards. The proposal did not discuss the CAA Section 207(b) 
performance warranty.
    EPA proposed to include air conditioning system components under 
the CAA section 207(a) emission warranty in cases where manufacturers 
use air conditioning leakage and efficiency credits to comply with the 
proposed fleet average CO2 standards. The warranty period of 
2 years/24,000 miles would apply. EPA requested comments as to whether 
any other parts or components should be designated as ``emission 
related parts'' and thus subject to warranty and defect reporting 
provisions under this rule.
    The Alliance of Automobile Manufacturers (Alliance), Toyota and the 
State of New Jersey provided comments. The State of New Jersey 
supported EPA's proposal to include motor vehicle air conditioning 
system components under the emission warranty provisions. Both the 
Alliance and Toyota commented that emission warranty requirements are 
not appropriate for mobile air conditioners because (1) in-use 
performance of the air conditioning system at levels comparable to a 
new vehicle is not needed to achieve the emission levels targeted by 
EPA and (2) manufacturer general warranties already cover air 
conditioning systems and are typically longer than the two-year/24,000 
mile proposed emissions warranty period.
    Regarding direct emissions (refrigerant leakage), the Alliance and 
Toyota commented that warranty requirements are unnecessary for 
refrigerants with a global warming potential (GWP) below 150 because 
the environmental impact is negligible even if refrigerants are 
released from the system. Regarding indirect emissions (fuel consumed 
to power the air conditioning system), the Alliance commented that EPA 
should not require warranty coverage of the air conditioning system 
because in the vast majority of air conditioning failure modes, the 
system stops cooling and ceases operation--either because the critical 
moving parts stop moving or because the system is switched off--thereby 
actually reducing the indirect CO2 emissions.
    EPA received no comments regarding (1) other parts or components 
which should be designated as ``emission related parts'' subject to 
warranty requirements, (2) defect reporting requirements, or (3) other 
requirements associated with warranty and defect reporting requirements 
(e.g., voluntary emission-related recall reporting requirements, 
performance warranty requirements, voluntary aftermarket parts 
certification requirements or tampering requirements.
    Defect Warranty. EPA's current policy for defect warranty 
requirements is provided in Section 207 of the Act. There are currently 
no defect warranty regulations. Congress provided under Section 207(a) 
and (b) of the CAA that emission-related components shall be covered 
under the 207(a) defect warranty and the 207(b) performance warranty 
for the warranty period outlined in section 207(i) of the CAA. For 
example, section 207(a) reads in part:

``* * * the manufacturer of each new motor vehicle and new motor 
vehicle engine shall warrant to the ultimate purchaser and each 
subsequent purchaser that such vehicle or engine is (A) designed, 
built and equipped so as to conform at the time of sale with 
applicable regulations under section 202, and (B) free from defects 
in materials and workmanship which cause such vehicle or engine to 
fail to conform with applicable regulations for its useful life (as 
determined under sec. 202(d)). In the case of vehicles and engines 
manufactured in the model year 1995 and thereafter such warranty 
shall require that the vehicle or engine is free from any such 
defects for the warranty period provided under subsection (i).''

    Section 207(i) reads in part:

    ``(i) Warranty Period.--
    (1) In General.--For purposes of subsection (a)(1) and 
subsection (b), the warranty period, effective with respect to new 
light-duty trucks and new light-duty vehicles and engines, 
manufactured in model year 1995 and thereafter, shall be the first 2 
years or 24,000 miles of use (whichever first occurs), except as 
provided in paragraph (2). For the purposes of subsection (a)(1) and 
subsection (b), for other vehicles and engines the warranty period 
shall be the period established by the Administrator by regulation 
(promulgated prior to the enactment of the Clean Air Act Amendments 
of 1990) for such purposes unless the Administrator subsequently 
modifies such regulation.
    (2) In the case of a specified major emission control component, 
the warranty period for new light-duty trucks and new light-duty 
vehicles manufactured in the model year 1995 and thereafter for 
purposes of subsection (a)(1) and subsection (b) shall be 8 years or 
80,000 miles of use (whichever first occurs). As used in this 
paragraph, the term `specified major emission control component' 
means only a catalytic converter, an electronic emissions control 
unit, and an onboard emissions diagnostic device, except that the 
Administrator may designate any other pollution control device or 
component as a specified major emission control component if--(A) 
the device or component was not in general use on vehicles and 
engines manufactured prior to the model year 1990; and (B) the 
Administrator determines that the retail cost (exclusive of 
installation costs) of such device or component exceeds $200 (in 
1989 dollars, adjusted for inflation or deflation) as calculated by 
the Administrator at the time of such determination * * *''

    Thus, the CAA provides the basis of the warranty requirements 
contained in today's final rule, which will cover ``emission related 
parts'' necessary to provide compliance with CO2, 
CH4, and N2O standards. Emission related parts 
would include those parts, systems, components and software installed 
for the specific purpose of controlling emissions or those components, 
systems, or elements of design which must function properly to assure 
continued vehicle emission compliance, including compliance with 
CO2, CH4, and N2O standards; (similar 
to the current definition of ``emission related parts'' provided in 40 
CFR 85.2102(14) for performance warranty requirements). For example, 
today's action will extend defect warranty requirements to emission-
related components on advanced technology vehicles such as cylinder 
deactivation components or batteries used in hybrid-electric vehicles.
    Under today's rule, EPA will extend the defect warranty requirement 
to emission-related components necessary to meet CO2, 
CH4, and N2O standards, including emission-
related components which are used to obtain optional credits for (1) 
certification of advanced technology vehicles, (2) credits for 
reduction of air conditioning refrigerant leakage, (3) credits for 
improving air conditioning system efficiency, (4) credits for off-cycle 
CO2 reducing technologies, and (5) optional early credits 
for 2009-2011 model year vehicles outlined in the provisions of 40

[[Page 25487]]

CFR 86.1867-12 (which are required to be reported to EPA after the 2011 
model year).
    Regarding the comments received by the Alliance and Toyota, that 
warranty coverage is not needed for air conditioning components, EPA 
believes that the Clean Air Act requires warranty coverage on 
components used to demonstrate compliance with the emission standards, 
including components used in the optional credit programs for reduction 
of air conditioning refrigerant leakage and air conditioning efficiency 
improvements. EPA does not have the discretion to forgo warranty 
requirements by regulation in today's final rule. Thus, the Agency is 
adopting defect warranty requirements for air conditioning components 
as proposed.
    Effective date of Warranty for Components used to Obtain Early 
Credits. Regarding the defect warranty for emission-related components 
used to obtain optional early credits for 2009-2011 vehicles, the 
defect warranty should provide coverage for these components at the 
time the early credits report is submitted to EPA (e.g., no later than 
90 days after the end of the 2011 model year). For example, the defect 
warranty for early credit components does not have to apply 
retroactively (before the manufacturer declares the credits to EPA). 
The Agency believes this approach is reasonable, because (1) 
manufacturer's early credit plans may not be finalized until after 
vehicles have been produced; (2) manufacturers will be provided 
satisfactory lead time to provide warranty requirements to customers; 
and (3) the manufacturer's basic (bumper-to-bumper) warranty for air 
conditioning and other early credit components are typically longer 
than the two-year/24,000 mile proposed warranty period which will be 
applicable to most early credit components.
    Performance Warranty. EPA did not propose any changes to the 
current performance warranty requirements, because the performance 
warranty preconditions outlined in section 207(b) of the CAA have not 
been satisfied. For example, section 207(b) of the CAA comes into play 
if EPA issues performance warranty short test regulations and 
determines that there are inspection facilities available in the field 
to determine when vehicles do not comply with greenhouse gas emission 
standards. Once EPA issues performance warranty short test regulations, 
then the CAA performance warranty provisions require the manufacturer 
to pay for emission-related repairs if a vehicle is properly maintained 
and used, and fails the short test and is required to repair the 
vehicle. Currently the provisions of 85.2207 and 85.2222 provide 
performance warranty short test (commonly called an inspection and 
maintenance or I/M test). The provisions of 85.2207 and 85.2222 provide 
an I/M test procedure and failure criteria based on an inspection of 
the onboard diagnostic (OBD) system of the vehicle. The OBD inspection 
procedure in 85.2222 is currently used in most areas of the country 
where I/M tests are required. For example, a vehicle fails the OBD test 
procedure outlined in 85.2222 if the vehicle's MIL is commanded to be 
``on'' during the I/M test procedure.
    Although most areas of the country which require I/M testing use 
the OBD test procedure outlined in 40 CFR 85.2207 and 85.2222, the NPRM 
did not propose that the OBD system would be required to monitor 
CO2, CH4 or N2O emission performance, 
ref 74 FR 49574 and 74 FR 49755. Therefore, the performance warranty 
preconditions in 201(b) of the CAA are not currently in effect for 
greenhouse gas CO2 emissions. The performance warranty 
continues to apply for criteria pollutants but not for greenhouse 
emissions.
    Defect Reporting and Voluntary Emission-related Recall Reporting 
Requirements. EPA did not propose any changes to the current defect 
reporting and voluntary emission-related recall reporting requirements 
outlined in the provisions of 40 CFR 85.1901-1909. Although EPA 
requested comments, we did not receive any comments on defect reporting 
and voluntary emission-related recall reporting requirements. Current 
regulations require manufacturers to submit a defect report to EPA 
whenever an emission-related defect exists in 25 or more in-use 
vehicles or engines of the same model year. The defect report is 
required to be submitted to EPA within 15 working days of the time the 
manufacturer becomes aware of a defect that affects 25 or more 
vehicles. Current regulations require manufacturers to submit to EPA 
voluntary emission-related recall reports within 15 working days of the 
date when owner notification begins.
    Similar to the performance warranty requirements outlined above, 
the Agency believes that as proposed, defect reporting and voluntary 
emission-related recall reporting requirements would apply to emission-
related components necessary to meet CO2, CH4, 
and N2O standards for the useful life of the vehicle, 
including emission-related components that are used to obtain optional 
credits for (1) certification of advanced technology vehicles, (2) 
credits for reduction of air conditioning refrigerant leakage, (3) 
credits for improving air conditioning system efficiency, and (4) 
credits for off-cycle CO2 reducing technologies, and (5) 
optional early credits for 2009-2011 model year vehicles outlined in 
the provisions of 40 CFR 86.1867-12 (which are required to be reported 
to EPA after the 2011 model year). For early credit components, defect 
reporting requirements and voluntary emission-related recall reporting 
requirements become effective at the time the early credits report is 
submitted to EPA (e.g., no later than 90 days after the end of the 2011 
model year).
    The final rule includes a minor clarification to the provisions of 
40 CFR 85.1902 (b) and (d) to clarify that beginning with the 2012 
model year, manufacturers are required to report emission-related 
defects and voluntary emission recalls to EPA, including emission-
related defects and voluntary emission recalls related to greenhouse 
gas emissions (CH4, N2O and CO2).
11. Light Duty Vehicles and Fuel Economy Labeling
    American consumers need accurate and meaningful information about 
the environmental and fuel economy performance of new light duty 
vehicles. EPA believes it is important that the fuel-economy label 
affixed to the new vehicles provide consumers with the critical 
information they need to make smart purchase decisions, especially in 
light of the expected increase in market share of electric and other 
advanced technology vehicles. Consumers may need new and different 
information than today's vehicle labels provide in order to help them 
understand the energy use and associated cost of owning these electric 
and advanced technology vehicles.
    Therefore, in proposing this greenhouse gas action, EPA sought 
comment on issues surrounding consumer vehicle labeling in general, and 
labeling of advanced technology vehicles in particular. EPA 
specifically asked for input as to whether today's miles per gallon 
fuel economy metric provides adequate information to consumers.
    EPA received considerable public input in response to the request 
for comment in the proposal. Since the greenhouse gas rule was proposed 
in September, 2009, EPA has initiated a separate rulemaking to explore 
in detail the information displayed on the fuel economy label and the 
methodology for deriving that information. The purpose of the vehicle 
labeling rulemaking is to ensure that American consumers

[[Page 25488]]

continue to have the most accurate, meaningful, and useful information 
available to them when purchasing new vehicles, and that the 
information is presented to them in clear and understandable terms.
    EPA will consider all vehicle labeling comments received in 
response to the greenhouse gas proposal in its development of the new 
labeling rule in coming months. We encourage the interested public to 
stay engaged and continue to provide input on this issue in the context 
of the vehicle labeling rulemaking.

F. How will this final rule reduce GHG emissions and their associated 
effects?

    This action is an important step towards curbing steady growth of 
GHG emissions from cars and light trucks. In the absence of control, 
GHG emissions worldwide and in the U.S. are projected to continue 
steady growth. Table III.F-1 shows emissions of CO2, 
methane, nitrous oxide and air conditioning refrigerants on a 
CO2-equivalent basis for calendar years 2010, 2020, 2030, 
2040 and 2050. As shown below, U.S. GHGs are estimated to make up 
roughly 17 percent of total worldwide emissions in 2010, and the 
contribution of direct emissions from cars and light-trucks to this 
U.S. share is growing over time, reaching an estimated 19 percent of 
U.S. emissions by 2030 in the absence of control. As discussed later in 
this section, this steady rise in GHG emissions is associated with 
numerous adverse impacts on human health, food and agriculture, air 
quality, and water and forestry resources.

                          Table III.F-1--Reference Case GHG Emissions by Calendar Year
                                                   [MMTCO2eq]
----------------------------------------------------------------------------------------------------------------
                                                     2010         2020         2030         2040         2050
----------------------------------------------------------------------------------------------------------------
All Sectors (Worldwide) \a\....................       41,016       48,059       52,870       56,940       60,209
All Sectors (U.S. Only) \a\....................        7,118        7,390        7,765        8,101        8,379
U.S. Cars/Light Truck Only \b\.................        1,243        1,293        1,449        1,769        2,219
----------------------------------------------------------------------------------------------------------------
\a\ ADAGE model projections, U.S. EPA.\290\
\b\ MOVES2010 (2010), OMEGA Model (2020-50) U.S. EPA. See RIA Chapter 5.3 for modeling details.

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

    \290\ U.S. EPA (2009). ``EPA Analysis of the American Clean 
Energy and Security Act of 2009: H.R. 2454 in the 111th Congress.'' 
U.S. Environmental Protection Agency, Washington, DC USA (http://
www.epa.gov/climatechange/economics/economicanalyses.html). ADAGE 
model projections of worldwide and U.S. totals include EISA, and are 
provided for context.
---------------------------------------------------------------------------

    EPA's GHG rule will result in significant reductions as newer, 
cleaner vehicles come into the fleet, and the rule is estimated to have 
a measurable impact on world global temperatures. As discussed in 
Section I, this GHG rule is part of a joint National Program such that 
a large majority of the projected benefits would be achieved jointly 
with NHTSA's CAFE standards, which are described in detail in Section 
IV. EPA estimates the reductions attributable to the GHG program over 
time assuming the model year 2016 standards continue indefinitely post-
2016,\291\ compared to a reference scenario in which the 2011 model 
year fuel economy standards continue beyond 2011.
---------------------------------------------------------------------------

    \291\ This analysis does not include the EISA requirement for 35 
MPG through 2020 or California's Pavley 1 GHG standards. The 
standards are intended to supersede these requirements, and the 
baseline case for comparison are the emissions that would result 
without further action above the currently promulgated fuel economy 
standards.
---------------------------------------------------------------------------

    Using this approach EPA estimates these standards would cut annual 
fleetwide car and light truck tailpipe CO2-eq emissions by 
21 percent by 2030, when 90 percent of car and light truck miles will 
be travelled by vehicles meeting the new standards. Roughly 20 percent 
of these reductions are due to ``upstream'' emission reductions from 
gasoline extraction, production and distribution processes as a result 
of reduced gasoline demand associated with this rule. Some of the 
overall emission reductions also come from projected improvements in 
the efficiency of vehicle air conditioning systems, which will 
substantially reduce direct emissions of HFCs, one of the most potent 
greenhouse gases, as well as indirect emissions of tailpipe 
CO2 emissions attributable to reduced engine load from air 
conditioning. In total, EPA estimates that compared to a baseline of 
indefinite 2011 model year standards, net GHG emission reductions from 
the program would be 307 million metric tons CO2-equivalent 
(MMTCO2eq) annually by 2030, which represents a reduction of 
4 percent of total U.S. GHG emissions and 0.6 percent of total 
worldwide GHG emissions projected in that year. This estimate accounts 
for all upstream fuel production and distribution emission reductions, 
vehicle tailpipe emission reductions including air conditioning 
benefits, as well as increased vehicle miles travelled (VMT) due to the 
``rebound'' effect discussed in Section III.H. EPA estimates this would 
be the equivalent of removing approximately 50 million cars and light 
trucks from the road in this timeframe.\292\
---------------------------------------------------------------------------

    \292\ Estimated using MOVES2010, the average vehicle in the 
light duty fleet emitted 5.1 tons of CO2 during calendar 
year 2008.
---------------------------------------------------------------------------

    EPA projects the total reduction of the program over the full life 
of model year 2012-2016 vehicles to be about 960 MMTCO2eq, 
with fuel savings of 78 billion gallons (1.8 billion barrels) of 
gasoline over the life of these vehicles, assuming that some 
manufacturers take advantage of low-cost HFC reduction strategies to 
help meet these standards.
    The impacts on global mean temperature and global mean sea level 
rise resulting from these emission reductions are discussed in Section 
III.F.3.
1. Impact on GHG Emissions
    This action will reduce GHG emissions emitted directly from 
vehicles due to reduced fuel use and more efficient air conditioning 
systems. In addition to these ``downstream'' emissions, reducing 
CO2 emissions translates directly to reductions in the 
emissions associated with the processes involved in getting petroleum 
to the pump, including the extraction and transportation of crude oil, 
and the production and distribution of finished gasoline (termed 
``upstream'' emissions). Reductions from tailpipe GHG standards grow 
over time as the fleet turns over to vehicles subject to the standards, 
meaning the benefit of the program will continue as long as the oldest 
vehicles in the fleet are replaced by newer, lower CO2 
emitting vehicles.
    EPA is not projecting any reductions in tailpipe CH4 or 
N2O emissions as a result of the emission caps set forth in 
this rule, which are meant to prevent emission backsliding and to bring 
diesel vehicles equipped with advanced technology aftertreatment, and 
other advanced technology vehicles such as lean-burn gasoline vehicles, 
into

[[Page 25489]]

alignment with current gasoline vehicle emissions.\293\
---------------------------------------------------------------------------

    \293\ EPA is adopting a compliance option whereby manufacturers 
can comply with a CO2 equivalent standard in lieu of 
meeting the CH4 and N2O standards. This should 
have no effect on the estimated GHG reductions attributable to the 
rule since a condition of meeting that alternative standard is that 
the fleetwide CO2 target remains in place.
---------------------------------------------------------------------------

    No substantive comments were received on the emissions modeling 
methods or on the greenhouse gas inventories presented in the proposal. 
These analyses are updated here to include model revisions and more 
recent economic analysis, including revised estimates of future vehicle 
sales, fuel prices, and vehicle miles traveled. The primary source for 
these data is the AEO 2010 preliminary release.\294\ For more details, 
please see the TSD and RIA Chapter 5.
---------------------------------------------------------------------------

    \294\ Energy Information Administration. Annual Energy Outlook 
2010 Early Release. http://www.eia.doe.gov/oiaf/aeo/.
---------------------------------------------------------------------------

    As detailed in the RIA, EPA estimated calendar year tailpipe 
CO2 reductions based on pre- and post-control CO2 
gram per mile levels from EPA's OMEGA model and assumed to continue 
indefinitely into the future, coupled with VMT projections derived from 
AEO 2010 Early Release. These estimates reflect the real-world 
CO2 emissions reductions projected for the entire U.S. 
vehicle fleet in a specified calendar year, including the projected 
effect of air conditioning credits, the TLAAS program and FFV credits. 
EPA also estimated full lifetime reductions for model years 2012-2016 
using pre- and post-control CO2 levels projected by the 
OMEGA model, coupled with projected vehicle sales and lifetime mileage 
estimates. These estimates reflect the real-world CO2 
emissions reductions projected for model years 2012 through 2016 
vehicles over their entire life.
    This rule allows manufacturers to earn credits for improved vehicle 
air conditioning efficiency. Since these improvements are relatively 
low cost, EPA projects that manufacturers will take advantage of this 
flexibility, leading to reductions from emissions associated with 
vehicle air conditioning systems. As explained above, these reductions 
will come from both direct emissions of air conditioning refrigerant 
over the life of the vehicle and tailpipe CO2 emissions 
produced by the increased load of the A/C system on the engine. In 
particular, EPA estimates that direct emissions of HFCs, one of the 
most potent greenhouse gases, would be reduced 50 percent from light-
duty vehicles when the fleet has turned over to more efficient 
vehicles. The fuel savings derived from lower tailpipe CO2 
would also lead to reductions in upstream emissions. Our estimated 
reductions from the A/C credits program are based on our analysis of 
how manufacturers are expected to take advantage of this credit 
opportunity in complying with the CO2 fleetwide average 
tailpipe standards.
    Upstream emission reductions associated with the production and 
distribution of fuel were estimated using emission factors from DOE's 
GREET1.8 model, with some modifications as detailed in Chapter 5 of the 
RIA. These estimates include both international and domestic emission 
reductions, since reductions in foreign exports of finished gasoline 
and/or crude would make up a significant share of the fuel savings 
resulting from the GHG standards. Thus, significant portions of the 
upstream GHG emission reductions will occur outside of the U.S.; a 
breakdown of projected international versus domestic reductions is 
included in the RIA.
a. Calendar Year Reductions for Future Years
    Table III.F.1-1 shows reductions estimated from these GHG standards 
assuming a pre-control case of 2011 MY standards continuing 
indefinitely beyond 2011, and a post-control case in which 2016 MY GHG 
standards continue indefinitely beyond 2016.\295\ These reductions are 
broken down by upstream and downstream components, including air 
conditioning improvements, and also account for the offset from a 10 
percent VMT ``rebound'' effect as discussed in Section III.H. Including 
the reductions from upstream emissions, total reductions are estimated 
to reach 307 MMTCO2eq annually by 2030 (a 21 percent 
reduction in U.S. car and light truck emissions), and grow to over 500 
MMTCO2eq in 2050 as cleaner vehicles continue to come into 
the fleet (a 23 percent reduction in U.S. car and light truck 
emissions).
---------------------------------------------------------------------------

    \295\ Legally, the 2011 CAFE standards only apply to the 2011 
model year and no standards apply to future model years. However, we 
do not believe that it would be appropriate to assume that no CAFE 
standards would apply beyond the 2011 model year when projecting the 
impacts of this rule.

                                    Table III.F.1-1--Projected GHG Reductions
                                               [MMTCO2eq per year]
----------------------------------------------------------------------------------------------------------------
                                                                           Calendar year
                                                 ---------------------------------------------------------------
                                                       2020            2030            2040            2050
----------------------------------------------------------------------------------------------------------------
Net Reduction *.................................           156.4           307.0           401.5           505.9
    Net CO2.....................................           139.1           273.3           360.4           458.7
    Net other GHG...............................            17.3            33.7            41.1            47.2
Downstream Reduction............................           125.2           245.7           320.7           403.0
    CO2 (excluding A/C).........................           101.2           199.5           263.2           335.1
    A/C--indirect CO2...........................            10.6            20.2            26.5            33.8
    A/C--direct HFCs............................            13.3            26.0            30.9            34.2
    CH4 (rebound effect)........................             0.0             0.0             0.0             0.0
    N2O (rebound effect)........................             0.0            -0.1            -0.1            -0.1
Upstream Reduction..............................            31.2            61.3            80.8           102.9
    CO2.........................................            27.2            53.5            70.6            89.9
    CH4.........................................             3.9             7.6            10.0            12.7
    N4O.........................................             0.1             0.3             0.3             0.4
Percent reduction relative to U.S. reference               12.1%           21.2%           22.7%           22.8%
 (cars + light trucks)..........................
Percent reduction relative to U.S. reference                2.1%            4.0%            5.0%            6.0%
 (all sectors)..................................
Percent reduction relative to worldwide                     0.3%            0.6%            0.7%            0.8%
 reference......................................
----------------------------------------------------------------------------------------------------------------
* Includes impacts of 10% VMT rebound rate presented in Table III.F.1-3.

[[Page 25490]]

b. Lifetime Reductions for 2012-2016 Model Years
    EPA also analyzed the emission reductions over the full life of the 
2012-2016 model year cars and trucks affected by this program.\296\ 
These results, including both upstream and downstream GHG 
contributions, are presented in Table III.F.1-2, showing lifetime 
reductions of about 960 MMTCO2eq, with fuel savings of 78 
billion gallons (1.8 billion barrels) of gasoline.
---------------------------------------------------------------------------

    \296\ As detailed in the RIA Chapter 5 and TSD Chapter 4, for 
this analysis the full life of the vehicle is represented by average 
lifetime mileages for cars (195,000 miles) and trucks (226,000 
miles) averaged over calendar years 2012 through 2030, a function of 
how far vehicles drive per year and scrappage rates.

              Table III.F.1-2--Projected Net GHG Reductions
                           [MMTCO2eq per year]
------------------------------------------------------------------------
                                        Lifetime GHG      Lifetime Fuel
             Model year                reduction (MMT   savings (billion
                                           CO2 EQ)          gallons)
------------------------------------------------------------------------
2012................................              88.9               7.3
2013................................             130.2              10.5
2014................................             174.2              13.9
2015................................             244.2              19.5
2016................................             324.6              26.5
                                     -----------------------------------
    Total Program Benefit...........             962.0              77.7
------------------------------------------------------------------------

c. Impacts of VMT Rebound Effect
    As noted above and discussed more fully in Section III.H., the 
effect of fuel cost on VMT (``rebound'') was accounted for in our 
assessment of economic and environmental impacts of this rule. A 10 
percent rebound case was used for this analysis, meaning that VMT for 
affected model years is modeled as increasing by 10 percent as much as 
the increase in fuel economy; i.e., a 10 percent increase in fuel 
economy would yield a 1.0 percent increase in VMT. Results are shown in 
Table III.F.1-3; using the 10 percent rebound rate results in an 
overall emission increase of 25.0 MMTCO2eq annually in 2030 
(this increase is accounted for in the reductions presented in Tables 
III.F.1-1 and III.F.1-2). Our estimated changes in CH4 or 
N2O emissions as a result of these vehicle GHG standards are 
attributed solely to this rebound effect.

                                Table III.F.1-3--GHG Impact of 10% VMT Rebound a
                                               [MMTCO2eq per year]
----------------------------------------------------------------------------------------------------------------
                                                       2020            2030            2040            2050
----------------------------------------------------------------------------------------------------------------
Total GHG Increase..............................            13.0            25.0            32.9            41.9
    Tailpipe & Indirect A/C CO2.................            10.2            19.6            25.8            32.8
    Upstream GHGs\ b\...........................             2.8             5.4             7.1             9.1
    Tailpipe CH4................................             0.0             0.0             0.0             0.0
    Tailpipe N2O................................             0.0             0.1             0.1             0.1
----------------------------------------------------------------------------------------------------------------
\a\ These impacts are included in the reductions shown in Table III.F.1-1 and III.F.1-2.
\b\ Upstream rebound impact calculated as upstream total CO2 effect times ratio of downstream tailpipe rebound
  CO2 effect to downstream tailpipe total CO2 effect.

d. Analysis of Alternatives
    EPA analyzed two alternative scenarios, including 4% and 6% annual 
increases in GHG emission standards. In addition to this annual 
increase, EPA assumed that manufacturers would use air conditioning 
improvements in identical penetrations as in the primary scenario. 
Under these assumptions, EPA expects achieved fleetwide average 
emission levels of 253 g/mile CO2eq (4%), and 230 g/mile 
CO2eq (6%) in 2016.
    As in the primary scenario, EPA assumed that the fleet complied 
with the standards. For full details on modeling assumptions, please 
refer to RIA Chapter 5. EPA's assessment of these alternative 
standards, including our response to public comments, is discussed in 
Section III.D.

                         Table III.F.1-4--Calendar Year Impacts of Alternative Scenarios
----------------------------------------------------------------------------------------------------------------
                                                                                 Calendar year
                                             Scenario        ---------------------------------------------------
                                                                CY 2020      CY 2030      CY 2040      CY 2050
----------------------------------------------------------------------------------------------------------------
Total GHG Reductions (MMT CO2 eq)...  Primary...............       -156.4       -307.0       -401.5       -505.8
                                      4%....................       -141.9       -286.2       -375.4       -472.9
                                      6%....................       -202.6       -403.4       -529.3       -668.7
Fuel Savings (Billion Gallons         Primary...............        -12.6        -24.7        -32.6        -41.5
 Gasoline Equivalent).
                                      4%....................        -11.3        -22.9        -30.3        -38.6
                                      6%....................        -16.7        -33.2        -43.9        -55.9
----------------------------------------------------------------------------------------------------------------

[[Page 25491]]

                          Table III.F.1-5--Model Year Impacts of Alternative Scenarios
----------------------------------------------------------------------------------------------------------------
                                                                       Model year lifetime
                                   Scenario    -----------------------------------------------------------------
                                                 MY 2012    MY 2013    MY 2014    MY 2015    MY 2016     Total
----------------------------------------------------------------------------------------------------------------
Total GHG Reductions (MMT CO2  Primary........      -88.8     -130.2     -174.2     -244.2     -324.6     -962.0
 eq).
                               4%.............      -39.9      -96.6     -155.4     -226.5     -303.6     -822.0
                               6%.............      -61.7     -146.5     -237.0     -332.2     -427.6   -1,204.9
Fuel Savings (Billion Gallons  Primary........       -7.3      -10.5      -13.9      -19.5      -26.5      -77.7
 Gasoline Equivalent).
                               4%.............       -2.9       -7.1      -12.2      -18.0      -24.6      -64.8
                               6%.............       -4.9      -12.0      -19.4      -27.3      -35.6      -99.1
----------------------------------------------------------------------------------------------------------------

2. Overview of Climate Change Impacts From GHG Emissions
    Once emitted, GHGs that are the subject of this regulation can 
remain in the atmosphere for decades to centuries, meaning that (1) 
their concentrations become well-mixed throughout the global atmosphere 
regardless of emission origin, and (2) their effects on climate are 
long lasting. GHG emissions come mainly from the combustion of fossil 
fuels (coal, oil, and gas), with additional contributions from the 
clearing of forests and agricultural activities. The transportation 
sector represents a significant portion, 28%, of U.S. GHG 
emissions.\297\
---------------------------------------------------------------------------

    \297\ U.S. EPA (2009) Inventory of U.S. Greenhouse Gas Emissions 
and Sinks: 1990-2007. EPA-430-R-09-004, Washington, DC.
---------------------------------------------------------------------------

    This section provides a summary of observed and projected changes 
in GHG emissions and associated climate change impacts. The source 
document for the section below is the Technical Support Document (TSD) 
\298\ for EPA's Endangerment and Cause or Contribute Findings Under the 
Clean Air Act.\299\ Below is the Executive Summary of the TSD which 
provides technical support for the endangerment and cause or contribute 
analyses concerning GHG emissions under section 202(a) of the Clean Air 
Act. The TSD reviews observed and projected changes in climate based on 
current and projected atmospheric GHG concentrations and emissions, as 
well as the related impacts and risks from climate change that are 
projected in the absence of GHG mitigation actions, including this 
action and other U.S. and global actions. The TSD was updated and 
revised based on expert technical review and public comment as part of 
EPA's rulemaking process for the final Endangerment Findings. The key 
findings synthesized here and the information throughout the TSD are 
primarily drawn from the assessment reports of the Intergovernmental 
Panel on Climate Change (IPCC), the U.S. Climate Change Science Program 
(CCSP), the U.S. Global Change Research Program (USGCRP), and the 
National Research Council (NRC).\300\
---------------------------------------------------------------------------

    \298\ ``Technical Support Document for Endangerment and Cause or 
Contribute Findings for Greenhouse Gases Under Section 202(a) of the 
Clean Air Act.'' Docket: EPA-HQ-OAR-2009-0472-11292.
    \299\ See 74 FR 66496 (Dec. 15, 2009).
    \300\ For a complete list of core references from IPCC, USGCRP/
CCSP, NRC and others relied upon for development of the TSD for 
EPA's Endangerment and Cause or Contribute Findings see section 
1(b), specifically, Table 1.1 of the TSD.
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a. Observed Trends in Greenhouse Gas Emissions and Concentrations
    The primary long-lived GHGs directly emitted by human activities 
include carbon dioxide (CO2), methane (CH4), 
nitrous oxide (N2O), hydrofluorocarbons (HFCs), 
perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). 
Greenhouse gases have a warming effect by trapping heat in the 
atmosphere that would otherwise escape to space. In 2007, U.S. GHG 
emissions were 7,150 teragrams \301\ of CO2 equivalent \302\ 
(TgCO2eq). The dominant gas emitted is CO2, 
mostly from fossil fuel combustion. Methane is the second largest 
component of U.S. emissions, followed by N2O and the 
fluorinated gases (HFCs, PFCs, and SF6). Electricity 
generation is the largest emitting sector (34% of total U.S. GHG 
emissions), followed by transportation (28%) and industry (19%).
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    \301\ One teragram (Tg) = 1 million metric tons. 1 metric ton = 
1,000 kilograms = 1.102 short tons = 2,205 pounds.
    \302\ Long-lived GHGs are compared and summed together on a 
CO2-equivalent basis by multiplying each gas by its 
global warming potential (GWP), as estimated by IPCC. In accordance 
with United Nations Framework Convention on Climate Change (UNFCCC) 
reporting procedures, the U.S. quantifies GHG emissions using the 
100-year timeframe values for GWPs established in the IPCC Second 
Assessment Report.
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    Transportation sources under Section 202(a) \303\ of the Clean Air 
Act (passenger cars, light duty trucks, other trucks and buses, 
motorcycles, and passenger cooling) emitted 1,649 TgCO2eq in 
2007, representing 23% of total U.S. GHG emissions. U.S. transportation 
sources under Section 202(a) made up 4.3% of total global GHG emissions 
in 2005,\304\ which, in addition to the United States as a whole, 
ranked only behind total GHG emissions from China, Russia, and India 
but ahead of Japan, Brazil, Germany, and the rest of the world's 
countries. In 2005, total U.S. GHG emissions were responsible for 18% 
of global emissions, ranking only behind China, which was responsible 
for 19% of global GHG emissions. The scope of this action focuses on 
GHG emissions under Section 202(a) from passenger cars and light duty 
trucks source categories (see Section III.F.1).
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    \303\ Source categories under Section 202(a) of the Clean Air 
Act are a subset of source categories considered in the 
transportation sector and do not include emissions from non-highway 
sources such as boats, rail, aircraft, agricultural equipment, 
construction/mining equipment, and other off-road equipment.
    \304\ More recent emission data are available for the United 
States and other individual countries, but 2005 is the most recent 
year for which data for all countries and all gases are available.
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    The global atmospheric CO2 concentration has increased 
about 38% from pre-industrial levels to 2009, and almost all of the 
increase is due to anthropogenic emissions. The global atmospheric 
concentration of CH4 has increased by 149% since pre-
industrial levels (through 2007); and the N2O concentration 
has increased by 23% (through 2007). The observed concentration 
increase in these gases can also be attributed primarily to 
anthropogenic emissions. The industrial fluorinated gases, HFCs, PFCs, 
and SF6, have relatively low atmospheric concentrations but 
the total radiative forcing due to these gases is increasing rapidly; 
these gases are almost entirely anthropogenic in origin.
    Historic data show that current atmospheric concentrations of the 
two most important directly emitted, long-lived GHGs (CO2 
and CH4) are well above the natural range of atmospheric 
concentrations compared to at least the last 650,000 years. Atmospheric 
GHG concentrations have been increasing because anthropogenic emissions 
have been outpacing the rate at which GHGs are removed from the 
atmosphere by

[[Page 25492]]

natural processes over timescales of decades to centuries.
b. Observed Effects Associated With Global Elevated Concentrations of 
GHGs
    Current ambient air concentrations of CO2 and other GHGs 
remain well below published exposure thresholds for any direct adverse 
health effects, such as respiratory or toxic effects.
    The global average net effect of the increase in atmospheric GHG 
concentrations, plus other human activities (e.g., land-use change and 
aerosol emissions), on the global energy balance since 1750 has been 
one of warming. This total net heating effect, referred to as forcing, 
is estimated to be +1.6 (+0.6 to +2.4) watts per square meter (W/m\2\), 
with much of the range surrounding this estimate due to uncertainties 
about the cooling and warming effects of aerosols. However, as aerosol 
forcing has more regional variability than the well-mixed, long-lived 
GHGs, the global average might not capture some regional effects. The 
combined radiative forcing due to the cumulative (i.e., 1750 to 2005) 
increase in atmospheric concentrations of CO2, 
CH4, and N2O is estimated to be +2.30 (+2.07 to 
+2.53) W/m\2\. The rate of increase in positive radiative forcing due 
to these three GHGs during the industrial era is very likely to have 
been unprecedented in more than 10,000 years.
    Warming of the climate system is unequivocal, as is now evident 
from observations of increases in global average air and ocean 
temperatures, widespread melting of snow and ice, and rising global 
average sea level. Global mean surface temperatures have risen by 1.3 
 0.32 [deg]F (0.74 [deg]C  0.18 [deg]C) over 
the last 100 years. Eight of the 10 warmest years on record have 
occurred since 2001. Global mean surface temperature was higher during 
the last few decades of the 20th century than during any comparable 
period during the preceding four centuries.
    Most of the observed increase in global average temperatures since 
the mid-20th century is very likely due to the observed increase in 
anthropogenic GHG concentrations. Climate model simulations suggest 
natural forcing alone (i.e., changes in solar irradiance) cannot 
explain the observed warming.
    U.S. temperatures also warmed during the 20th and into the 21st 
century; temperatures are now approximately 1.3 [deg]F (0.7 [deg]C) 
warmer than at the start of the 20th century, with an increased rate of 
warming over the past 30 years. Both the IPCC \305\ and the CCSP 
reports attributed recent North American warming to elevated GHG 
concentrations. In the CCSP (2008) report,\306\ the authors find that 
for North America, ``more than half of this warming [for the period 
1951-2006] is likely the result of human-caused greenhouse gas forcing 
of climate change.''
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    \305\ Hegerl, G.C. et al. (2007) Understanding and Attributing 
Climate Change. In: Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor, and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
    \306\ CCSP (2008) Reanalysis of Historical Climate Data for Key 
Atmospheric Features: Implications for Attribution of Causes of 
Observed Change. A Report by the U.S. Climate Change Science Program 
and the Subcommittee on Global Change Research [Randall Dole, Martin 
Hoerling, and Siegfried Schubert (eds.)]. National Oceanic and 
Atmospheric Administration, National Climatic Data Center, 
Asheville, NC, 156 pp.
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    Observations show that changes are occurring in the amount, 
intensity, frequency and type of precipitation. Over the contiguous 
United States, total annual precipitation increased by 6.1% from 1901 
to 2008. It is likely that there have been increases in the number of 
heavy precipitation events within many land regions, even in those 
where there has been a reduction in total precipitation amount, 
consistent with a warming climate.
    There is strong evidence that global sea level gradually rose in 
the 20th century and is currently rising at an increased rate. It is 
not clear whether the increasing rate of sea level rise is a reflection 
of short-term variability or an increase in the longer-term trend. 
Nearly all of the Atlantic Ocean shows sea level rise during the last 
50 years with the rate of rise reaching a maximum (over 2 millimeters 
[mm] per year) in a band along the U.S. east coast running east-
northeast.
    Satellite data since 1979 show that annual average Arctic sea ice 
extent has shrunk by 4.1% per decade. The size and speed of recent 
Arctic summer sea ice loss is highly anomalous relative to the previous 
few thousands of years.
    Widespread changes in extreme temperatures have been observed in 
the last 50 years across all world regions, including the United 
States. Cold days, cold nights, and frost have become less frequent, 
while hot days, hot nights, and heat waves have become more frequent.
    Observational evidence from all continents and most oceans shows 
that many natural systems are being affected by regional climate 
changes, particularly temperature increases. However, directly 
attributing specific regional changes in climate to emissions of GHGs 
from human activities is difficult, especially for precipitation.
    Ocean CO2 uptake has lowered the average ocean pH 
(increased acidity) level by approximately 0.1 since 1750. Consequences 
for marine ecosystems can include reduced calcification by shell-
forming organisms, and in the longer term, the dissolution of carbonate 
sediments.
    Observations show that climate change is currently affecting U.S. 
physical and biological systems in significant ways. The consistency of 
these observed changes in physical and biological systems and the 
observed significant warming likely cannot be explained entirely due to 
natural variability or other confounding non-climate factors.
c. Projections of Future Climate Change With Continued Increases in 
Elevated GHG Concentrations
    Most future scenarios that assume no explicit GHG mitigation 
actions (beyond those already enacted) project increasing global GHG 
emissions over the century, with climbing GHG concentrations. Carbon 
dioxide is expected to remain the dominant anthropogenic GHG over the 
course of the 21st century. The radiative forcing associated with the 
non-CO2 GHGs is still significant and increasing over time.
    Future warming over the course of the 21st century, even under 
scenarios of low-emission growth, is very likely to be greater than 
observed warming over the past century. According to climate model 
simulations summarized by the IPCC,\307\ through about 2030, the global 
warming rate is affected little by the choice of different future 
emissions scenarios. By the end of the 21st century, projected average 
global warming (compared to average temperature around 1990) varies 
significantly depending on the emission scenario and climate 
sensitivity assumptions, ranging from 3.2 to 7.2 [deg]F (1.8 to 4.0 
[deg]C), with an uncertainty range of 2.0 to 11.5 [deg]F (1.1 to 6.4 
[deg]C).
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    \307\ Meehl, G.A. et al. (2007) Global Climate Projections. In: 
Climate Change 2007: The Physical Science Basis. Contribution of 
Working Group I to the Fourth Assessment Report of the 
Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. 
Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor and H.L. Miller 
(eds.)]. Cambridge University Press, Cambridge, United Kingdom and 
New York, NY, USA.
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    All of the United States is very likely to warm during this 
century, and most areas of the United States are expected to warm by 
more than the global

[[Page 25493]]

average. The largest warming is projected to occur in winter over 
northern parts of Alaska. In western, central and eastern regions of 
North America, the projected warming has less seasonal variation and is 
not as large, especially near the coast, consistent with less warming 
over the oceans.
    It is very likely that heat waves will become more intense, more 
frequent, and longer lasting in a future warm climate, whereas cold 
episodes are projected to decrease significantly.
    Increases in the amount of precipitation are very likely in higher 
latitudes, while decreases are likely in most subtropical latitudes and 
the southwestern United States, continuing observed patterns. The mid-
continental area is expected to experience drying during summer, 
indicating a greater risk of drought.
    Intensity of precipitation events is projected to increase in the 
United States and other regions of the world. More intense 
precipitation is expected to increase the risk of flooding and result 
in greater runoff and erosion that has the potential for adverse water 
quality effects.
    It is likely that hurricanes will become more intense, with 
stronger peak winds and more heavy precipitation associated with 
ongoing increases of tropical sea surface temperatures. Frequency 
changes in hurricanes are currently too uncertain for confident 
projections.
    By the end of the century, global average sea level is projected by 
IPCC \308\ to rise between 7.1 and 23 inches (18 and 59 centimeter 
[cm]), relative to around 1990, in the absence of increased dynamic ice 
sheet loss. Recent rapid changes at the edges of the Greenland and West 
Antarctic ice sheets show acceleration of flow and thinning. While an 
understanding of these ice sheet processes is incomplete, their 
inclusion in models would likely lead to increased sea level 
projections for the end of the 21st century.
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    \308\ IPCC (2007) Summary for Policymakers. In: Climate Change 
2007: The Physical Science Basis. Contribution of Working Group I to 
the Fourth Assessment Report of the Intergovernmental Panel on 
Climate Change [Solomon, S., D. Qin, M. Manning, Z. Chen, M. 
Marquis, K.B. Averyt, M. Tignor and H.L. Miller (eds.)]. Cambridge 
University Press, Cambridge, United Kingdom and New York, NY, USA.
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    Sea ice extent is projected to shrink in the Arctic under all IPCC 
emissions scenarios.
d. Projected Risks and Impacts Associated With Future Climate Change
    Risk to society, ecosystems, and many natural Earth processes 
increase with increases in both the rate and magnitude of climate 
change. Climate warming may increase the possibility of large, abrupt 
regional or global climatic events (e.g., disintegration of the 
Greenland Ice Sheet or collapse of the West Antarctic Ice Sheet). The 
partial deglaciation of Greenland (and possibly West Antarctica) could 
be triggered by a sustained temperature increase of 2 to 7 [deg]F (1 to 
4 [deg]C) above 1990 levels. Such warming would cause a 13 to 20 feet 
(4 to 6 meter) rise in sea level, which would occur over a time period 
of centuries to millennia.
    The CCSP \309\ reports that climate change has the potential to 
accentuate the disparities already evident in the American health care 
system, as many of the expected health effects are likely to fall 
disproportionately on the poor, the elderly, the disabled, and the 
uninsured. The IPCC \310\ states with very high confidence that climate 
change impacts on human health in U.S. cities will be compounded by 
population growth and an aging population.
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    \309\ Ebi, K.L., J. Balbus, P.L. Kinney, E. Lipp, D. Mills, M.S. 
O'Neill, and M. Wilson (2008) Effects of Global Change on Human 
Health. In: Analyses of the effects of global change on human health 
and welfare and human systems. A Report by the U.S. Climate Change 
Science Program and the Subcommittee on Global Change Research. 
[Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wilbanks, 
(Authors)]. U.S. Environmental Protection Agency, Washington, DC, 
USA, pp. 2-1 to 2-78.
    \310\ Field, C.B. et al. (2007) North America. In: Climate 
Change 2007: Impacts, Adaptation and Vulnerability. Contribution of 
Working Group II to the Fourth Assessment Report of the 
Intergovernmental Panel on Climate Change [M.L. Parry, O.F. 
Canziani, J.P. Palutikof, P.J. van der Linden and C.E. Hanson 
(eds.)]. Cambridge University Press, Cambridge, United Kingdom and 
New York, NY, USA.
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    Severe heat waves are projected to intensify in magnitude and 
duration over the portions of the United States where these events 
already occur, with potential increases in mortality and morbidity, 
especially among the elderly, young, and frail.
    Some reduction in the risk of death related to extreme cold is 
expected. It is not clear whether reduced mortality from cold will be 
greater or less than increased heat-related mortality in the United 
States due to climate change.
    Increases in regional ozone pollution relative to ozone levels 
without climate change are expected due to higher temperatures and 
weaker circulation in the United States and other world cities relative 
to air quality levels without climate change. Climate change is 
expected to increase regional ozone pollution, with associated risks in 
respiratory illnesses and premature death. In addition to human health 
effects, tropospheric ozone has significant adverse effects on crop 
yields, pasture and forest growth, and species composition. The 
directional effect of climate change on ambient particulate matter 
levels remains uncertain.
    Within settlements experiencing climate change, certain parts of 
the population may be especially vulnerable; these include the poor, 
the elderly, those already in poor health, the disabled, those living 
alone, and/or indigenous populations dependent on one or a few 
resources. Thus, the potential impacts of climate change raise 
environmental justice issues.
    The CCSP \311\ concludes that, with increased CO2 and 
temperature, the life cycle of grain and oilseed crops will likely 
progress more rapidly. But, as temperature rises, these crops will 
increasingly begin to experience failure, especially if climate 
variability increases and precipitation lessens or becomes more 
variable. Furthermore, the marketable yield of many horticultural crops 
(e.g., tomatoes, onions, fruits) is very likely to be more sensitive to 
climate change than grain and oilseed crops.
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    \311\ Backlund, P., A. Janetos, D.S. Schimel, J. Hatfield, M.G. 
Ryan, S.R. Archer, and D. Lettenmaier (2008) Executive Summary. In: 
The Effects of Climate Change on Agriculture, Land Resources, Water 
Resources, and Biodiversity in the United States. A Report by the 
U.S. Climate Change Science Program and the Subcommittee on Global 
Change Research. Washington, DC., USA, 362 pp.
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    Higher temperatures will very likely reduce livestock production 
during the summer season in some areas, but these losses will very 
likely be partially offset by warmer temperatures during the winter 
season.
    Cold-water fisheries will likely be negatively affected; warm-water 
fisheries will generally benefit; and the results for cool-water 
fisheries will be mixed, with gains in the northern and losses in the 
southern portions of ranges.
    Climate change has very likely increased the size and number of 
forest fires, insect outbreaks, and tree mortality in the interior 
West, the Southwest, and Alaska, and will continue to do so. Over North 
America, forest growth and productivity have been observed to increase 
since the middle of the 20th century, in part due to observed climate 
change. Rising CO2 will very likely increase photosynthesis 
for forests, but the increased photosynthesis will likely only increase 
wood production in young forests on fertile soils. The combined effects 
of expected increased temperature, CO2, nitrogen deposition, 
ozone, and forest

[[Page 25494]]

disturbance on soil processes and soil carbon storage remain unclear.
    Coastal communities and habitats will be increasingly stressed by 
climate change impacts interacting with development and pollution. Sea 
level is rising along much of the U.S. coast, and the rate of change 
will very likely increase in the future, exacerbating the impacts of 
progressive inundation, storm-surge flooding, and shoreline erosion. 
Storm impacts are likely to be more severe, especially along the Gulf 
and Atlantic coasts. Salt marshes, other coastal habitats, and 
dependent species are threatened by sea level rise, fixed structures 
blocking landward migration, and changes in vegetation. Population 
growth and rising value of infrastructure in coastal areas increases 
vulnerability to climate variability and future climate change.
    Climate change will likely further constrain already overallocated 
water resources in some regions of the United States, increasing 
competition among agricultural, municipal, industrial, and ecological 
uses. Although water management practices in the United States are 
generally advanced, particularly in the West, the reliance on past 
conditions as the basis for current and future planning may no longer 
be appropriate, as climate change increasingly creates conditions well 
outside of historical observations. Rising temperatures will diminish 
snowpack and increase evaporation, affecting seasonal availability of 
water. In the Great Lakes and major river systems, lower water levels 
are likely to exacerbate challenges relating to water quality, 
navigation, recreation, hydropower generation, water transfers, and 
binational relationships. Decreased water supply and lower water levels 
are likely to exacerbate challenges relating to aquatic navigation in 
the United States.
    Higher water temperatures, increased precipitation intensity, and 
longer periods of low flows will exacerbate many forms of water 
pollution, potentially making attainment of water quality goals more 
difficult. As waters become warmer, the aquatic life they now support 
will be replaced by other species better adapted to warmer water. In 
the long term, warmer water and changing flow may result in 
deterioration of aquatic ecosystems.
    Ocean acidification is projected to continue, resulting in the 
reduced biological production of marine calcifiers, including corals.
    Climate change is likely to affect U.S. energy use and energy 
production and physical and institutional infrastructures. It will also 
likely interact with and possibly exacerbate ongoing environmental 
change and environmental pressures in settlements, particularly in 
Alaska where indigenous communities are facing major environmental and 
cultural impacts. The U.S. energy sector, which relies heavily on water 
for hydropower and cooling capacity, may be adversely impacted by 
changes to water supply and quality in reservoirs and other water 
bodies. Water infrastructure, including drinking water and wastewater 
treatment plants, and sewer and stormwater management systems, will be 
at greater risk of flooding, sea level rise and storm surge, low flows, 
and other factors that could impair performance.
    Disturbances such as wildfires and insect outbreaks are increasing 
in the United States and are likely to intensify in a warmer future 
with warmer winters, drier soils, and longer growing seasons. Although 
recent climate trends have increased vegetation growth, continuing 
increases in disturbances are likely to limit carbon storage, 
facilitate invasive species, and disrupt ecosystem services.
    Over the 21st century, changes in climate will cause species to 
shift north and to higher elevations and fundamentally rearrange U.S. 
ecosystems. Differential capacities for range shifts and constraints 
from development, habitat fragmentation, invasive species, and broken 
ecological connections will alter ecosystem structure, function, and 
services.
    Climate change impacts will vary in nature and magnitude across 
different regions of the United States.
     Sustained high summer temperatures, heat waves, and 
declining air quality are projected in the Northeast,\312\ 
Southeast,\313\ Southwest,\314\ and Midwest.\315\ Projected climate 
change would continue to cause loss of sea ice, glacier retreat, 
permafrost thawing, and coastal erosion in Alaska.
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    \312\ Northeast includes West Virginia, Maryland, Delaware, 
Pennsylvania, New Jersey, New York, Connecticut, Rhode Island, 
Massachusetts, Vermont, New Hampshire, and Maine.
    \313\ Southeast includes Kentucky, Virginia, Arkansas, 
Tennessee, North Carolina, South Carolina, southeast Texas, 
Louisiana, Mississippi, Alabama, Georgia, and Florida.
    \314\ Southwest includes California, Nevada, Utah, western 
Colorado, Arizona, New Mexico (except the extreme eastern section), 
and southwest Texas.
    \315\ The Midwest includes Minnesota, Wisconsin, Michigan, Iowa, 
Illinois, Indiana, Ohio, and Missouri.
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     Reduced snowpack, earlier spring snowmelt, and increased 
likelihood of seasonal summer droughts are projected in the Northeast, 
Northwest,\316\ and Alaska. More severe, sustained droughts and water 
scarcity are projected in the Southeast, Great Plains,\317\ and 
Southwest.
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    \316\ The Northwest includes Washington, Idaho, western Montana, 
and Oregon.
    \317\ The Great Plains includes central and eastern Montana, 
North Dakota, South Dakota, Wyoming, Nebraska, eastern Colorado, 
Nebraska, Kansas, extreme eastern New Mexico, central Texas, and 
Oklahoma.
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     The Southeast, Midwest, and Northwest in particular are 
expected to be impacted by an increased frequency of heavy downpours 
and greater flood risk.
     Ecosystems of the Southeast, Midwest, Great Plains, 
Southwest, Northwest, and Alaska are expected to experience altered 
distribution of native species (including local extinctions), more 
frequent and intense wildfires, and an increase in insect pest 
outbreaks and invasive species.
     Sea level rise is expected to increase storm surge height 
and strength, flooding, erosion, and wetland loss along the coasts, 
particularly in the Northeast, Southeast, and islands.
     Warmer water temperatures and ocean acidification are 
expected to degrade important aquatic resources of islands and coasts 
such as coral reefs and fisheries.
     A longer growing season, low levels of warming, and 
fertilization effects of carbon dioxide may benefit certain crop 
species and forests, particularly in the Northeast and Alaska. 
Projected summer rainfall increases in the Pacific islands may augment 
limited freshwater supplies. Cold-related mortality is projected to 
decrease, especially in the Southeast. In the Midwest in particular, 
heating oil demand and snow-related traffic accidents are expected to 
decrease.
    Climate change impacts in certain regions of the world may 
exacerbate problems that raise humanitarian, trade, and national 
security issues for the United States. The IPCC \318\ identifies the 
most vulnerable world regions as the Arctic, because of the effects of 
high rates of projected warming on natural systems; Africa, especially 
the sub-Saharan region, because of current low adaptive capacity as 
well as climate change; small islands, due to high exposure of 
population and infrastructure to risk of sea level rise

[[Page 25495]]

and increased storm surge; and Asian mega-deltas, such as the Ganges-
Brahmaputra and the Zhujiang, due to large populations and high 
exposure to sea level rise, storm surge and river flooding. Climate 
change has been described as a potential threat multiplier with regard 
to national security issues.
---------------------------------------------------------------------------

    \318\ Parry, M.L. et al. (2007) Technical Summary. In: Climate 
Change 2007: Impacts, Adaptation and Vulnerability. Contribution of 
Working Group II to the Fourth Assessment Report of the 
Intergovernmental Panel on Climate Change [M.L. Parry, O.F. 
Canziani, J.P. Palutikof, P.J. van der Linden, and C.E. Hanson 
(eds.)], Cambridge University Press, Cambridge, United Kingdom, pp. 
23-78.
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3. Changes in Global Climate Indicators Associated With the Rule's GHG 
Emissions Reductions
    EPA examined \319\ the reductions in CO2 and other GHGs 
associated with this action and analyzed the projected effects on 
global mean surface temperature and sea level, two common indicators of 
climate change. The analysis projects that this action will reduce 
climate warming and sea level rise. Although the projected reductions 
are small in overall magnitude by themselves, they are quantifiable and 
would contribute to reducing climate change risks. A commenter agreed 
that the modeling results showed small, but quantifiable, reductions in 
the global atmospheric CO2 concentration, as well as a 
reduction in projected global mean surface temperature and sea level 
rise, from implementation of this action, across all climate 
sensitivities. As such, the commenter encourages the agencies to move 
forward with this action while continuing to develop additional, more 
stringent vehicle standards beyond 2016.
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    \319\ Using the Model for the Assessment of Greenhouse Gas 
Induced Climate Change (MAGICC, http://www.cgd.ucar.edu/cas/wigley/
magicc/), EPA estimated the effects of this action's greenhouse gas 
emissions reductions on global mean temperature and sea level. 
Please refer to Chapter 7.4 of the RIA for additional information.
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    Another commenter indicated that the projected changes in climate 
impacts resulting from this action are small and therefore not 
meaningful. EPA disagrees with this view as the reductions may be small 
in overall magnitude, but in the global climate change context, they 
are quantifiable showing a clear directional signal across a range of 
climate sensitivities.320 321 EPA therefore determines that 
the projected reductions in atmospheric CO2, global mean 
temperature and sea level rise are meaningful in the context of this 
rule. EPA addresses this point further in the Response to Comments 
document. For the final rule, EPA provides an additional climate change 
impact analysis for projected changes in ocean pH in the context of 
this action. In addition, EPA updated the modeling analysis based on 
the revised GHG emission reductions provided in Section III.F.1; 
however, the change in modeling results was very small in magnitude. 
Based on the reanalysis the results for projected atmospheric 
CO2 concentrations are estimated to be reduced by an average 
of 2.9 ppm (previously 3.0 ppm), global mean temperature is estimated 
to be reduced by 0.006 to 0.015 [deg]C by 2100 (previously 0.007 to 
0.016 [deg]C) and sea-level rise is projected to be reduced by 
approximately 0.06-0.14cm by 2100 (previously 0.06-0.15cm).
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    \320\ The National Research Council (NRC) 2001 study, Climate 
Change Science: An Analysis of Some Key Questions, defines climate 
sensitivity as the sensitivity of the climate system to a forcing is 
commonly expressed in terms of the global mean temperature change 
that would be expected after a time sufficiently long enough for 
both the atmosphere and ocean to come to equilibrium with the change 
in climate forcing.
    \321\ To capture some of the uncertainty in the climate system, 
the changes in atmospheric CO2, projected temperatures 
and sea level were estimated across the most current 
Intergovernmental Panel on Climate Change (IPCC) range of climate 
sensitivities, 1.5 [deg]C to 6.0 [deg]C.
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a. Estimated Projected Reductions in Atmospheric CO2 
Concentration, Global Mean Surface Temperatures Sea Level Rise and 
Ocean pH
    EPA estimated changes in the atmospheric CO2 
concentration, global mean surface temperature and sea level to 2100 
resulting from the emissions reductions in this action using the Model 
for the Assessment of Greenhouse Gas Induced Climate Change (MAGICC, 
version 5.3). This widely-used, peer reviewed modeling tool was also 
used to project temperature and sea level rise under different 
emissions scenarios in the Third and Fourth Assessments of the 
Intergovernmental Panel on Climate Change (IPCC).
    GHG emissions reductions from Section III.F.1 were applied as net 
reductions to a peer reviewed global reference case (or baseline) 
emissions scenario to generate an emissions scenario specific to this 
action. For the scenario related to this action, all emissions 
reductions were assumed to begin in 2012, with zero emissions change in 
2011 (from the reference case) followed by emissions linearly 
increasing to equal the value supplied in Section III.F.1 for 2020 and 
then continuing to 2100. Details about the reference case scenario and 
how the emissions reductions were applied to generate the scenario can 
be found in the RIA Chapter 7.
    Changes in atmospheric CO2 concentration, temperature, 
and sea-level for both the reference case and the emissions scenarios 
associated with this action were computed using MAGICC. To compute the 
reductions in the atmospheric CO2 concentrations as well as 
in temperature and sea level resulting from this action, the output 
from the scenario associated with this final rule was subtracted from 
an existing Global Change Assessment Model (GCAM, formerly MiniCAM) 
reference emission scenario. To capture some key uncertainties in the 
climate system with the MAGICC model, changes in temperature and sea-
level rise were projected across the most current IPCC range for 
climate sensitivities which ranges from 1.5 [deg]C to 6.0 [deg]C 
(representing the 90% confidence interval).\322\ This wide range 
reflects the uncertainty in this measure of how much the global mean 
temperature would rise if the concentration of carbon dioxide in the 
atmosphere were to double. Details about this modeling analysis can be 
found in the RIA Chapter 7.4.
---------------------------------------------------------------------------

    \322\ In IPCC reports, equilibrium climate sensitivity refers to 
the equilibrium change in the annual mean global surface temperature 
following a doubling of the atmospheric equivalent carbon dioxide 
concentration. The IPCC states that climate sensitivity is 
``likely'' to be in the range of 2 [deg]C to 4.5 [deg]C, ``very 
unlikely'' to be less than 1.5 [deg]C, and ``values substantially 
higher than 4.5 [deg]C cannot be excluded.'' IPCC WGI, 2007, Climate 
Change 2007--The Physical Science Basis, Contribution of Working 
Group I to the Fourth Assessment Report of the IPCC, http://
www.ipcc.ch/.
---------------------------------------------------------------------------

    The results of this modeling, summarized in Table III.F.3-1, show 
small, but quantifiable, reductions in atmospheric CO2 
concentrations, projected global mean surface temperature and sea level 
resulting from this action, across all climate sensitivities. As a 
result of the emission reductions from this action, the atmospheric 
CO2 concentration is projected to be reduced by an average 
of 2.9 parts per million (ppm), the global mean temperature is 
projected to be reduced by approximately 0.006-0.015[deg]C by 2100, and 
global mean sea level rise is projected to be reduced by approximately 
0.06-0.14cm by 2100. The reductions are small relative to the IPCC's 
2100 ``best estimates'' for global mean temperature increases (1.8-4.0 
[deg]C) and sea level rise (0.20-0.59m) for all global GHG emissions 
sources for a range of emissions scenarios. EPA used a peer reviewed 
model, the MAGICC model, to do this analysis. This analysis is specific 
to this rule and therefore does not come from previously published 
work. Further discussion of EPA's modeling analysis is found in the 
final RIA.

[[Page 25496]]

    Table III.F.3-1--Effect of GHG Emissions Reductions on Projected Changes in Global Climate for the Final
                                               Vehicles Rulemaking
                              [For climate sensitivities ranging from 1.5-6 [deg]C]
----------------------------------------------------------------------------------------------------------------
                    Measure                                   Units                    Year     Projected change
----------------------------------------------------------------------------------------------------------------
Atmospheric CO2 Concentration.................  ppm..............................         2100          -2.7-3.1
Global Mean Surface Temperature...............  [deg]C...........................         2100      -0.006-0.015
Sea Level Rise................................  Cm...............................         2100        -0.06-0.14
Ocean pH......................................  pH units.........................         2100            0.0014
----------------------------------------------------------------------------------------------------------------

    As a substantial portion of CO2 emitted into the 
atmosphere is not removed by natural processes for millennia, each unit 
of CO2 not emitted into the atmosphere avoids essentially 
permanent climate change on centennial time scales. Though the 
magnitude of the avoided climate change projected here is small, these 
reductions would represent a reduction in the adverse risks associated 
with climate change (though these risks were not formally estimated for 
this action) across all climate sensitivities.
    The IPCC \323\ has noted that ocean acidification due to the direct 
effects of elevated CO2 concentrations will impair a wide 
range of planktonic and other marine organisms that use aragonite to 
make their shells or skeletons. EPA used the Program CO2SYS,\324\ 
version 1.05 to estimate projected changes in tropical ocean pH based 
on the atmospheric CO2 concentration reductions resulting 
from this action and other specified input conditions (e.g., sea 
surface temperature characteristic of tropical waters). The program 
performs calculations relating parameters of the carbon dioxide 
(CO2) system in seawater. EPA used the program to calculate 
ocean pH as a function of atmospheric CO2, among other 
specified input conditions. Based on the projected atmospheric 
CO2 concentration reductions (average of 2.9 ppm by 2100) 
that would result from this rule, the program calculates an increase in 
ocean pH of about 0.0014 pH units in 2100. Thus, this analysis 
indicates the projected decrease in atmospheric CO2 
concentrations from today's rule would result in an increase in ocean 
pH.
---------------------------------------------------------------------------

    \323\ Fischlin, A. et al. (2007) Ecosystems, their Properties, 
Goods, and Services. In: Climate Change 2007: Impacts, Adaptation 
and Vulnerability. Contribution of Working Group II to the Fourth 
Assessment Report of the Intergovernmental Panel on Climate Change 
[M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and 
C.E. Hanson (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
    \324\ Lewis, E., and D. W. R. Wallace. 1998. Program Developed 
for CO2 System Calculations. ORNL/CDIAC-105. Carbon 
Dioxide Information Analysis Center, Oak Ridge National Laboratory, 
U.S. Department of Energy, Oak Ridge, Tennessee.
---------------------------------------------------------------------------

    EPA's analysis of the rule's effect on global climate conditions is 
intended to quantify these potential reductions using the best 
available science. While EPA's modeling results of the effect of this 
rule alone show small differences in climate effects (CO2 
concentration, temperature, sea-level rise, ocean pH), when expressed 
in terms of global climate endpoints and global GHG emissions, they 
yield results that are repeatable and consistent within the modeling 
frameworks used.

G. How will the standards impact non-GHG emissions and their associated 
effects?

    In addition to reducing the emissions of greenhouse gases, this 
rule will influence the emissions of ``criteria'' air pollutants and 
air toxics (i.e., hazardous air pollutants). The criteria air 
pollutants include carbon monoxide (CO), fine particulate matter 
(PM2.5), sulfur dioxide (SOX) and the ozone precursors 
hydrocarbons (VOC) and oxides of nitrogen (NOX); the air 
toxics include benzene, 1,3-butadiene, formaldehyde, acetaldehyde, and 
acrolein. Our estimates of these non-GHG emission impacts from the GHG 
program are shown by pollutant in Table III.G-1 and Table III.G-2 in 
total, and broken down by the two drivers of these changes: (a) 
``Upstream'' emission reductions due to decreased extraction, 
production and distribution of motor gasoline; and (b) ``downstream'' 
emission increases, reflecting the effects of VMT rebound (discussed in 
Sections III.F and III.H) and the effects of our assumptions about 
ethanol-blended fuel (E10), as discussed below. Total program impacts 
on criteria and toxics emissions are discussed below, followed by 
individual discussions of the upstream and downstream impacts. Those 
are followed by discussions of the effects on air quality, health, and 
other environmental concerns.
    As in the proposal, for this analysis we attribute decreased fuel 
consumption from this program to gasoline only, while assuming no 
effect on volumes of ethanol and other renewable fuels because they are 
mandated under the Renewable Fuel Standard (RFS2). However, because 
this rule does not assume RFS2 volumes of ethanol in the baseline, the 
result is a greater projected market share of E10 in the control 
case.\325\ In fact, the GHG standards will not be affecting the market 
share of E10, because EPA's analysis for the RFS2 rule predicts 100% 
E10 penetration by 2014.\326\
---------------------------------------------------------------------------

    \325\ When this rule's analysis was initiated, the RFS2 rule was 
not yet final. Therefore, it assumes the ethanol volumes in Annual 
Energy Outlook 2007 (U.S. Energy Information Administration, Annual 
Energy Outlook 2007, Transportation Demand Sector Supplemental 
Table. http://www.eia.doe.gov/oiaf/archive/aeo07/supplement/
index.html)
    \326\ EPA 2010, Renewable Fuel Standard Program (RFS2) 
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket 
EPA-HQ-OAR-2009-0472-11332. See also 75 FR 14670, March 26, 2010.
---------------------------------------------------------------------------

    The amount of E10 affects downstream non-GHG emissions. In the 
proposal, EPA stated these same fuel assumptions and qualitatively 
noted that there were likely unquantified impacts on non-GHG emissions 
between the two cases. In DRIA Chapter 5, EPA indicated its plans to 
quantify these impacts in the air quality modeling and in the final 
rule inventories. Upstream emission impacts depend only on fuel 
volumes, so the impacts presented here reflect only the reduced 
gasoline consumption.
    The inventories presented in this rulemaking include an analysis of 
these fuel effects which was conducted using EPA's Motor Vehicle 
Emission Simulator (MOVES2010). The most notable impact, although still 
relatively slight, is a 2.2 percent increase in 2030 in national 
acetaldehyde emissions over the baseline scenario. It should be noted 
that these emission impacts are not due to the new GHG vehicle 
standards. These impacts are instead a consequence of the assumed 
ethanol volumes. This program does not mandate an increase in E10, nor 
any particular fuel blend. The emission impact of this shift was also 
modeled in the RFS2 rule.
    As shown in Table III.G-1, EPA estimates that this program would 
result in reductions of NOX, VOC, PM and

[[Page 25497]]

SOX, but would increase CO emissions. For NOX, 
VOC, and PM we estimate net reductions because the emissions reductions 
from upstream sources are larger than the emission increases due to 
downstream sources. In the case of CO, we estimate slight emission 
increases, because there are relatively small reductions in upstream 
emissions, and thus the projected downstream emission increases are 
greater than the projected emission decreases due to reduced fuel 
production. For SOX, downstream emissions are roughly 
proportional to fuel consumption, therefore a decrease is seen in both 
upstream and downstream sources.
    For all criteria pollutants the overall impact of the program would 
be relatively small compared to total U.S. inventories across all 
sectors. In 2030, EPA estimates the program would reduce total 
NOX, PM and SOX inventories by 0.1 to 0.8 percent 
and reduce the VOC inventory by 1.0 percent, while increasing the total 
national CO inventory by 0.6 percent.
    As shown in Table III.G-2, EPA estimates that the GHG program would 
result in small changes for air toxic emissions compared to total U.S. 
inventories across all sectors. In 2030, EPA estimates the program 
would reduce total benzene and 1,3 butadiene emissions by 0.1 to 0.3 
percent. Total acrolein and formaldehyde emissions would increase by 
0.1 percent. Acetaldehyde emissions would increase by 2.2 percent.
    One commenter requested that EPA present emission inventories for 
additional air toxics. EPA is presenting inventories for certain air 
toxic emissions which were identified as key national and regional-
scale cancer and noncancer risk drivers in past National Air Toxics 
Assessments (NATA). For additional details, please refer to the 
Response to Comments document.\327\
---------------------------------------------------------------------------

    \327\ U.S. EPA. National Air Toxics Assessment. 2002, 1999, and 
1996. Available at: http://www.epa.gov/nata/.
---------------------------------------------------------------------------

    Other factors which may impact non-GHG emissions, but are not 
estimated in this analysis, include:
     Vehicle technologies used to reduce tailpipe 
CO2 emissions; because the regulatory standards for non-GHG 
emissions are the primary driver for these emissions, EPA expects the 
impact of this program to be negligible on non-GHG emission rates per 
mile.
     The potential for increased market penetration of diesel 
vehicles; because these vehicles would be held to the same 
certification and in-use standards for criteria pollutants as their 
gasoline counterparts, EPA expects their impact to be negligible on 
criteria pollutants and other non-GHG emissions. EPA does not project 
increased penetration of diesels as necessary to meet the GHG 
standards.
     Early introduction of electric vehicles and plug-in hybrid 
electric vehicles, which would reduce criteria emissions in cases where 
those vehicles are able to be certified to lower certification 
standards. This would also likely reduce gaseous air toxics.
     Reduced refueling emissions due to less frequent refueling 
events and reduced annual refueling volumes resulting from the GHG 
standards.
     Increased hot soak evaporative emissions due to the likely 
increase in number of trips associated with VMT rebound modeled in this 
rule.

                           Table III.G-1--Annual Criteria Emission Impacts of Program
                                                  [Short tons]
----------------------------------------------------------------------------------------------------------------
                                          Total impacts           Upstream impacts         Downstream impacts
                                   -----------------------------------------------------------------------------
                                        2020         2030         2020         2030         2020         2030
----------------------------------------------------------------------------------------------------------------
VOC...............................      -60,187     -115,542      -64,506     -126,749        4,318       11,207
    % of total inventory..........       -0.51%       -1.01%       -0.55%       -1.11%        0.04%        0.01%
CO................................        3,992      170,675       -6,165      -12,113       10,156      182,788
    % of total inventory..........        0.01%        0.56%       -0.02%       -0.04%        0.01%         0.6%
NOX...............................       -5,881      -21,763      -19,291      -37,905       13,410       16,143
    % of total inventory..........        -0.02       -0.07%       -0.06%       -0.12%        0.04%        0.05%
PM2.5.............................       -2,398       -4,564       -2,629       -5,165        231.0        602.3
    % of total inventory..........       -0.03%       -0.05%       -0.03%       -0.06%        0.00%        0.01%
SOX...............................      -13,832      -27,443      -11,804      -23,194       -2,027       -4,249
    % of total inventory..........       -0.41%       -0.82%       -0.35%       -0.69%       -0.06%       -0.13%
----------------------------------------------------------------------------------------------------------------

                           Table III.G-2--Annual Air Toxic Emission Impacts of Program
                                                  [Short tons]
----------------------------------------------------------------------------------------------------------------
                                          Total impacts           Upstream impacts         Downstream impacts
                                   -----------------------------------------------------------------------------
                                        2020         2030         2020         2030         2020         2030
----------------------------------------------------------------------------------------------------------------
1,3[dash]Butadiene................          -95          -21         -1.5         -3.0        -93.6        -18.1
    % of total inventory..........       -0.38%       -0.10%       -0.01%       -0.01%       -0.37%       -0.09%
Acetaldehyde......................          760          668         -6.8        -13.4        766.9        681.5
    % of total inventory..........        2.26%        2.18%       -0.02%       -0.04%        2.28%        2.22%
Acrolein..........................            1            5         -0.9         -1.8          1.7          6.5
    % of total inventory..........        0.01%        0.07%       -0.01%       -0.03%        0.03%        0.10%
Benzene...........................         -890         -523       -139.6       -274.3       -750.0       -248.3
    % of total inventory..........       -0.48%       -0.29%       -0.08%       -0.15%       -0.40%       -0.14%
Formaldehyde......................          -49           15        -51.4       -101.0          2.1        116.3
    % of total inventory..........       -0.06%        0.02%       -0.06%       -0.12%        0.00%        0.14%
----------------------------------------------------------------------------------------------------------------

[[Page 25498]]

1. Upstream Impacts of Program
    No substantive comments were received on the upstream inventory 
modeling used in the proposal. The rulemaking inventories were updated 
with the revised estimates of fuel savings as detailed in Section 
III.F.
    Reducing tailpipe CO2 emissions from light-duty cars and 
trucks through tailpipe standards and improved A/C efficiency will 
result in reduced fuel demand and reductions in the emissions 
associated with all of the processes involved in getting petroleum to 
the pump. These upstream emission impacts on criteria pollutants are 
summarized in Table III.G-1. The upstream reductions grow over time as 
the fleet turns over to cleaner CO2 vehicles, so that by 
2030 VOC would decrease by 127,000 tons, NOX by 38,000 tons, 
and PM2.5 by 5,000 tons. Table III.G-2 shows the 
corresponding impacts on upstream air toxic emissions in 2030. 
Formaldehyde decreases by 101 tons, benzene by 274 tons, acetaldehyde 
by 13 tons, acrolein by 2 tons, and 1,3-butadiene by 3 tons.
    To determine these impacts, EPA estimated the impact of reduced 
petroleum volumes on the extraction and transportation of crude oil as 
well as the production and distribution of finished gasoline. For the 
purpose of assessing domestic-only emission reductions it was necessary 
to estimate the fraction of fuel savings attributable to domestic 
finished gasoline, and of this gasoline what fraction is produced from 
domestic crude. For this analysis EPA estimated that 50 percent of fuel 
savings is attributable to domestic finished gasoline and that 90 
percent of this gasoline originated from imported crude. Emission 
factors for most upstream emission sources are based on the GREET1.8 
model, developed by DOE's Argonne National Laboratory,\328\ but in some 
cases the GREET values were modified or updated by EPA to be consistent 
with the National Emission Inventory (NEI).\329\ The primary updates 
for this analysis were to incorporate newer information on gasoline 
distribution emissions for VOC from the NEI, which were significantly 
higher than GREET estimates; and the incorporation of upstream emission 
factors for the air toxics estimated in this analysis: benzene, 1,3-
butadiene, acetaldehyde, acrolein, and formaldehyde. The development of 
these emission factors is detailed in RIA Chapter 5.
---------------------------------------------------------------------------

    \328\ Greenhouse Gas, Regulated Emissions, and Energy Use in 
Transportation model (GREET), U.S. Department of Energy, Argonne 
National Laboratory, http://www.transportation.anl.gov/modeling_
simulation/GREET/.
    \329\ U.S. EPA. 2002 National Emissions Inventory (NEI) Data and 
Documentation, http://www.epa.gov/ttn/chief/net/2002inventory.html.
---------------------------------------------------------------------------

2. Downstream Impacts of Program
    No substantive comments were received on the emission modeling or 
emission inventories presented in this section. However, two changes in 
modeling differentiate the analysis presented here from that presented 
in the proposal. Economic inputs such as fuel prices and vehicle sales 
were updated from AEO 2009 to AEO 2010 Early Release, and as described 
above, the effects of ethanol volume assumptions were explicitly 
modeled. Thus, the primary differences in non-GHG emissions between the 
proposed rule and final rule are attributed more to these changes in 
analytic inputs, and less to changes in the GHG standards program.
    Downstream emission impacts attributable to this program are due to 
the VMT rebound effect and the ethanol volume assumptions. As discussed 
in more detail in Section III.H, the effect of fuel cost on VMT 
(``rebound'') was accounted for in our assessment of economic and 
environmental impacts of this rule. A 10 percent rebound case was used 
for this analysis, meaning that VMT for affected model years is modeled 
as increasing by 10 percent as much as the increase in fuel economy; 
i.e., a 10 percent increase in fuel economy would yield approximately a 
1 percent increase in VMT.
    As detailed in the introduction to this section, fuel composition 
also has effects on vehicle emissions and particularly air toxics. The 
relationship between fuel composition and emission impacts used in 
MOVES2010 and applied in this analysis match those developed for the 
recent Renewable Fuels Standard (RFS2) requirement, and are extensively 
documented in the RFS2 RIA and supporting documents.\330\
---------------------------------------------------------------------------

    \330\ EPA 2010, Renewable Fuel Standard Program (RFS2) 
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket 
EPA-HQ-OAR-2009-0472-11332. See also 75 FR 14670, March 26, 2010.
---------------------------------------------------------------------------

    Downstream emission impacts of the rebound effect are summarized in 
Table III.G-1 for criteria pollutants and precursors and Table III.G-2 
for air toxics. The emission impacts from the rebound effect and the 
change in fuel supply grow over time as the fleet turns over to cleaner 
CO2 vehicles, so that by 2030 VOC would increase by 11,000 
tons, NOX by 16,000 tons, and PM2.5 by 600 tons. 
Table III.G-2 shows the corresponding impacts on air toxic emissions. 
These impacts in 2030 include 18 fewer tons of 1,3-butadiene, 668 
additional tons of acetaldehyde, 248 fewer tons of benzene, 116 
additional tons of formaldehyde, and 6.5 additional tons of acrolein.
    For this analysis, MOVES2010 was used to estimate base VOC, CO, 
NOX, PM and air toxics emissions for both control and 
reference cases. Rebound emissions from light duty cars and trucks were 
then calculated using the OMEGA model post-processor and added to the 
control case. A more complete discussion of the inputs, methodology, 
and results is contained in RIA Chapter 5.
3. Health Effects of Non-GHG Pollutants
    In this section we discuss health effects associated with exposure 
to some of the criteria and air toxics impacted by the vehicle 
standards; PM, ozone, NOX and SOX, CO and air 
toxics. No substantive comments were received on the health effects of 
non-GHG pollutants.
a. Particulate Matter
i. Background
    Particulate matter is a generic term for a broad class of 
chemically and physically diverse substances. It can be principally 
characterized as discrete particles that exist in the condensed (liquid 
or solid) phase spanning several orders of magnitude in size. Since 
1987, EPA has delineated that subset of inhalable particles small 
enough to penetrate to the thoracic region (including the 
tracheobronchial and alveolar regions) of the respiratory tract 
(referred to as thoracic particles). Current NAAQS use PM2.5 
as the indicator for fine particles (with PM2.5 referring to 
particles with a nominal mean aerodynamic diameter less than or equal 
to 2.5 [mu]m), and use PM10 as the indicator for purposes of 
regulating the coarse fraction of PM10 (referred to as 
thoracic coarse particles or coarse-fraction particles; generally 
including particles with a nominal mean aerodynamic diameter greater 
than 2.5 [mu]m and less than or equal to 10 [mu]m, or 
PM10-2.5). Ultrafine particles are a subset of fine 
particles, generally less than 100 nanometers (0.1 [mu]m) in 
aerodynamic diameter.
    Fine particles are produced primarily by combustion processes and 
by transformations of gaseous emissions (e.g., SOX, 
NOX and VOC) in the atmosphere. The chemical and physical 
properties of PM2.5 may vary greatly with time, region, 
meteorology, and source category. Thus, PM2.5 may include a 
complex mixture of different pollutants including sulfates, nitrates, 
organic compounds, elemental carbon

[[Page 25499]]

and metal compounds. These particles can remain in the atmosphere for 
days to weeks and travel hundreds to thousands of kilometers.
ii. Health Effects of PM
    Scientific studies show ambient PM is associated with a series of 
adverse health effects. These health effects are discussed in detail in 
EPA's Integrated Science Assessment for Particulate Matter (ISA).\331\ 
Further discussion of health effects associated with PM can also be 
found in the RIA for this rule. The ISA summarizes evidence associated 
with PM2.5, PM10-2.5, and ultrafine particles 
(UFPs).
---------------------------------------------------------------------------

    \331\ U.S. EPA (2009) Integrated Science Assessment for 
Particulate Matter. EPA 600/R-08/139F, Docket EPA-HQ-OAR-2009-0472-
11295.
---------------------------------------------------------------------------

    The ISA concludes that health effects associated with short-term 
exposures (hours to days) to ambient PM2.5 include non-fatal 
cardiovascular effects, mortality, and respiratory effects, such as 
exacerbation of asthma symptoms in children and hospital admissions and 
emergency department visits for chronic obstructive pulmonary disease 
(COPD) and respiratory infections.\332\ The ISA notes that long-term 
exposure to PM2.5 (months to years) is associated with the 
development/progression of cardiovascular disease, premature mortality, 
and respiratory effects, including reduced lung function growth, 
increased respiratory symptoms, and asthma development.\333\ The ISA 
concludes that that the currently available scientific evidence from 
epidemiologic, controlled human exposure studies, and toxicological 
studies supports that a causal association exists between short- and 
long-term exposures to PM2.5 and cardiovascular effects and 
mortality. Furthermore, the ISA concludes that the collective evidence 
supports likely causal associations between short- and long-term 
PM2.5 exposures and respiratory effects. The ISA also 
concludes that the evidence is suggestive of a causal association for 
reproductive and developmental effects and cancer, mutagenicity, and 
genotoxicity and long-term exposure to PM2.5.\334\
---------------------------------------------------------------------------

    \332\ U.S. EPA (2009). Integrated Science Assessment for 
Particulate Matter (Final Report). U.S. Environmental Protection 
Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.1.1.
    \333\ U.S. EPA (2009). Integrated Science Assessment for 
Particulate Matter (Final Report). U.S. Environmental Protection 
Agency, Washington, DC, EPA/600/R-08/139F, 2009. page 2-12, Sections 
7.3.1.1 and 7.3.2.1.
    \334\ U.S. EPA (2009). Integrated Science Assessment for 
Particulate Matter (Final Report). U.S. Environmental Protection 
Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.2.
---------------------------------------------------------------------------

    For PM10-2.5, the ISA concludes that the current 
evidence is suggestive of a causal relationship between short-term 
exposures and cardiovascular effects, such as hospitalization for 
ischemic heart disease. There is also suggestive evidence of a causal 
relationship between short-term PM10-2.5 exposure and 
mortality and respiratory effects. Data are inadequate to draw 
conclusions regarding the health effects associated with long-term 
exposure to PM10-2.5.\335\
---------------------------------------------------------------------------

    \335\ U.S. EPA (2009). Integrated Science Assessment for 
Particulate Matter (Final Report). U.S. Environmental Protection 
Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.4, 
Table 2-6.
---------------------------------------------------------------------------

    For UFPs, the ISA concludes that there is suggestive evidence of a 
causal relationship between short-term exposures and cardiovascular 
effects, such as changes in heart rhythm and blood vessel function. It 
also concludes that there is suggestive evidence of association between 
short-term exposure to UFPs and respiratory effects. Data are 
inadequate to draw conclusions regarding the health effects associated 
with long-term exposure to UFP's.\336\
---------------------------------------------------------------------------

    \336\ U.S. EPA (2009). Integrated Science Assessment for 
Particulate Matter (Final Report). U.S. Environmental Protection 
Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.5, 
Table 2-6.
---------------------------------------------------------------------------

b. Ozone
i. Background
    Ground-level ozone pollution is typically formed by the reaction of 
VOC and NOX in the lower atmosphere in the presence of heat 
and sunlight. These pollutants, often referred to as ozone precursors, 
are emitted by many types of pollution sources, such as highway and 
nonroad motor vehicles and engines, power plants, chemical plants, 
refineries, makers of consumer and commercial products, industrial 
facilities, and smaller area sources.
    The science of ozone formation, transport, and accumulation is 
complex.\337\ Ground-level ozone is produced and destroyed in a 
cyclical set of chemical reactions, many of which are sensitive to 
temperature and sunlight. When ambient temperatures and sunlight levels 
remain high for several days and the air is relatively stagnant, ozone 
and its precursors can build up and result in more ozone than typically 
occurs on a single high-temperature day. Ozone can be transported 
hundreds of miles downwind from precursor emissions, resulting in 
elevated ozone levels even in areas with low local VOC or 
NOX emissions.
---------------------------------------------------------------------------

    \337\ U.S. EPA (2006). Air Quality Criteria for Ozone and 
Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. 
Washington, DC: U.S. EPA. Docket EPA-HQ-OAR-2009-0472-0099 through -
0101.
---------------------------------------------------------------------------

ii. Health Effects of Ozone
    The health and welfare effects of ozone are well documented and are 
assessed in EPA's 2006 Air Quality Criteria Document (ozone AQCD) and 
2007 Staff Paper.338 339 Ozone can irritate the respiratory 
system, causing coughing, throat irritation, and/or uncomfortable 
sensation in the chest. Ozone can reduce lung function and make it more 
difficult to breathe deeply; breathing may also become more rapid and 
shallow than normal, thereby limiting a person's activity. Ozone can 
also aggravate asthma, leading to more asthma attacks that require 
medical attention and/or the use of additional medication. In addition, 
there is suggestive evidence of a contribution of ozone to 
cardiovascular-related morbidity and highly suggestive evidence that 
short-term ozone exposure directly or indirectly contributes to non-
accidental and cardiopulmonary-related mortality, but additional 
research is needed to clarify the underlying mechanisms causing these 
effects. In a recent report on the estimation of ozone-related 
premature mortality published by the National Research Council (NRC), a 
panel of experts and reviewers concluded that short-term exposure to 
ambient ozone is likely to contribute to premature deaths and that 
ozone-related mortality should be included in estimates of the health 
benefits of reducing ozone exposure.\340\ Animal toxicological evidence 
indicates that with repeated exposure, ozone can inflame and damage the 
lining of the lungs, which may lead to permanent changes in lung tissue 
and irreversible reductions in lung function. People who are more 
susceptible to effects associated with exposure to ozone can include 
children, the elderly, and individuals with respiratory disease such as 
asthma. Those with greater exposures to ozone, for instance due to

[[Page 25500]]

time spent outdoors (e.g., children and outdoor workers), are of 
particular concern.
---------------------------------------------------------------------------

    \338\ U.S. EPA. (2006). Air Quality Criteria for Ozone and 
Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. 
Washington, DC: U.S. EPA.
    \339\ U.S. EPA (2007). Review of the National Ambient Air 
Quality Standards for Ozone: Policy Assessment of Scientific and 
Technical Information, OAQPS Staff Paper. EPA-452/R-07-003. 
Washington, DC, U.S. EPA. Docket EPA-HQ-OAR-2009-0472-0105 through -
0106.
    \340\ National Research Council (NRC), 2008. Estimating 
Mortality Risk Reduction and Economic Benefits from Controlling 
Ozone Air Pollution. The National Academies Press: Washington, DC 
Docket EPA-HQ-OAR-2009-0472-0322.
---------------------------------------------------------------------------

    The 2006 ozone AQCD also examined relevant new scientific 
information that has emerged in the past decade, including the impact 
of ozone exposure on such health effects as changes in lung structure 
and biochemistry, inflammation of the lungs, exacerbation and causation 
of asthma, respiratory illness-related school absence, hospital 
admissions and premature mortality. Animal toxicological studies have 
suggested potential interactions between ozone and PM with increased 
responses observed to mixtures of the two pollutants compared to either 
ozone or PM alone. The respiratory morbidity observed in animal studies 
along with the evidence from epidemiologic studies supports a causal 
relationship between acute ambient ozone exposures and increased 
respiratory-related emergency room visits and hospitalizations in the 
warm season. In addition, there is suggestive evidence of a 
contribution of ozone to cardiovascular-related morbidity and non-
accidental and cardiopulmonary mortality.
c. NOX and SOX
i. Background
    Nitrogen dioxide (NO2) is a member of the NOX 
family of gases. Most NO2 is formed in the air through the 
oxidation of nitric oxide (NO) emitted when fuel is burned at a high 
temperature. SO2, a member of the sulfur oxide 
(SOX) family of gases, is formed from burning fuels 
containing sulfur (e.g., coal or oil derived), extracting gasoline from 
oil, or extracting metals from ore.
    SO2 and NO2 can dissolve in water vapor and 
further oxidize to form sulfuric and nitric acid which react with 
ammonia to form sulfates and nitrates, both of which are important 
components of ambient PM. The health effects of ambient PM are 
discussed in Section III.G.3.a of this preamble. NOX along 
with non-methane hydrocarbon (NMHC) are the two major precursors of 
ozone. The health effects of ozone are covered in Section III.G.3.b.
ii. Health Effects of NO2
    Information on the health effects of NO2 can be found in 
the EPA Integrated Science Assessment (ISA) for Nitrogen Oxides.\341\ 
The EPA has concluded that the findings of epidemiologic, controlled 
human exposure, and animal toxicological studies provide evidence that 
is sufficient to infer a likely causal relationship between respiratory 
effects and short-term NO2 exposure. The ISA concludes that 
the strongest evidence for such a relationship comes from epidemiologic 
studies of respiratory effects including symptoms, emergency department 
visits, and hospital admissions. The ISA also draws two broad 
conclusions regarding airway responsiveness following NO2 
exposure. First, the ISA concludes that NO2 exposure may 
enhance the sensitivity to allergen-induced decrements in lung function 
and increase the allergen-induced airway inflammatory response 
following 30-minute exposures of asthmatics to NO2 
concentrations as low as 0.26 ppm. In addition, small but significant 
increases in non-specific airway hyperresponsiveness were reported 
following 1-hour exposures of asthmatics to 0.1 ppm NO2. 
Second, exposure to NO2 has been found to enhance the 
inherent responsiveness of the airway to subsequent nonspecific 
challenges in controlled human exposure studies of asthmatic subjects. 
Enhanced airway responsiveness could have important clinical 
implications for asthmatics since transient increases in airway 
responsiveness following NO2 exposure have the potential to 
increase symptoms and worsen asthma control. Together, the 
epidemiologic and experimental data sets form a plausible, consistent, 
and coherent description of a relationship between NO2 
exposures and an array of adverse health effects that range from the 
onset of respiratory symptoms to hospital admission.
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    \341\ U.S. EPA (2008). Integrated Science Assessment for Oxides 
of Nitrogen--Health Criteria (Final Report). EPA/600/R-08/071. 
Washington, DC: U.S.EPA. Docket EPA-HQ-OAR-2009-0472-0350.
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    Although the weight of evidence supporting a causal relationship is 
somewhat less certain than that associated with respiratory morbidity, 
NO2 has also been linked to other health endpoints. These 
include all-cause (nonaccidental) mortality, hospital admissions or 
emergency department visits for cardiovascular disease, and decrements 
in lung function growth associated with chronic exposure.
iii. Health Effects of SO2
    Information on the health effects of SO2 can be found in 
the EPA Integrated Science Assessment for Sulfur Oxides.\342\ 
SO2 has long been known to cause adverse respiratory health 
effects, particularly among individuals with asthma. Other potentially 
sensitive groups include children and the elderly. During periods of 
elevated ventilation, asthmatics may experience symptomatic 
bronchoconstriction within minutes of exposure. Following an extensive 
evaluation of health evidence from epidemiologic and laboratory 
studies, the EPA has concluded that there is a causal relationship 
between respiratory health effects and short-term exposure to 
SO2. Separately, based on an evaluation of the epidemiologic 
evidence of associations between short-term exposure to SO2 
and mortality, the EPA has concluded that the overall evidence is 
suggestive of a causal relationship between short-term exposure to 
SO2 and mortality.
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    \342\ U.S. EPA. (2008). Integrated Science Assessment (ISA) for 
Sulfur Oxides--Health Criteria (Final Report). EPA/600/R-08/047F. 
Washington, DC: U.S. Environmental Protection Agency. Docket EPA-HQ-
OAR-2009-0472-0335.
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d. Carbon Monoxide
    Information on the health effects of carbon monoxide (CO) can be 
found in the EPA Integrated Science Assessment (ISA) for Carbon 
Monoxide.\343\ The ISA concludes that ambient concentrations of CO are 
associated with a number of adverse health effects.\344\ This section 
provides a summary of the health effects associated with exposure to 
ambient concentrations of CO.\345\
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    \343\ U.S. EPA, 2010. Integrated Science Assessment for Carbon 
Monoxide (Final Report). U.S. Environmental Protection Agency, 
Washington, DC, EPA/600/R-09/019F, 2010. http://cfpub.epa.gov/ncea/
cfm/recordisplay.cfm?deid=218686.
    \344\ The ISA evaluates the health evidence associated with 
different health effects, assigning one of five ``weight of 
evidence'' determination: causal relationship, likely to be a causal 
relationship, suggestive of a causal relationship, inadequate to 
infer a causal relationship, and not likely to be a causal 
relationship. For definitions of these levels of evidence, please 
refer to Section 1.6 of the ISA.
    \345\ Personal exposure includes contributions from many 
sources, and in many different environments. Total personal exposure 
to CO includes both ambient and nonambient components; and both 
components may contribute to adverse health effects.
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    Human clinical studies of subjects with coronary artery disease 
show a decrease in the time to onset of exercise-induced angina (chest 
pain) and electrocardiogram changes following CO exposure. In addition, 
epidemiologic studies show associations between short-term CO exposure 
and cardiovascular morbidity, particularly increased emergency room 
visits and hospital admissions for coronary heart disease (including 
ischemic heart disease, myocardial infarction, and angina). Some 
epidemiologic evidence is also available for increased hospital 
admissions and emergency room visits for congestive heart failure and 
cardiovascular disease as a whole. The ISA concludes that a causal 
relationship is likely between short-term exposures to CO and 
cardiovascular morbidity. It also concludes that available data are 
inadequate to conclude that a causal

[[Page 25501]]

relationship exists between long-term exposures to CO and 
cardiovascular morbidity.
    Animal studies show various neurological effects with in-utero CO 
exposure. Controlled human exposure studies report inconsistent neural 
and behavioral effects following low-level CO exposures. The ISA 
concludes the evidence is suggestive of a causal relationship with both 
short- and long-term exposure to CO and central nervous system effects.
    A number of epidemiologic and animal toxicological studies cited in 
the ISA have evaluated associations between preterm birth and cardiac 
birth defects and CO exposure. The epidemiologic studies provide 
limited evidence of a CO-induced effect on pre-term births and birth 
defects, with weak evidence for a decrease in birth weight. Animal 
toxicological studies have found associations between perinatal CO 
exposure and decrements in birth weight, as well as other developmental 
outcomes. The ISA concludes these studies are suggestive of a causal 
relationship between long-term exposures to CO and developmental 
effects and birth outcomes.
    Epidemiologic studies provide evidence of effects on respiratory 
morbidity such as changes in pulmonary function, respiratory symptoms, 
and hospital admissions associated with ambient CO concentrations. A 
limited number of epidemiologic studies considered copollutants such as 
ozone, SO2, and PM in two-pollutant models and found that CO 
risk estimates were generally robust, although this limited evidence 
makes it difficult to disentangle effects attributed to CO itself from 
those of the larger complex air pollution mixture. Controlled human 
exposure studies have not extensively evaluated the effect of CO on 
respiratory morbidity. Animal studies at levels of 50-100 ppm CO show 
preliminary evidence of altered pulmonary vascular remodeling and 
oxidative injury. The ISA concludes that the evidence is suggestive of 
a causal relationship between short-term CO exposure and respiratory 
morbidity, and inadequate to conclude that a causal relationship exists 
between long-term exposure and respiratory morbidity.
    Finally, the ISA concludes that the epidemiologic evidence is 
suggestive of a causal relationship between short-term exposures to CO 
and mortality. Epidemiologic studies provide evidence of an association 
between short-term exposure to CO and mortality, but limited evidence 
is available to evaluate cause-specific mortality outcomes associated 
with CO exposure. In addition, the attenuation of CO risk estimates 
which was often observed in copollutant models contributes to the 
uncertainty as to whether CO is acting alone or as an indicator for 
other combustion-related pollutants. The ISA also concludes that there 
is not likely to be a causal relationship between relevant long-term 
exposures to CO and mortality.
e. Air Toxics
    Motor vehicle emissions contribute to ambient levels of air toxics 
known or suspected as human or animal carcinogens, or that have 
noncancer health effects. The population experiences an elevated risk 
of cancer and other noncancer health effects from exposure to the class 
of pollutants known collectively as ``air toxics''.\346\ These 
compounds include, but are not limited to, benzene, 1,3-butadiene, 
formaldehyde, acetaldehyde, acrolein, polycyclic organic matter (POM), 
and naphthalene. These compounds, except acetaldehyde, were identified 
as national or regional risk drivers in the 2002 National-scale Air 
Toxics Assessment (NATA) and have significant inventory contributions 
from mobile sources.\347\ Emissions and ambient concentrations of 
compounds are discussed in the RIA chapters on emission inventories and 
air quality (Chapters 5 and 7, respectively).
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    \346\ U.S. EPA. 2002 National-Scale Air Toxics Assessment. 
http://www.epa.gov/ttn/atw/nata12002/risksum.html. Docket EPA-HQ-
OAR-2009-0472-11322.
    \347\ U.S. EPA. 2009. National-Scale Air Toxics Assessment for 
2002. http://www.epa.gov/ttn/atw/nata2002/. Docket EPA-HQ-OAR-2009-
0472-11321.
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i. Benzene
    The EPA's IRIS database lists benzene as a known human carcinogen 
(causing leukemia) by all routes of exposure, and concludes that 
exposure is associated with additional health effects, including 
genetic changes in both humans and animals and increased proliferation 
of bone marrow cells in mice.348 349 350 EPA states in its 
IRIS database that data indicate a causal relationship between benzene 
exposure and acute lymphocytic leukemia and suggest a relationship 
between benzene exposure and chronic non-lymphocytic leukemia and 
chronic lymphocytic leukemia. The International Agency for Research on 
Carcinogens (IARC) has determined that benzene is a human carcinogen 
and the U.S. Department of Health and Human Services (DHHS) has 
characterized benzene as a known human carcinogen.351 352
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    \348\ U.S. EPA. 2000. Integrated Risk Information System File 
for Benzene. This material is available electronically at http://
www.epa.gov/iris/subst/0276.htm. Docket EPA-HQ-OAR-2009-0472-1659.
    \349\ International Agency for Research on Cancer (IARC). 1982. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 29. Some industrial chemicals and dyestuffs, World 
Health Organization, Lyon, France, p. 345-389. Docket EPA-HQ-OAR-
2009-0472-0366.
    \350\ Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henry, 
V.A. 1992. Synergistic action of the benzene metabolite hydroquinone 
on myelopoietic stimulating activity of granulocyte/macrophage 
colony-stimulating factor in vitro, Proc. Natl. Acad. Sci. 89:3691-
3695. Docket EPA-HQ-OAR-2009-0472-0370.
    \351\ International Agency for Research on Cancer (IARC). 1982. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 29. Some industrial chemicals and dyestuffs, World 
Health Organization, Lyon, France. Docket EPA-HQ-OAR-2009-0472-0366.
    \352\ U.S. Department of Health and Human Services National 
Toxicology Program 11th Report on Carcinogens available at: http://
ntp.niehs.nih.gov/go/16183.
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    A number of adverse noncancer health effects including blood 
disorders, such as preleukemia and aplastic anemia, have also been 
associated with long-term exposure to benzene.353 354 The 
most sensitive noncancer effect observed in humans, based on current 
data, is the depression of the absolute lymphocyte count in 
blood.355 356 In addition, recent work, including studies 
sponsored by the Health Effects Institute (HEI), provides evidence that 
biochemical responses are occurring at lower levels of benzene exposure 
than previously known.357 358 359 360 EPA's

[[Page 25502]]

IRIS program has not yet evaluated these new data.
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    \353\ Aksoy, M. (1989). Hematotoxicity and carcinogenicity of 
benzene. Environ. Health Perspect. 82: 193-197. Docket EPA-HQ-OAR-
2009-0472-0368.
    \354\ Goldstein, B.D. (1988). Benzene toxicity. Occupational 
medicine. State of the Art Reviews. 3: 541-554. Docket EPA-HQ-OAR-
2009-0472-0325.
    \355\ Rothman, N., G.L. Li, M. Dosemeci, W.E. Bechtold, G.E. 
Marti, Y.Z. Wang, M. Linet, L.Q. Xi, W. Lu, M.T. Smith, N. Titenko-
Holland, L.P. Zhang, W. Blot, S.N. Yin, and R.B. Hayes (1996) 
Hematotoxicity among Chinese workers heavily exposed to benzene. Am. 
J. Ind. Med. 29: 236-246. Docket EPA-HQ-OAR-2009-0472-0326.
    \356\ U.S. EPA (2002) Toxicological Review of Benzene (Noncancer 
Effects). Environmental Protection Agency, Integrated Risk 
Information System (IRIS), Research and Development, National Center 
for Environmental Assessment, Washington DC. This material is 
available electronically at http://www.epa.gov/iris/subst/0276.htm. 
Docket EPA-HQ-OAR-2009-0472-0327.
    \357\ Qu, O.; Shore, R.; Li, G.; Jin, X.; Chen, C.L.; Cohen, B.; 
Melikian, A.; Eastmond, D.; Rappaport, S.; Li, H.; Rupa, D.; 
Suramaya, R.; Songnian, W.; Huifant, Y.; Meng, M.; Winnik, M.; Kwok, 
E.; Li, Y.; Mu, R.; Xu, B.; Zhang, X.; Li, K. (2003) HEI Report 115, 
Validation & Evaluation of Biomarkers in Workers Exposed to Benzene 
in China. Docket EPA-HQ-OAR-2009-0472-0328.
    \358\ Qu, Q., R. Shore, G. Li, X. Jin, L.C. Chen, B. Cohen, et 
al. (2002) Hematological changes among Chinese workers with a broad 
range of benzene exposures. Am. J. Industr. Med. 42: 275-285. Docket 
EPA-HQ-OAR-2009-0472-0329.
    \359\ Lan, Qing, Zhang, L., Li, G., Vermeulen, R., et al. (2004) 
Hematotoxically in Workers Exposed to Low Levels of Benzene. Science 
306: 1774-1776. Docket EPA-HQ-OAR-2009-0472-0330.
    \360\ Turtletaub, K.W. and Mani, C. (2003) Benzene metabolism in 
rodents at doses relevant to human exposure from Urban Air. Research 
Reports Health Effect Inst. Report No.113. Docket EPA-HQ-OAR-2009-
0472-0385.
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ii. 1,3-Butadiene
    EPA has characterized 1,3-butadiene as carcinogenic to humans by 
inhalation.361 362 The IARC has determined that 1,3-
butadiene is a human carcinogen and the U.S. DHHS has characterized 
1,3-butadiene as a known human carcinogen.363 364 There are 
numerous studies consistently demonstrating that 1,3-butadiene is 
metabolized into genotoxic metabolites by experimental animals and 
humans. The specific mechanisms of 1,3-butadiene-induced carcinogenesis 
are unknown; however, the scientific evidence strongly suggests that 
the carcinogenic effects are mediated by genotoxic metabolites. Animal 
data suggest that females may be more sensitive than males for cancer 
effects associated with 1,3-butadiene exposure; there are insufficient 
data in humans from which to draw conclusions about sensitive 
subpopulations. 1,3-butadiene also causes a variety of reproductive and 
developmental effects in mice; no human data on these effects are 
available. The most sensitive effect was ovarian atrophy observed in a 
lifetime bioassay of female mice.\365\
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    \361\ U.S. EPA (2002) Health Assessment of 1,3-Butadiene. Office 
of Research and Development, National Center for Environmental 
Assessment, Washington Office, Washington, DC. Report No. EPA600-P-
98-001F. This document is available electronically at http://
www.epa.gov/iris/supdocs/buta-sup.pdf. Docket EPA-HQ-OAR-2009-0472-
0386.
    \362\ U.S. EPA (2002) Full IRIS Summary for 1,3-butadiene (CASRN 
106-99-0). Environmental Protection Agency, Integrated Risk 
Information System (IRIS), Research and Development, National Center 
for Environmental Assessment, Washington, DC. http://www.epa.gov/
iris/subst/0139.htm. Docket EPA-HQ-OAR-2009-0472-1660
    \363\ International Agency for Research on Cancer (IARC) (1999) 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 71, Re-evaluation of some organic chemicals, 
hydrazine and hydrogen peroxide and Volume 97 (in preparation), 
World Health Organization, Lyon, France. Docket EPA-HQ-OAR-2009-
0472-0387.
    \364\ U.S. Department of Health and Human Services (2005) 
National Toxicology Program 11th Report on Carcinogens available at: 
ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-
7FCE50709CB4C932.
    \365\ Bevan, C.; Stadler, J.C.; Elliot, G.S.; et al. (1996) 
Subchronic toxicity of 4-vinylcyclohexene in rats and mice by 
inhalation. Fundam. Appl. Toxicol. 32:1-10. Docket EPA-HQ-OAR-2009-
0472-0388.
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iii. Formaldehyde
    Since 1987, EPA has classified formaldehyde as a probable human 
carcinogen based on evidence in humans and in rats, mice, hamsters, and 
monkeys.\366\ EPA is currently reviewing recently published 
epidemiological data. For instance, research conducted by the National 
Cancer Institute (NCI) found an increased risk of nasopharyngeal cancer 
and lymphohematopoietic malignancies such as leukemia among workers 
exposed to formaldehyde.367 368 In an analysis of the 
lymphohematopoietic cancer mortality from an extended follow-up of 
these workers, NCI confirmed an association between lymphohematopoietic 
cancer risk and peak exposures.\369\ A recent National Institute of 
Occupational Safety and Health (NIOSH) study of garment workers also 
found increased risk of death due to leukemia among workers exposed to 
formaldehyde.\370\ Extended follow-up of a cohort of British chemical 
workers did not find evidence of an increase in nasopharyngeal or 
lymphohematopoietic cancers, but a continuing statistically significant 
excess in lung cancers was reported.\371\ Recently, the IARC re-
classified formaldehyde as a human carcinogen (Group 1).\372\
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    \366\ U.S. EPA (1987) Assessment of Health Risks to Garment 
Workers and Certain Home Residents from Exposure to Formaldehyde, 
Office of Pesticides and Toxic Substances, April 1987. Docket EPA-
HQ-OAR-2009-0472-0389.
    \367\ Hauptmann, M.; Lubin, J.H.; Stewart, P.A.; Hayes, R.B.; 
Blair, A. 2003. Mortality from lymphohematopoetic malignancies among 
workers in formaldehyde industries. Journal of the National Cancer 
Institute 95: 1615-1623. Docket EPA-HQ-OAR-2009-0472-0336.
    \368\ Hauptmann, M..; Lubin, J.H.; Stewart, P.A.; Hayes, R.B.; 
Blair, A. 2004. Mortality from solid cancers among workers in 
formaldehyde industries. American Journal of Epidemiology 159: 1117-
1130. Docket EPA-HQ-OAR-2009-0472-0337.
    \369\ Beane Freeman, L.E.; Blair, A.; Lubin, J.H.; Stewart, 
P.A.; Hayes, R.B.; Hoover, R.N.; Hauptmann, M. 2009. Mortality from 
lymphohematopoietic malignancies among workers in formaldehyde 
industries: The National Cancer Institute cohort. J. National Cancer 
Inst. 101: 751-761. Docket EPA-HQ-OAR-2009-0472-0338.
    \370\ Pinkerton, L.E. 2004. Mortality among a cohort of garment 
workers exposed to formaldehyde: an update. Occup. Environ. Med. 61: 
193-200. Docket EPA-HQ-OAR-2009-0472-0339.
    \371\ Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Extended 
follow-up of a cohort of British chemical workers exposed to 
formaldehyde. J National Cancer Inst. 95:1608-1615. Docket EPA-HQ-
OAR-2009-0472-0340.
    \372\ International Agency for Research on Cancer (IARC). 2006. 
Formaldehyde, 2-Butoxyethanol and 1-tert-Butoxypropan-2-ol. Volume 
88. (in preparation), World Health Organization, Lyon, France. 
Docket EPA-HQ-OAR-2009-0472-1164.
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    Formaldehyde exposure also causes a range of noncancer health 
effects, including irritation of the eyes (burning and watering of the 
eyes), nose and throat. Effects from repeated exposure in humans 
include respiratory tract irritation, chronic bronchitis and nasal 
epithelial lesions such as metaplasia and loss of cilia. Animal studies 
suggest that formaldehyde may also cause airway inflammation--including 
eosinophil infiltration into the airways. There are several studies 
that suggest that formaldehyde may increase the risk of asthma--
particularly in the young.373 374
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    \373\ Agency for Toxic Substances and Disease Registry (ATSDR). 
1999. Toxicological profile for Formaldehyde. Atlanta, GA: U.S. 
Department of Health and Human Services, Public Health Service. 
http://www.atsdr.cdc.gov/toxprofiles/tp111.html Docket EPA-HQ-OAR-
2009-0472-1191.
    \374\ WHO (2002) Concise International Chemical Assessment 
Document 40: Formaldehyde. Published under the joint sponsorship of 
the United Nations Environment Programme, the International Labour 
Organization, and the World Health Organization, and produced within 
the framework of the Inter-Organization Programme for the Sound 
Management of Chemicals. Geneva. Docket EPA-HQ-OAR-2009-0472-1199.
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iv. Acetaldehyde
    Acetaldehyde is classified in EPA's IRIS database as a probable 
human carcinogen, based on nasal tumors in rats, and is considered 
toxic by the inhalation, oral, and intravenous routes.\375\ 
Acetaldehyde is reasonably anticipated to be a human carcinogen by the 
U.S. DHHS in the 11th Report on Carcinogens and is classified as 
possibly carcinogenic to humans (Group 2B) by the 
IARC.376 377 EPA is currently conducting a reassessment of 
cancer risk from inhalation exposure to acetaldehyde.
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    \375\ U.S. EPA. 1991. Integrated Risk Information System File of 
Acetaldehyde. Research and Development, National Center for 
Environmental Assessment, Washington, DC. This material is available 
electronically at http://www.epa.gov/iris/subst/0290.htm. Docket 
EPA-HQ-OAR-2009-0472-0390.
    \376\ U.S. Department of Health and Human Services National 
Toxicology Program 11th Report on Carcinogens available at: 
ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-
7FCE50709CB4C932.
    \377\ International Agency for Research on Cancer (IARC). 1999. 
Re-evaluation of some organic chemicals, hydrazine, and hydrogen 
peroxide. IARC Monographs on the Evaluation of Carcinogenic Risk of 
Chemical to Humans, Vol 71. Lyon, France. Docket EPA-HQ-OAR-2009-
0472-0387.
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    The primary noncancer effects of exposure to acetaldehyde vapors 
include irritation of the eyes, skin, and respiratory tract.\378\ In 
short-term (4 week) rat studies, degeneration of olfactory epithelium 
was observed at various concentration levels of

[[Page 25503]]

acetaldehyde exposure.379 380 Data from these studies were 
used by EPA to develop an inhalation reference concentration. Some 
asthmatics have been shown to be a sensitive subpopulation to 
decrements in functional expiratory volume (FEV1 test) and 
bronchoconstriction upon acetaldehyde inhalation.\381\ The agency is 
currently conducting a reassessment of the health hazards from 
inhalation exposure to acetaldehyde.
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    \378\ U.S. EPA. 1991. Integrated Risk Information System File of 
Acetaldehyde. This material is available electronically at http://
www.epa.gov/iris/subst/0290.htm.
    \379\ Appleman, L. M., R. A. Woutersen, V. J. Feron, R. N. 
Hooftman, and W. R. F. Notten. 1986. Effects of the variable versus 
fixed exposure levels on the toxicity of acetaldehyde in rats. J. 
Appl. Toxicol. 6: 331-336.
    \380\ Appleman, L.M., R.A. Woutersen, and V.J. Feron. 1982. 
Inhalation toxicity of acetaldehyde in rats. I. Acute and subacute 
studies. Toxicology. 23: 293-297. Docket EPA-HQ-OAR-2009-0472-0392.
    \381\ Myou, S.; Fujimura, M.; Nishi K.; Ohka, T.; and Matsuda, 
T. 1993. Aerosolized acetaldehyde induces histamine-mediated 
bronchoconstriction in asthmatics. Am. Rev. Respir.Dis.148(4 Pt 1): 
940-3. Docket EPA-HQ-OAR-2009-0472-0408.
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v. Acrolein
    Acrolein is extremely acrid and irritating to humans when inhaled, 
with acute exposure resulting in upper respiratory tract irritation, 
mucus hypersecretion and congestion. The intense irritancy of this 
carbonyl has been demonstrated during controlled tests in human 
subjects, who suffer intolerable eye and nasal mucosal sensory 
reactions within minutes of exposure.\382\ These data and additional 
studies regarding acute effects of human exposure to acrolein are 
summarized in EPA's 2003 IRIS Human Health Assessment for 
acrolein.\383\ Evidence available from studies in humans indicate that 
levels as low as 0.09 ppm (0.21 mg/m\3\) for five minutes may elicit 
subjective complaints of eye irritation with increasing concentrations 
leading to more extensive eye, nose and respiratory symptoms.\384\ 
Lesions to the lungs and upper respiratory tract of rats, rabbits, and 
hamsters have been observed after subchronic exposure to acrolein.\385\ 
Acute exposure effects in animal studies report bronchial hyper-
responsiveness.\386\ In a recent study, the acute respiratory irritant 
effects of exposure to 1.1 ppm acrolein were more pronounced in mice 
with allergic airway disease by comparison to non-diseased mice which 
also showed decreases in respiratory rate.\387\ Based on these animal 
data and demonstration of similar effects in humans (e.g., reduction in 
respiratory rate), individuals with compromised respiratory function 
(e.g., emphysema, asthma) are expected to be at increased risk of 
developing adverse responses to strong respiratory irritants such as 
acrolein.
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    \382\ Sim VM, Pattle RE. Effect of possible smog irritants on 
human subjects JAMA165: 1980-2010, 1957. Docket EPA-HQ-OAR-2009-
0472-0395.
    \383\ U.S. EPA (U.S. Environmental Protection Agency). (2003) 
Toxicological review of acrolein in support of summary information 
on Integrated Risk Information System (IRIS) National Center for 
Environmental Assessment, Washington, DC. EPA/635/R-03/003. 
Available online at: http://www.epa.gov/ncea/iris.
    \384\ Weber-Tschopp, A; Fischer, T; Gierer, R; et al. (1977) 
Experimentelle reizwirkungen von Acrolein auf den Menschen. Int Arch 
Occup Environ Hlth 40(2):117-130. In German Docket EPA-HQ-OAR-2009-
0472-0394.
    \385\ Integrated Risk Information System File of Acrolein. 
Office of Research and Development, National Center for 
Environmental Assessment, Washington, DC. This material is available 
at http://www.epa.gov/iris/subst/0364.htm. Docket EPA-HQ-OAR-2009-
0472-0391.
    \386\ U.S. EPA (U.S. Environmental Protection Agency). (2003) 
Toxicological review of acrolein in support of summary information 
on Integrated Risk Information System (IRIS) National Center for 
Environmental Assessment, Washington, DC. EPA/635/R-03/003. 
Available online at: http://www.epa.gov/ncea/iris.
    \387\ Morris JB, Symanowicz PT, Olsen JE, et al. 2003. Immediate 
sensory nerve-mediated respiratory responses to irritants in healthy 
and allergic airway-diseased mice. J Appl Physiol 94(4):1563-1571. 
Docket EPA-HQ-OAR-2009-0472-0396.
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    EPA determined in 2003 that the human carcinogenic potential of 
acrolein could not be determined because the available data were 
inadequate. No information was available on the carcinogenic effects of 
acrolein in humans and the animal data provided inadequate evidence of 
carcinogenicity.\388\ The IARC determined in 1995 that acrolein was not 
classifiable as to its carcinogenicity in humans.\389\
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    \388\ U.S. EPA 2003. Integrated Risk Information System File of 
Acrolein. Research and Development, National Center for 
Environmental Assessment, Washington, DC. This material is available 
at http://www.epa.gov/iris/subst/0364.htm.
    \389\ International Agency for Research on Cancer (IARC). 1995. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 63. Dry cleaning, some chlorinated solvents and other 
industrial chemicals, World Health Organization, Lyon, France. 
Docket EPA-HQ-OAR-2009-0472-0393.
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vi. Polycyclic Organic Matter (POM)
    POM is generally defined as a large class of organic compounds 
which have multiple benzene rings and a boiling point greater than 100 
degrees Celsius. Many of the compounds included in the class of 
compounds known as POM are classified by EPA as probable human 
carcinogens based on animal data. One of these compounds, naphthalene, 
is discussed separately below. Polycyclic aromatic hydrocarbons (PAHs) 
are a subset of POM that contain only hydrogen and carbon atoms. A 
number of PAHs are known or suspected carcinogens. Recent studies have 
found that maternal exposures to PAHs (a subclass of POM) in a 
population of pregnant women were associated with several adverse birth 
outcomes, including low birth weight and reduced length at birth, as 
well as impaired cognitive development at age three.390 391 
EPA has not yet evaluated these recent studies.
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    \390\ Perera, F.P.; Rauh, V.; Tsai, W-Y.; et al. (2002) Effect 
of transplacental exposure to environmental pollutants on birth 
outcomes in a multiethnic population. Environ Health Perspect. 111: 
201-205. Docket EPA-HQ-OAR-2009-0472-0372.
    \391\ Perera, F.P.; Rauh, V.; Whyatt, R.M.; Tsai, W.Y.; Tang, 
D.; Diaz, D.; Hoepner, L.; Barr, D.; Tu, Y.H.; Camann, D.; Kinney, 
P. (2006) Effect of prenatal exposure to airborne polycyclic 
aromatic hydrocarbons on neurodevelopment in the first 3 years of 
life among inner-city children. Environ Health Perspect 114: 1287-
1292. Docket EPA-HQ-OAR-2009-0472-0373.
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vii. Naphthalene
    Naphthalene is found in small quantities in gasoline and diesel 
fuels. Naphthalene emissions have been measured in larger quantities in 
both gasoline and diesel exhaust compared with evaporative emissions 
from mobile sources, indicating it is primarily a product of 
combustion. EPA released an external review draft of a reassessment of 
the inhalation carcinogenicity of naphthalene based on a number of 
recent animal carcinogenicity studies.\392\ The draft reassessment 
completed external peer review.\393\ Based on external peer review 
comments received, additional analyses are being undertaken. This 
external review draft does not represent official agency opinion and 
was released solely for the purposes of external peer review and public 
comment. The National Toxicology Program listed naphthalene as 
``reasonably anticipated to be a human carcinogen'' in 2004 on the 
basis of bioassays reporting clear evidence of carcinogenicity in rats 
and some evidence of carcinogenicity in mice.\394\ California EPA has 
released a new risk assessment for naphthalene, and the

[[Page 25504]]

IARC has reevaluated naphthalene and re-classified it as Group 2B: 
possibly carcinogenic to humans.\395\ Naphthalene also causes a number 
of chronic non-cancer effects in animals, including abnormal cell 
changes and growth in respiratory and nasal tissues.\396\
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    \392\ U.S. EPA 2004. Toxicological Review of Naphthalene 
(Reassessment of the Inhalation Cancer Risk), Environmental 
Protection Agency, Integrated Risk Information System, Research and 
Development, National Center for Environmental Assessment, 
Washington, DC. This material is available electronically at http://
www.epa.gov/iris/subst/0436.htm. Docket EPA-HQ-OAR-2009-0472-0272.
    \393\ Oak Ridge Institute for Science and Education. (2004). 
External Peer Review for the IRIS Reassessment of the Inhalation 
Carcinogenicity of Naphthalene. August 2004. http://cfpub.epa.gov/
ncea/cfm/recordisplay.cfm?deid=84403. Docket EPA-HQ-OAR-2009-0472-
0273.
    \394\ National Toxicology Program (NTP). (2004). 11th Report on 
Carcinogens. Public Health Service, U.S. Department of Health and 
Human Services, Research Triangle Park, NC. Available from: http://
ntp-server.niehs.nih.gov.
    \395\ International Agency for Research on Cancer (IARC). 
(2002). Monographs on the Evaluation of the Carcinogenic Risk of 
Chemicals for Humans. Vol. 82. Lyon, France. Docket EPA-HQ-OAR-2009-
0472-0274.
    \396\ U.S. EPA. 1998. Toxicological Review of Naphthalene, 
Environmental Protection Agency, Integrated Risk Information System, 
Research and Development, National Center for Environmental 
Assessment, Washington, DC. This material is available 
electronically at http://www.epa.gov/iris/subst/0436.htm.
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viii. Other Air Toxics
    In addition to the compounds described above, other compounds in 
gaseous hydrocarbon and PM emissions from vehicles will be affected by 
this final rule. Mobile source air toxic compounds that would 
potentially be impacted include ethylbenzene, propionaldehyde, toluene, 
and xylene. Information regarding the health effects of these compounds 
can be found in EPA's IRIS database.\397\
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    \397\ U.S. EPA Integrated Risk Information System (IRIS) 
database is available at: http://www.epa.gov/iris.
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f. Exposure and Health Effects Associated With Traffic
    Populations who live, work, or attend school near major roads 
experience elevated exposure concentrations to a wide range of air 
pollutants, as well as higher risks for a number of adverse health 
effects. While the previous sections of this preamble have focused on 
the health effects associated with individual criteria pollutants or 
air toxics, this section discusses the mixture of different exposures 
near major roadways, rather than the effects of any single pollutant. 
As such, this section emphasizes traffic-related air pollution, in 
general, as the relevant indicator of exposure rather than any 
particular pollutant.
    Concentrations of many traffic-generated air pollutants are 
elevated for up to 300-500 meters downwind of roads with high traffic 
volumes.\398\ Numerous sources on roads contribute to elevated roadside 
concentrations, including exhaust and evaporative emissions, and 
resuspension of road dust and tire and brake wear. Concentrations of 
several criteria and hazardous air pollutants are elevated near major 
roads. Furthermore, different semi-volatile organic compounds and 
chemical components of particulate matter, including elemental carbon, 
organic material, and trace metals, have been reported at higher 
concentrations near major roads.
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    \398\ Zhou, Y.; Levy, J.I. (2007) Factors influencing the 
spatial extent of mobile source air pollution impacts: a meta-
analysis. BMC Public Health 7: 89. doi:10.1186/1471-2458-7-89.
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    Populations near major roads experience greater risk of certain 
adverse health effects. The Health Effects Institute published a report 
on the health effects of traffic-related air pollution.\399\ It 
concluded that evidence is ``sufficient to infer the presence of a 
causal association'' between traffic exposure and exacerbation of 
childhood asthma symptoms. The HEI report also concludes that the 
evidence is either ``sufficient'' or ``suggestive but not sufficient'' 
for a causal association between traffic exposure and new childhood 
asthma cases. A review of asthma studies by Salam et al. (2008) reaches 
similar conclusions.\400\ The HEI report also concludes that there is 
``suggestive'' evidence for pulmonary function deficits associated with 
traffic exposure, but concluded that there is ``inadequate and 
insufficient'' evidence for causal associations with respiratory health 
care utilization, adult-onset asthma, COPD symptoms, and allergy. A 
review by Holguin (2008) notes that the effects of traffic on asthma 
may be modified by nutrition status, medication use, and genetic 
factors.\401\
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    \399\ HEI Panel on the Health Effects of Air Pollution. (2010) 
Traffic-related air pollution: a critical review of the literature 
on emissions, exposure, and health effects. [Online at http://
www.healtheffects.org].
    \400\ Salam, M.T.; Islam, T.; Gilliland, F.D. (2008) Recent 
evidence for adverse effects of residential proximity to traffic 
sources on asthma. Current Opin Pulm Med 14: 3-8.
    \401\ Holguin, F. (2008) Traffic, outdoor air pollution, and 
asthma. Immunol Allergy Clinics North Am 28: 577-588.
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    The HEI report also concludes that evidence is ``suggestive'' of a 
causal association between traffic exposure and all-cause and 
cardiovascular mortality. There is also evidence of an association 
between traffic-related air pollutants and cardiovascular effects such 
as changes in heart rhythm, heart attack, and cardiovascular disease. 
The HEI report characterizes this evidence as ``suggestive'' of a 
causal association, and an independent epidemiological literature 
review by Adar and Kaufman (2007) concludes that there is ``consistent 
evidence'' linking traffic-related pollution and adverse cardiovascular 
health outcomes.\402\
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    \402\ Adar, S.D.; Kaufman, J.D. (2007) Cardiovascular disease 
and air pollutants: evaluating and improving epidemiological data 
implicating traffic exposure. Inhal Toxicol 19: 135-149.
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    Some studies have reported associations between traffic exposure 
and other health effects, such as birth outcomes (e.g., low birth 
weight) and childhood cancer. The HEI report concludes that there is 
currently ``inadequate and insufficient'' evidence for a causal 
association between these effects and traffic exposure. A review by 
Raaschou-Nielsen and Reynolds (2006) concluded that evidence of an 
association between childhood cancer and traffic-related air pollutants 
is weak, but noted the inability to draw firm conclusions based on 
limited evidence.\403\
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    \403\ Raaschou-Nielsen, O.; Reynolds, P. (2006) Air pollution 
and childhood cancer: A review of the epidemiological literature. 
Int J Cancer 118: 2920-2929.
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    There is a large population in the U.S. living in close proximity 
of major roads. According to the Census Bureau's American Housing 
Survey for 2007, approximately 20 million residences in the U.S., 15.6% 
of all homes, are located within 300 feet (91 m) of a highway with 4+ 
lanes, a railroad, or an airport.\404\ Therefore, at current population 
of approximately 309 million, assuming that population and housing 
similarly distributed, there are over 48 million people in the U.S. 
living near such sources. The HEI report also notes that in two North 
American cities, Los Angeles and Toronto, over 40% of each city's 
population live within 500 meters of a highway or 100 meters of a major 
road. It also notes that about 33% of each city's population resides 
within 50 meters of major roads. Together, the evidence suggests that a 
large U.S. population lives in areas with elevated traffic-related air 
pollution.
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    \404\ U.S. Census Bureau (2008) American Housing Survey for the 
United States in 2007. Series H-150 (National Data), Table 1A-6. 
[Accessed at http://www.census.gov/hhes/www/housing/ahs/ahs07/
ahs07.html on January 22, 2009]
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    People living near roads are often socioeconomically disadvantaged. 
According to the 2007 American Housing Survey, a renter-occupied 
property is over twice as likely as an owner-occupied property to be 
located near a highway with 4+ lanes, railroad or airport. In the same 
survey, the median household income of rental housing occupants was 
less than half that of owner-occupants ($28,921/$59,886). Numerous 
studies in individual urban areas report higher levels of traffic-
related air pollutants in areas with high minority or poor 
populations.405 406 407
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    \405\ Lena, T.S.; Ochieng, V.; Carter, M.; Holgu[iacute]n-Veras, 
J.; Kinney, P.L. (2002) Elemental carbon and PM2.5 levels 
in an urban community heavily impacted by truck traffic. Environ 
Health Perspect 110: 1009-1015.
    \406\ Wier, M.; Sciammas, C.; Seto, E.; Bhatia, R.; Rivard, T. 
(2009) Health, traffic, and environmental justice: collaborative 
research and community action in San Francisco, California. Am J 
Public Health 99: S499-S504.
    \407\ Forkenbrock, D.J. and L.A. Schweitzer, Environmental 
Justice and Transportation Investment Policy. Iowa City: University 
of Iowa, 1997.

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[[Page 25505]]

    Students may also be exposed in situations where schools are 
located near major roads. In a study of nine metropolitan areas across 
the U.S., Appatova et al. (2008) found that on average greater than 33% 
of schools were located within 400 m of an Interstate, U.S., or State 
highway, while 12% were located within 100 m.\408\ The study also found 
that among the metropolitan areas studied, schools in the Eastern U.S. 
were more often sited near major roadways than schools in the Western 
U.S.
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    \408\ Appatova, A.S.; Ryan, P.H.; LeMasters, G.K.; Grinshpun, 
S.A. (2008) Proximal exposure of public schools and students to 
major roadways: a nationwide U.S. survey. J Environ Plan Mgmt
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    Demographic studies of students in schools near major roadways 
suggest that this population is more likely than the general student 
population to be of non-white race or Hispanic ethnicity, and more 
often live in low socioeconomic status locations.409 410 411 
There is some inconsistency in the evidence, which may be due to 
different local development patterns and measures of traffic and 
geographic scale used in the studies.\408\
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    \409\ Green, R.S.; Smorodinsky, S.; Kim, J.J.; McLaughlin, R.; 
Ostro, B. (2004) Proximity of California public schools to busy 
roads. Environ Health Perspect 112: 61-66.
    \410\ Houston, D.; Ong, P.; Wu, J.; Winer, A. (2006) Proximity 
of licensed child care facilities to near-roadway vehicle pollution. 
Am J Public Health 96: 1611-1617.
    \411\ Wu, Y.; Batterman, S. (2006) Proximity of schools in 
Detroit, Michigan to automobile and truck traffic. J Exposure Sci 
Environ Epidemiol 16: 457-470.
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4. Environmental Effects of Non-GHG Pollutants
    In this section we discuss some of the environmental effects of PM 
and its precursors such as visibility impairment, atmospheric 
deposition, and materials damage and soiling, as well as environmental 
effects associated with the presence of ozone in the ambient air, such 
as impacts on plants, including trees, agronomic crops and urban 
ornamentals, and environmental effects associated with air toxics. No 
substantive comments were received on the environmental effects of non-
GHG pollutants.
a. Visibility
    Visibility can be defined as the degree to which the atmosphere is 
transparent to visible light.\412\ Visibility impairment is caused by 
light scattering and absorption by suspended particles and gases. 
Visibility is important because it has direct significance to people's 
enjoyment of daily activities in all parts of the country. Individuals 
value good visibility for the well-being it provides them directly, 
where they live and work, and in places where they enjoy recreational 
opportunities. Visibility is also highly valued in significant natural 
areas, such as national parks and wilderness areas, and special 
emphasis is given to protecting visibility in these areas. For more 
information on visibility see the final 2009 PM ISA.\413\
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    \412\ National Research Council, 1993. Protecting Visibility in 
National Parks and Wilderness Areas. National Academy of Sciences 
Committee on Haze in National Parks and Wilderness Areas. National 
Academy Press, Washington, DC. Docket EPA-HQ-OAR-2005-0161. This 
book can be viewed on the National Academy Press Web site at http://
www.nap.edu/books/0309048443/html/.
    \413\ U.S. EPA (2009). Integrated Science Assessment for 
Particulate Matter (Final Report). U.S. Environmental Protection 
Agency, Washington, DC, EPA/600/R-08/139F, 2009. Docket EPA-HQ-OAR-
2009-0472-11295.
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    EPA is pursuing a two-part strategy to address visibility. First, 
EPA has concluded that PM2.5 causes adverse effects on 
visibility in various locations, depending on PM concentrations and 
factors such as chemical composition and average relative humidity, and 
has set secondary PM2.5 standards.\414\ The secondary 
PM2.5 standards act in conjunction with the regional haze 
program. The regional haze rule (64 FR 35714) was put in place in July 
1999 to protect the visibility in mandatory class I Federal areas. 
There are 156 national parks, forests and wilderness areas categorized 
as mandatory class I Federal areas (62 FR 38680-81, July 18, 
1997).\415\ Visibility can be said to be impaired in both 
PM2.5 nonattainment areas and mandatory class I Federal 
areas.
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    \414\ The existing annual primary and secondary PM2.5 
standards have been remanded and are being addressed in the 
currently ongoing PM NAAQS review.
    \415\ These areas are defined in CAA section 162 as those 
national parks exceeding 6,000 acres, wilderness areas and memorial 
parks exceeding 5,000 acres, and all international parks which were 
in existence on August 7, 1977.
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b. Plant and Ecosystem Effects of Ozone
    Elevated ozone levels contribute to environmental effects, with 
impacts to plants and ecosystems being of most concern. Ozone can 
produce both acute and chronic injury in sensitive species depending on 
the concentration level and the duration of the exposure. Ozone effects 
also tend to accumulate over the growing season of the plant, so that 
even low concentrations experienced for a longer duration have the 
potential to create chronic stress on vegetation. Ozone damage to 
plants includes visible injury to leaves and impaired photosynthesis, 
both of which can lead to reduced plant growth and reproduction, 
resulting in reduced crop yields, forestry production, and use of 
sensitive ornamentals in landscaping. In addition, the impairment of 
photosynthesis, the process by which the plant makes carbohydrates (its 
source of energy and food), can lead to a subsequent reduction in root 
growth and carbohydrate storage below ground, resulting in other, more 
subtle plant and ecosystems impacts.
    These latter impacts include increased susceptibility of plants to 
insect attack, disease, harsh weather, interspecies competition and 
overall decreased plant vigor. The adverse effects of ozone on forest 
and other natural vegetation can potentially lead to species shifts and 
loss from the affected ecosystems, resulting in a loss or reduction in 
associated ecosystem goods and services. Lastly, visible ozone injury 
to leaves can result in a loss of aesthetic value in areas of special 
scenic significance like national parks and wilderness areas. The final 
2006 Ozone Air Quality Criteria Document presents more detailed 
information on ozone effects on vegetation and ecosystems.
c. Atmospheric Deposition
    Wet and dry deposition of ambient particulate matter delivers a 
complex mixture of metals (e.g., mercury, zinc, lead, nickel, aluminum, 
cadmium), organic compounds (e.g., POM, dioxins, furans) and inorganic 
compounds (e.g., nitrate, sulfate) to terrestrial and aquatic 
ecosystems. The chemical form of the compounds deposited depends on a 
variety of factors including ambient conditions (e.g., temperature, 
humidity, oxidant levels) and the sources of the material. Chemical and 
physical transformations of the compounds occur in the atmosphere as 
well as the media onto which they deposit. These transformations in 
turn influence the fate, bioavailability and potential toxicity of 
these compounds. Atmospheric deposition has been identified as a key 
component of the environmental and human health hazard posed by several 
pollutants including mercury, dioxin and PCBs.\416\
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    \416\ U.S. EPA (2000) Deposition of Air Pollutants to the Great 
Waters: Third Report to Congress. Office of Air Quality Planning and 
Standards. EPA-453/R-00-0005. Docket EPA-HQ-OAR-2009-0472-0091.
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    Adverse impacts on water quality can occur when atmospheric 
contaminants deposit to the water surface or when

[[Page 25506]]

material deposited on the land enters a waterbody through runoff. 
Potential impacts of atmospheric deposition to waterbodies include 
those related to both nutrient and toxic inputs. Adverse effects to 
human health and welfare can occur from the addition of excess nitrogen 
via atmospheric deposition. The nitrogen-nutrient enrichment 
contributes to toxic algae blooms and zones of depleted oxygen, which 
can lead to fish kills, frequently in coastal waters. Deposition of 
heavy metals or other toxics may lead to the human ingestion of 
contaminated fish, impairment of drinking water, damage to the marine 
ecology, and limits to recreational uses. Several studies have been 
conducted in U.S. coastal waters and in the Great Lakes Region in which 
the role of ambient PM deposition and runoff is 
investigated.417 418 419 420 421
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    \417\ U.S. EPA (2004) National Coastal Condition Report II. 
Office of Research and Development/Office of Water. EPA-620/R-03/
002. Docket EPA-HQ-OAR-2009-0472-0089.
    \418\ Gao, Y., E.D. Nelson, M.P. Field, et al. 2002. 
Characterization of atmospheric trace elements on PM2.5 
particulate matter over the New York-New Jersey harbor estuary. 
Atmos. Environ. 36: 1077-1086. Docket EPA-HQ-OAR-2009-0472-11297.
    \419\ Kim, G., N. Hussain, J.R. Scudlark, and T.M. Church. 2000. 
Factors influencing the atmospheric depositional fluxes of stable 
Pb, 210Pb, and 7Be into Chesapeake Bay. J. Atmos. Chem. 36: 65-79. 
Docket EPA-HQ-OAR-2009-0472-11299.
    \420\ Lu, R., R.P. Turco, K. Stolzenbach, et al. 2003. Dry 
deposition of airborne trace metals on the Los Angeles Basin and 
adjacent coastal waters. J. Geophys. Res. 108(D2, 4074): AAC 11-1 to 
11-24. Docket EPA-HQ-OAR-2009-0472-11296.
    \421\ Marvin, C.H., M.N. Charlton, E.J. Reiner, et al. 2002. 
Surficial sediment contamination in Lakes Erie and Ontario: A 
comparative analysis. J. Great Lakes Res. 28(3): 437-450. Docket 
EPA-HQ-OAR-2009-0472-11300.
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    Atmospheric deposition of nitrogen and sulfur contributes to 
acidification, altering biogeochemistry and affecting animal and plant 
life in terrestrial and aquatic ecosystems across the U.S. The 
sensitivity of terrestrial and aquatic ecosystems to acidification from 
nitrogen and sulfur deposition is predominantly governed by geology. 
Prolonged exposure to excess nitrogen and sulfur deposition in 
sensitive areas acidifies lakes, rivers and soils. Increased acidity in 
surface waters creates inhospitable conditions for biota and affects 
the abundance and nutritional value of preferred prey species, 
threatening biodiversity and ecosystem function. Over time, acidifying 
deposition also removes essential nutrients from forest soils, 
depleting the capacity of soils to neutralize future acid loadings and 
negatively affecting forest sustainability. Major effects include a 
decline in sensitive forest tree species, such as red spruce (Picea 
rubens) and sugar maple (Acer saccharum), and a loss of biodiversity of 
fishes, zooplankton, and macro invertebrates.
    In addition to the role nitrogen deposition plays in acidification, 
nitrogen deposition also leads to nutrient enrichment and altered 
biogeochemical cycling. In aquatic systems increased nitrogen can alter 
species assemblages and cause eutrophication. In terrestrial systems 
nitrogen loading can lead to loss of nitrogen sensitive lichen species, 
decreased biodiversity of grasslands, meadows and other sensitive 
habitats, and increased potential for invasive species. For a broader 
explanation of the topics treated here, refer to the description in 
Section 7.1.2 of the RIA.
    Adverse impacts on soil chemistry and plant life have been observed 
for areas heavily influenced by atmospheric deposition of nutrients, 
metals and acid species, resulting in species shifts, loss of 
biodiversity, forest decline and damage to forest productivity. 
Potential impacts also include adverse effects to human health through 
ingestion of contaminated vegetation or livestock (as in the case for 
dioxin deposition), reduction in crop yield, and limited use of land 
due to contamination.
    Atmospheric deposition of pollutants can reduce the aesthetic 
appeal of buildings and culturally important articles through soiling, 
and can contribute directly (or in conjunction with other pollutants) 
to structural damage by means of corrosion or erosion. Atmospheric 
deposition may affect materials principally by promoting and 
accelerating the corrosion of metals, by degrading paints, and by 
deteriorating building materials such as concrete and limestone. 
Particles contribute to these effects because of their electrolytic, 
hygroscopic, and acidic properties, and their ability to adsorb 
corrosive gases (principally sulfur dioxide).
d. Environmental Effects of Air Toxics
    Fuel combustion emissions contribute to ambient levels of 
pollutants that contribute to adverse effects on vegetation. Volatile 
organic compounds (VOCs), some of which are considered air toxics, have 
long been suspected to play a role in vegetation damage.\422\ In 
laboratory experiments, a wide range of tolerance to VOCs has been 
observed.\423\ Decreases in harvested seed pod weight have been 
reported for the more sensitive plants, and some studies have reported 
effects on seed germination, flowering and fruit ripening. Effects of 
individual VOCs or their role in conjunction with other stressors 
(e.g., acidification, drought, temperature extremes) have not been well 
studied. In a recent study of a mixture of VOCs including ethanol and 
toluene on herbaceous plants, significant effects on seed production, 
leaf water content and photosynthetic efficiency were reported for some 
plant species.\424\
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    \422\ U.S. EPA. 1991. Effects of organic chemicals in the 
atmosphere on terrestrial plants. EPA/600/3-91/001. Docket EPA-HQ-
OAR-2009-0472-0401.
    \423\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M 
Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on 
herbaceous plants in an open-top chamber experiment. Environ. 
Pollut. 124:341-343. Docket EPA-HQ-OAR-2009-0472-0357.
    \424\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M 
Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on 
herbaceous plants in an open-top chamber experiment. Environ. 
Pollut. 124:341-343. Docket EPA-HQ-OAR-2009-0472-0357.
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    Research suggests an adverse impact of vehicle exhaust on plants, 
which has in some cases been attributed to aromatic compounds and in 
other cases to nitrogen oxides.425 426 427 The impacts of 
VOCs on plant reproduction may have long-term implications for 
biodiversity and survival of native species near major roadways. Most 
of the studies of the impacts of VOCs on vegetation have focused on 
short-term exposure and few studies have focused on long-term effects 
of VOCs on vegetation and the potential for metabolites of these 
compounds to affect herbivores or insects.
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    \425\ Viskari E-L. 2000. Epicuticular wax of Norway spruce 
needles as indicator of traffic pollutant deposition. Water, Air, 
and Soil Pollut. 121:327-337. Docket EPA-HQ-OAR-2009-0472-1128.
    \426\ Ugrekhelidze D, F Korte, G Kvesitadze. 1997. Uptake and 
transformation of benzene and toluene by plant leaves. Ecotox. 
Environ. Safety 37:24-29. Docket EPA-HQ-OAR-2009-0472-1142.
    \427\ Kammerbauer H, H Selinger, R Rommelt, A Ziegler-Jons, D 
Knoppik, B Hock. 1987. Toxic components of motor vehicle emissions 
for the spruce Picea abies. Environ. Pollut. 48:235-243. Docket EPA-
HQ-OAR-2009-0472-0358.
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5. Air Quality Impacts of Non-GHG Pollutants
    Air quality modeling was performed to assess the impact of the 
vehicle standards on criteria and air toxic pollutants. In this 
section, we present information on current modeled levels of pollution 
as well as projections for 2030, with respect to ambient 
PM2.5, ozone, selected air toxics, visibility levels and 
nitrogen and sulfur deposition. The air quality modeling results 
indicate that the GHG standards have relatively small but measureable 
impacts on ambient concentrations of these pollutants. The results are 
discussed in more detail below and in Section 7.2 of the RIA. No 
substantive

[[Page 25507]]

comments were received on our plans for non-GHG air quality modeling 
that were detailed in the proposal for this rule.
    We used the Community Multi-scale Air Quality (CMAQ) photochemical 
model, version 4.7.1, for our analysis. This version of CMAQ includes a 
number of improvements to previous versions of the model. These 
improvements are discussed in Section 7.2 of the RIA.
a. Particulate Matter
i. Current Levels
    PM2.5 concentrations exceeding the level of the 
PM2.5 NAAQS occur in many parts of the country. In 2005, EPA 
designated 39 nonattainment areas for the 1997 PM2.5 NAAQS 
(70 FR 943, January 5, 2005). These areas are composed of 208 full or 
partial counties with a total population exceeding 88 million. The 1997 
PM2.5 NAAQS was revised in 2006 and the 2006 24-hour 
PM2.5 NAAQS became effective on December 18, 2006. On 
October 8, 2009, the EPA issued final nonattainment area designations 
for the 2006 24-hour PM2.5 NAAQS (74 FR 58688, November 13, 
2009). These designations include 31 areas composed of 120 full or 
partial counties with a population of over 70 million. In total, there 
are 54 PM2.5 nonattainment areas composed of 243 counties 
with a population of almost 102 million people.
ii. Projected Levels Without This Rule
    States with PM2.5 nonattainment areas are required to 
take action to bring those areas into compliance in the future. Areas 
designated as not attaining the 1997 PM2.5 NAAQS will need 
to attain the 1997 standards in the 2010 to 2015 time frame, and then 
maintain them thereafter. The 2006 24-hour PM2.5 
nonattainment areas will be required to attain the 2006 24-hour 
PM2.5 NAAQS in the 2014 to 2019 time frame and then be 
required to maintain the 2006 24-hour PM2.5 NAAQS 
thereafter. The vehicle standards finalized in this action become 
effective in 2012 and therefore may be useful to states in attaining or 
maintaining the PM2.5 NAAQS.
    EPA has already adopted many emission control programs that are 
expected to reduce ambient PM2.5 levels and which will 
assist in reducing the number of areas that fail to achieve the 
PM2.5 NAAQS. Even so, our air quality modeling projects that 
in 2030, with all current controls but excluding the impacts of the 
vehicle standards adopted here, at least 9 counties with a population 
of almost 28 million may not attain the 1997 annual PM2.5 
standard of 15 [mu]g/m3 and 26 counties with a population of 
over 41 million may not attain the 2006 24-hour PM2.5 
standard of 35 [mu]g/m3. These numbers do not account for 
those areas that are close to (e.g., within 10 percent of) the 
PM2.5 standards. These areas, although not violating the 
standards, will also benefit from any reductions in PM2.5 
ensuring long-term maintenance of the PM2.5 NAAQS.
iii. Projected Levels With This Rule
    Air quality modeling performed for this final rule shows that in 
2030 the majority of the modeled counties will see decreases of less 
than 0.05 [mu]g/m3 in their annual PM2.5 design 
values. The decreases in annual PM2.5 design values that we 
see in some counties are likely due to emission reductions related to 
lower gasoline production at existing oil refineries; reductions in 
direct PM2.5 emissions and PM2.5 precursor 
emissions (NOX and SOX) contribute to reductions 
in ambient concentrations of both direct PM2.5 and 
secondarily-formed PM2.5. The maximum projected decrease in 
an annual PM2.5 design value is 0.07 [mu]g/m3 in 
Harris County, TX. There are also a few counties that are projected to 
see increases of no more than 0.01 [mu]g/m3 in their annual 
PM2.5 design values. These small increases in annual 
PM2.5 design values are likely related to downstream 
emission increases. On a population-weighted basis, the average modeled 
2030 annual PM2.5 design value is projected to decrease by 
0.01 [mu]g/m3 due to this final rule. Those counties that 
are projected to be above the annual PM2.5 standard in 2030 
will see slightly larger population-weighted decreases of 0.03 [mu]g/
m3 in their design values due to this final rule.
    In addition to looking at annual PM2.5 design values, we 
also modeled the impact of the standards on 24-hour PM2.5 
design values. Air quality modeling performed for this final rule shows 
that in 2030 the majority of the modeled counties will see changes of 
between -0.05 [mu]g/m3 and +0.05 [mu]g/m3 in 
their 24-hour PM2.5 design values. The decreases in 24-hour 
PM2.5 design values that we see in some counties are likely 
due to emission reductions related to lower gasoline production at 
existing oil refineries; reductions in direct PM2.5 
emissions and PM2.5 precursor emissions (NOX and 
SOX) contribute to reductions in ambient concentrations of 
both direct PM2.5 and secondarily-formed PM2.5. 
The maximum projected decrease in a 24-hour PM2.5 design 
value is 0.21 [mu]g/m3 in Harris County, TX. There are also 
some counties that are projected to see increases of less than 0.05 
[mu]g/m3 in their 24-hour PM2.5 design values. 
These small increases in 24-hour PM2.5 design values are 
likely related to downstream emission increases. On a population-
weighted basis, the average modeled 2030 24-hour PM2.5 
design value is projected to decrease by 0.01 [mu]g/m3 due 
to this final rule. Those counties that are projected to be above the 
24-hour PM2.5 standard in 2030 will see slightly larger 
population-weighted decreases of 0.05 [mu]g/m3 in their 
design values due to this final rule.
b. Ozone
i. Current Levels
    8-hour ozone concentrations exceeding the level of the ozone NAAQS 
occur in many parts of the country. In 2008, the EPA amended the ozone 
NAAQS (73 FR 16436, March 27, 2008). The final 2008 ozone NAAQS rule 
set forth revisions to the previous 1997 NAAQS for ozone to provide 
increased protection of public health and welfare. EPA recently 
proposed to reconsider the 2008 ozone NAAQS (75 FR 2938, January 19, 
2010). Because of the uncertainty the reconsideration proposal creates 
regarding the continued applicability of the 2008 ozone NAAQS, EPA has 
used its authority to extend by 1 year the deadline for promulgating 
designations for those NAAQS (75 FR 2936, January 19, 2010). The new 
deadline is March 12, 2011. EPA intends to complete the reconsideration 
by August 31, 2010. If EPA establishes new ozone NAAQS as a result of 
the reconsideration, they would replace the 2008 ozone NAAQS and 
requirements to designate areas and implement the 2008 NAAQS would no 
longer apply.
    As of January 6, 2010 there are 51 areas designated as 
nonattainment for the 1997 8-hour ozone NAAQS, comprising 266 full or 
partial counties with a total population of over 122 million people. 
These numbers do not include the people living in areas where there is 
a future risk of failing to maintain or attain the 1997 8-hour ozone 
NAAQS. The numbers above likely underestimate the number of counties 
that are not meeting the ozone NAAQS because the nonattainment areas 
associated with the more stringent 2008 8-hour ozone NAAQS have not yet 
been designated. Table III.G.5-1 provides an estimate, based on 2005-07 
air quality data, of the counties with design values greater than the 
2008 8-hour ozone NAAQS of 0.075 ppm.

[[Page 25508]]

   Table III.G.5-1--Counties with Design Values Greater Than the Ozone
                                  NAAQS
------------------------------------------------------------------------
                                          Number of
                                          counties       Population \a\
------------------------------------------------------------------------
1997 Ozone Standard: Counties within               266       122,343,799
 the 54 areas currently designated
 as nonattainment (as of 1/6/10)....
2008 Ozone Standard: Additional                    156        36,678,478
 counties that would not meet the
 2008 NAAQS (based on 2006-2008 air
 quality data) \b\..................
------------------------------------------------------------------------
    Total...........................               422       159,022,277
------------------------------------------------------------------------
Notes:
\a\ Population numbers are from 2000 census data.
\b\ Area designations for the 2008 ozone NAAQS have not yet been made.
  Nonattainment for the 2008 Ozone NAAQS would be based on three years
  of air quality data from later years. Also, the county numbers in this
  row include only the counties with monitors violating the 2008 Ozone
  NAAQS. The numbers in this table may be an underestimate of the number
  of counties and populations that will eventually be included in areas
  with multiple counties designated nonattainment.

ii. Projected Levels Without This Rule
    States with 8-hour ozone nonattainment areas are required to take 
action to bring those areas into compliance in the future. Based on the 
final rule designating and classifying 8-hour ozone nonattainment areas 
for the 1997 standard (69 FR 23951, April 30, 2004), most 8-hour ozone 
nonattainment areas will be required to attain the ozone NAAQS in the 
2007 to 2013 time frame and then maintain the NAAQS thereafter. As 
noted, EPA is reconsidering the 2008 ozone NAAQS. If EPA promulgates 
different ozone NAAQS in 2010 as a result of the reconsideration, these 
standards would replace the 2008 ozone NAAQS and there would no longer 
be a requirement to designate areas for the 2008 NAAQS. EPA would 
designate nonattainment areas for a potential new 2010 primary ozone 
NAAQS in 2011. The attainment dates for areas designated nonattainment 
for a potential new 2010 primary ozone NAAQS are likely to be in the 
2014 to 2031 timeframe, depending on the severity of the problem.\428\
---------------------------------------------------------------------------

    \428\ U.S. EPA 2010, Fact Sheet Revisions to Ozone Standards. 
http://www.epa.gov/groundlevelozone/pdfs/fs20100106std.pdf.
---------------------------------------------------------------------------

    EPA has already adopted many emission control programs that are 
expected to reduce ambient ozone levels and assist in reducing the 
number of areas that fail to achieve the ozone NAAQS. Even so, our air 
quality modeling projects that in 2030, with all current controls but 
excluding the impacts of the vehicle standards, up to 16 counties with 
a population of almost 35 million may not attain the 2008 ozone 
standard of 0.075 ppm (75 ppb). These numbers do not account for those 
areas that are close to (e.g., within 10 percent of) the 2008 ozone 
standard. These areas, although not violating the standards, will also 
be impacted by changes in ozone as they work to ensure long-term 
maintenance of the ozone NAAQS.
iii. Projected Levels With This Rule
    We do not expect this rule to have a meaningful impact on ozone 
concentrations, given the small magnitude of the ozone impacts and the 
fact that much of the impact is due to ethanol assumptions that are 
independent of this rule. Our modeling projects increases in ozone 
design value concentrations in many areas of the country and decreases 
in ozone design value concentrations in a few areas. However, the 
increases in ozone design values are not due to the standards finalized 
in this rule, but are related to our assumptions about the volume of 
ethanol that will be blended into gasoline. The ethanol volumes will be 
occurring as a result of the recent Renewable Fuel Standards (RFS2) 
rule.\429\
---------------------------------------------------------------------------

    \429\ EPA 2010, Renewable Fuel Standard Program (RFS2) 
Regulatory Impact Analysis. EPA-420-R-10-006, February 2010. Docket 
EPA-HQ-OAR-2009-0472-11332. See also 75 FR 14670, March 26, 2010.
---------------------------------------------------------------------------

    The ethanol volume assumptions are discussed in the introduction to 
Section III.G of this preamble. We attribute decreased fuel consumption 
and production from this program to gasoline only, while assuming 
constant ethanol volumes in our reference and control cases. Holding 
ethanol volumes constant while decreasing gasoline volumes increases 
the market share of 10% ethanol (E10) in the control case. However, the 
increased E10 market share is projected to occur regardless of this 
rule; in the RFS2 analysis we project 100% E10 by 2014. The air quality 
impacts of this effect are included in our analyses for the recent RFS2 
rule. As the RFS2 analyses indicate, increasing usage of E10 fuels 
(when compared with E0 fuels) can increase NOX emissions and 
thereby increase ozone concentrations, especially in NOX-
limited areas where relatively small amounts of NOX enable 
ozone to form rapidly.\430\
---------------------------------------------------------------------------

    \430\ Sections 3.4.2.1.2 and 3.4.3.3 of the Renewable Fuel 
Standard Program (RFS2) Regulatory Impact Analysis, EPA-420-R-10-
006, February 2010. Docket EPA-HQ-OAR-2009-0472-11332.
---------------------------------------------------------------------------

    The majority of the ozone design value increases are less than 0.1 
ppb. The maximum projected increase in an 8-hour ozone design value is 
0.25 ppb in Richland County, South Carolina. As mentioned above there 
are some areas which see decreases in their ozone design values. The 
decreases in ambient ozone concentration are likely due to projected 
upstream emissions decreases in NOX and VOCs from reduced 
gasoline production. The maximum decrease projected in an 8-hour ozone 
design value is 0.22 ppb in Riverside County, California. On a 
population-weighted basis, the average modeled 8-hour ozone design 
values are projected to increase by 0.01 ppb in 2030 and the design 
values for those counties that are projected to be above the 2008 ozone 
standard in 2030 will see population-weighted decreases of 0.10 ppb.
c. Air Toxics
i. Current Levels
    The majority of Americans continue to be exposed to ambient 
concentrations of air toxics at levels which have the potential to 
cause adverse health effects.\431\ The levels of air toxics to which 
people are exposed vary depending on where people live and work and the 
kinds of activities in which they engage, as discussed in detail in 
U.S. EPA's most recent Mobile Source Air Toxics Rule.\432\ According to 
the National Air Toxic Assessment

[[Page 25509]]

(NATA) for 2002,\433\ mobile sources were responsible for 47 percent of 
outdoor toxic emissions, over 50 percent of the cancer risk, and over 
80 percent of the noncancer hazard. Benzene is the largest contributor 
to cancer risk of all 124 pollutants quantitatively assessed in the 
2002 NATA and mobile sources were responsible for 59 percent of benzene 
emissions in 2002. Over the years, EPA has implemented a number of 
mobile source and fuel controls resulting in VOC reductions, which also 
reduce benzene and other air toxic emissions.
---------------------------------------------------------------------------

    \431\ U.S. EPA (2009) 2002 National-Scale Air Toxics Assessment. 
http://www.epa.gov/ttn/atw/nata2002/. Docket EPA-HQ-OAR-2009-0472-
11321.
    \432\ U.S. Environmental Protection Agency (2007). Control of 
Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 
8434, February 26, 2007. Docket EPA-HQ-OAR-2009-0472-0271, 0271.1 
and 0271.2.
    \433\ U.S. EPA (2009) 2002 National-Scale Air Toxics Assessment. 
http://www.epa.gov/ttn/atw/nata2002/. Docket EPA-HQ-OAR-2009-0472-
11321.
---------------------------------------------------------------------------

ii. Projected Levels
    Our modeling indicates that the GHG standards have relatively 
little impact on national average ambient concentrations of the modeled 
air toxics. Additional detail on the air toxics results can be found in 
Section 7.2.2.3 of the RIA.
d. Nitrogen and Sulfur Deposition
i. Current Levels
    Over the past two decades, the EPA has undertaken numerous efforts 
to reduce nitrogen and sulfur deposition across the U.S. Analyses of 
long-term monitoring data for the U.S. show that deposition of both 
nitrogen and sulfur compounds has decreased over the last 17 years 
although many areas continue to be negatively impacted by deposition. 
Deposition of inorganic nitrogen and sulfur species routinely measured 
in the U.S. between 2004 and 2006 were as high as 9.6 kilograms of 
nitrogen per hectare per year (kg N/ha/yr) and 21.3 kilograms of sulfur 
per hectare per year (kg S/ha/yr). The data show that reductions were 
more substantial for sulfur compounds than for nitrogen compounds. 
These numbers are generated by the U.S. national monitoring network and 
they likely underestimate nitrogen deposition because neither ammonia 
nor organic nitrogen is measured. In the eastern U.S., where data are 
most abundant, total sulfur deposition decreased by about 44% between 
1990 and 2007, while total nitrogen deposition decreased by 25% over 
the same time frame.\434\
---------------------------------------------------------------------------

    \434\ U.S. EPA. U.S. EPA's 2008 Report on the Environment (Final 
Report). U.S. Environmental Protection Agency, Washington, DC, EPA/
600/R-07/045F (NTIS PB2008-112484). Docket EPA-HQ-OAR-2009-0472-
11298. Updated data available online at: http://cfpub.epa.gov/eroe/
index.cfm?fuseaction=detail.viewInd&ch=46&subtop=341&lv=list.listByCh
apter&r=201744.
---------------------------------------------------------------------------

ii. Projected Levels
    Our air quality modeling does not show substantial overall 
nationwide impacts on the annual total sulfur and nitrogen deposition 
occurring across the U.S. as a result of the vehicle standards required 
by this rule. For sulfur deposition the vehicle standards will result 
in annual percent decreases of 0.5% to more than 2% in locations with 
refineries as a result of the lower output from refineries due to less 
gasoline usage. These locations include the Texas and Louisiana 
portions of the Gulf Coast; the Washington DC area; Chicago, IL; 
portions of Oklahoma and northern Texas; Bismarck, North Dakota; 
Billings, Montana; Casper, Wyoming; Salt Lake City, Utah; Seattle, 
Washington; and San Francisco, Los Angeles, and San Luis Obispo, 
California. The remainder of the country will see only minimal changes 
in sulfur deposition, ranging from decreases of less than 0.5% to 
increases of less than 0.5%. For a map of 2030 sulfur deposition 
impacts and additional information on these impacts, see Section 
7.2.2.5 of the RIA. The impacts of the vehicle standards on nitrogen 
deposition are minimal, ranging from decreases of up to 0.5% to 
increases of up to 0.5%.
e. Visibility
i. Current Levels
    As mentioned in Section III.G.5.a, millions of people live in 
nonattainment areas for the PM2.5 NAAQS. These populations, 
as well as large numbers of individuals who travel to these areas, are 
likely to experience visibility impairment. In addition, while 
visibility trends have improved in mandatory class I Federal areas, the 
most recent data show that these areas continue to suffer from 
visibility impairment. In summary, visibility impairment is experienced 
throughout the U.S., in multi-State regions, urban areas, and remote 
mandatory class I Federal areas.
ii. Projected Levels
    Air quality modeling conducted for this final rule was used to 
project visibility conditions in 138 mandatory class I Federal areas 
across the U.S. in 2030. The results show that all the modeled areas 
will continue to have annual average deciview levels above background 
in 2030.\435\ The results also indicate that the majority of the 
modeled mandatory class I Federal areas will see no change in their 
visibility, but some mandatory class I Federal areas will see 
improvements in visibility due to the vehicle standards and a few 
mandatory class I Federal areas will see visibility decreases. The 
average visibility at all modeled mandatory class I Federal areas on 
the 20% worst days is projected to improve by 0.002 deciviews, or 
0.01%, in 2030. Section 7.2.2.6.2 of the RIA contains more detail on 
the visibility portion of the air quality modeling.
---------------------------------------------------------------------------

    \435\ The level of visibility impairment in an area is based on 
the light-extinction coefficient and a unitless visibility index, 
called a ``deciview'', which is used in the valuation of visibility. 
The deciview metric provides a scale for perceived visual changes 
over the entire range of conditions, from clear to hazy. Under many 
scenic conditions, the average person can generally perceive a 
change of one deciview. The higher the deciview value, the worse the 
visibility. Thus, an improvement in visibility is a decrease in 
deciview value.
---------------------------------------------------------------------------

H. What are the estimated cost, economic, and other impacts of the 
program?

    In this section, EPA presents the costs and impacts of EPA's GHG 
program. It is important to note that NHTSA's CAFE standards and EPA's 
GHG standards will both be in effect, and each will lead to average 
fuel economy increases and CO2 emissions reductions. The two 
agencies' standards comprise the National Program, and this discussion 
of costs and benefits of EPA's GHG standard does not change the fact 
that both the CAFE and GHG standards, jointly, are the source of the 
benefits and costs of the National Program. These costs and benefits 
are appropriately analyzed separately by each agency and should not be 
added together.
    This section outlines the basis for assessing the benefits and 
costs of the GHG standards and provides estimates of these costs and 
benefits. Some of these effects are private, meaning that they affect 
consumers and producers directly in their sales, purchases, and use of 
vehicles. These private effects include the upfront costs of the 
technology, fuel savings, and the benefits of additional driving and 
reduced refueling. Other costs and benefits affect people outside the 
markets for vehicles and their use; these effects are termed external, 
because they affect people in ways other than the effect on the market 
for and use of new vehicles and are generally not taken into account by 
the purchaser of the vehicle. The external effects include the climate 
impacts, the effects on non-GHG pollutants, energy security impacts, 
and the effects on traffic, accidents, and noise due to additional 
driving. The sum of the private and external benefits and costs is the 
net social benefits of the program. There is some debate about the

[[Page 25510]]

role of private benefits in assessing the benefits and costs of the 
program: If consumers optimize their purchases of fuel economy, with 
full information and perfect foresight, in perfectly efficient markets, 
it is possible that they have already considered these benefits in 
their vehicle purchase decisions. If so, then no net private benefits 
would result from the program, because consumers would already buy 
vehicles with the amount of fuel economy that is optimal for them; 
requiring additional fuel economy would alter both the purchase prices 
of new cars and their lifetime streams of operating costs in ways that 
will inevitably reduce consumers' well-being. If these conditions do 
not hold, then the private benefits and costs would both count toward 
the program's benefits. Section III.H.1 discusses this issue more 
fully.
    The net benefits of EPA's final program consist of the effects of 
the program on:
     The vehicle program costs (costs of complying with the 
vehicle CO2 standards, taking into account FFV credits 
through 2015, the temporary lead-time alternative allowance standard 
program (TLAASP), full car/truck trading, and the A/C credit program, 
and other flexibilities built into the final program),
     Fuel savings associated with reduced fuel usage resulting 
from the program,
     Greenhouse gas emissions,
     Other pollutants,
     Noise, congestion, accidents,
     Energy security impacts,
     Reduced refueling events
     Increased driving due to the ``rebound'' effect.

EPA also presents the cost-effectiveness of the standards.
    The total monetized benefits (excluding fuel savings) under the 
program are projected to be $17.5 to $41.8 billion in 2030, using a 3 
percent discount rate applied to the valuation of PM2.5-
related premature mortality and depending on the value used for the 
social cost of carbon. The total monetized benefits (excluding fuel 
savings) under the program are projected to be $17.4 to $41.7 billion 
in 2030, using a 7 percent discount rate applied to the valuation of 
PM2.5-related premature mortality and depending on the value 
used for the social cost of carbon. These benefits are summarized below 
in Table III.H.10-2. The costs of the program in 2030 are estimated to 
be approximately $15.8 billion for new vehicle technology less $79.8 
billion in savings realized by consumers through fewer fuel 
expenditures (calculated using pre-tax fuel prices). These costs are 
summarized below in Table III.H.10-1. The estimates developed here use 
as a baseline for comparison the fuel economy associated with MY 2011 
vehicles. To the extent that greater fuel economy improvements than 
those assumed to occur under the baseline may have occurred due to 
market forces alone (absent the rule), the analysis overestimates 
private and social net benefits.
    EPA has undertaken an analysis of the economy-wide impacts of the 
GHG tailpipe standards as an exploratory exercise that EPA believes 
could provide additional insights into the potential impacts of the 
program.\436\ These results were not a factor regarding the 
appropriateness of the GHG tailpipe standards. It is important to note 
that the results of this modeling exercise are dependent on the 
assumptions associated with how producers will make fuel economy 
improvements and how consumers will respond to increases in higher 
vehicle costs and improved vehicle fuel economy as a result of the 
program. Section III.H.1 discusses the underlying distinctions and 
implications of the role of consumer response in economic impacts.
---------------------------------------------------------------------------

    \436\ See Memorandum to Docket, ``Economy-Wide Impacts of 
Proposed Greenhouse Gas Tailpipe Standards,'' March 4, 2010. Docket 
EPA-HQ-OAR-2009-0472.
---------------------------------------------------------------------------

    Further information on these and other aspects of the economic 
impacts of our rule are summarized in the following sections and are 
presented in more detail in the RIA for this rulemaking.
1. Conceptual Framework for Evaluating Consumer Impacts
    For this rule, EPA projects significant private gains to consumers 
in three major areas: (1) Reductions in spending on fuel, (2) time 
saved due to less refueling, and (3) welfare gains from additional 
driving that results from the rebound effect. In combination, these 
private savings, mostly from fuel savings, appear to outweigh by a 
large margin the costs of the program, even without accounting for 
externalities.
    Admittedly, these findings pose an economic conundrum. On the one 
hand, consumers are expected to gain significantly from the rules, as 
the increased cost of fuel efficient cars appears to be far smaller 
than the fuel savings. Yet these technologies are readily available; 
financially savvy consumers could have sought vehicles with improved 
fuel efficiency, and auto makers seeking those customers could have 
offered them. Assuming full information, perfect foresight, perfect 
competition, and financially rational consumers and producers, standard 
economic theory suggests that normal market operations would have 
provided the private net gains to consumers, and the only benefits of 
the rule would be due to external benefits. If our analysis projects 
net private benefits that consumers have not realized in this perfectly 
functioning market, then increased fuel economy should be accompanied 
by a corresponding loss in consumer welfare. This calculation assumes 
that consumers accurately predict and act on all the benefits they will 
get from a new vehicle, and that producers market products providing 
those benefits. The existence of large private net benefits from this 
rule, then, suggests either that the assumptions noted above do not 
hold, or that EPA's analysis has missed some factor(s) tied to improved 
fuel economy that reduce(s) consumer welfare.
    With respect to the latter, EPA believes the costs of the 
technologies developed for this rule take into account the cost needed 
to ensure that all vehicle qualities (including performance, 
reliability, and size) stay constant, except for fuel economy and 
vehicle price. As a result, there would need to be some other changed 
qualities that would reduce the benefits consumers receive from their 
vehicles. Changing circumstances (e.g., increased demand for horsepower 
in response to a drop in fuel prices), and any changes in vehicle 
attributes that manufacturers elect to make may result in additional 
private impacts to vehicle buyers from requiring increased fuel 
economy. Most comments generally supported the cost estimates and the 
maintenance of vehicle quality, though two comments expressed concern 
over unspecified losses to vehicle quality. Even if there is some such 
unidentified loss (which, given existing evidence and modeling 
capabilities, is very difficult to quantify), EPA believes that under 
realistic assumptions, the private gains from the rule, together with 
the social gains (in the form of reduction of externalities), will 
continue to substantially outweigh the costs.
    The central conundrum has been referred to as the Energy Paradox in 
this setting (and in several others).\437\ In short, the problem is 
that consumers appear not to purchase products that are in their 
economic self-interest. There are

[[Page 25511]]

strong theoretical reasons why this might be so: \438\
---------------------------------------------------------------------------

    \437\ 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. Docket EPA-HQ-OAR-2009-0472-11415.
    \438\ For an overview, see id.
---------------------------------------------------------------------------

     Consumers might be myopic and hence undervalue the long-
term.
     Consumers might lack information or a full appreciation of 
information even when it is presented.
     Consumers might be especially averse to the short-term 
losses associated with the higher prices of energy efficient products 
relative to the uncertain future fuel savings, even if the expected 
present value of those fuel savings exceeds the cost (the behavioral 
phenomenon of ``loss aversion'')
     Even if consumers have relevant knowledge, the benefits of 
energy-efficient vehicles might not be sufficiently salient to them at 
the time of purchase, and the lack of salience might lead consumers to 
neglect an attribute that it would be in their economic interest to 
consider.
     In the case of vehicle fuel efficiency, and perhaps as a 
result of one or more of the foregoing factors, consumers may have 
relatively few choices to purchase vehicles with greater fuel economy 
once other characteristics, such as vehicle class, are chosen.\439\
---------------------------------------------------------------------------

    \439\ For instance, the range of fuel economy (combined city and 
highway) available among all listed 2010 6-cylinder minivans is 18 
to 20 miles per gallon. With a manual-transmission 4-cylinder 
minivan, it is possible to get 24 mpg. See http://
www.fueleconomy.gov, which is jointly maintained by the U.S. 
Department of Energy and the EPA. For recent but unpublished 
evidence, see Allcott, Hunt, and Nathan Wozny, ``Gasoline Prices, 
Fuel Economy, and the Energy Paradox'' (2010), available at http://
web.mit.edu/allcott/www/Allcott%20and%20Wozny%202010%20-
%20Gasoline%20Prices,%20Fuel%20Economy,%20and%20the%20Energy%20Parado
x.pdf.
---------------------------------------------------------------------------

    A great deal of work in behavioral economics identifies and 
elaborates factors of this sort, which help account for the Energy 
Paradox.\440\ This point holds in the context of fuel savings (the main 
focus here), but it applies equally to the other private benefits, 
including reductions in refueling time and additional driving.\441\ For 
example, it might well be questioned whether significant reductions in 
refueling time, and corresponding private savings, are fully 
internalized when consumers are making purchasing decisions.
---------------------------------------------------------------------------

    \440\ 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. Docket EPA-HQ-OAR-2009-0472-11415. See 
also Allcott and Wozny, supra note.
    \441\ For example, it might be maintained that, at the time of 
purchase, consumers take full account of the time spent refueling 
potentially saved by fuel-efficient cars, but it might also be 
questioned whether they have adequate information to do so, or 
whether that factor is sufficiently salient to play the proper role 
in purchasing decisions.
---------------------------------------------------------------------------

    Considerable research findings indicate that the Energy Paradox is 
real and significant but the literature has not reached a consensus 
about the reasons for its existence. Several researchers have found 
evidence suggesting that consumers do not give full or appropriate 
weight to fuel economy in purchasing decisions. For example, Sanstad 
and Howarth \442\ argue that consumers optimize behavior without full 
information by resorting to imprecise but convenient rules of thumb. 
Some studies find that a substantial portion of this undervaluation can 
be explained by inaccurate assessments of energy savings, or by 
uncertainty and irreversibility of energy investments due to 
fluctuations in energy prices.\443\ For a number of reasons, consumers 
may undervalue future energy savings due to routine mistakes in how 
they evaluate these trade-offs. For instance, the calculation of fuel 
savings is complex, and consumers may not make it correctly.\444\ The 
attribute of fuel economy may be insufficiently salient, leading to a 
situation in which consumers pay less than $1 for an expected $1 
benefit in terms of discounted gasoline costs.\445\ Larrick and Soll 
(2008) find that consumers do not understand how to translate changes 
in miles-per-gallon into fuel savings (a concern that EPA is continuing 
to attempt to address).\446\ In addition, future fuel price (a major 
component of fuel savings) is highly uncertain. Consumer fuel savings 
also vary across individuals, who travel different amounts and have 
different driving styles. Cost calculations based on the average do not 
distinguish between those that may gain or lose as a result of the 
policy.\447\ Studies regularly show that fuel economy plays a role in 
consumers' vehicle purchases, but modeling that role is still in 
development, and there is no consensus that most consumers make fully 
informed tradeoffs.\448\
---------------------------------------------------------------------------

    \442\ Sanstad, A., and R. Howarth (1994). `` `Normal' Markets, 
Market Imperfections, and Energy Efficiency.'' Energy Policy 22(10): 
811-818 (Docket EPA-HQ-OAR-2009-0472-11416).
    \443\ Greene, D., J. German, and M. Delucchi (2009). ``Fuel 
Economy: The Case for Market Failure'' in Reducing Climate Impacts 
in the Transportation Sector, Sperling, D., and J. Cannon, eds. 
Springer Science (Docket EPA-HQ-OAR-2009-0472-11538); Dasgupta, S., 
S. Siddarth, and J. Silva-Risso (2007). ``To Lease or to Buy? A 
Structural Model of a Consumer's Vehicle and Contract Choice 
Decisions.'' Journal of Marketing Research 44: 490-502 (Docket EPA-
HQ-OAR-2009-0472-11539); Metcalf, G., and D. Rosenthal (1995). ``The 
`New' View of Investment Decisions and Public Policy Analysis: An 
Application to Green Lights and Cold Refrigerators,'' Journal of 
Policy Analysis and Management 14: 517-531 (Docket EPA-HQ-OAR-2009-
0472-11540); Hassett, K., and G. Metcalf (1995), ``Energy Tax 
Credits and Residential Conservation Investment: Evidence from Panel 
Data,'' Journal of Public Economics 57: 201-217 (Docket EPA-HQ-OAR-
2009-0472-11543); Metcalf, G., and K. Hassett (1999), ``Measuring 
the Energy Savings from Home Improvement Investments: Evidence from 
Monthly Billing Data,'' The Review of Economics and Statistics 
81(3): 516-528 (Docket EPA-HQ-OAR-2009-0472-0051); van Soest D., and 
E. Bulte (2001), ``Does the Energy-Efficiency Paradox Exist? 
Technological Progress and Uncertainty.'' Environmental and Resource 
Economics 18: 101-12 (Docket EPA-HQ-OAR-2009-0472-11542).
    \444\ Turrentine, T. and K. Kurani (2007). ``Car Buyers and Fuel 
Economy?'' Energy Policy 35: 1213-1223 (Docket EPA-HQ-OAR-2009-
0472); Larrick, R.P., and J.B. Soll (2008). ``The MPG illusion.'' 
Science 320: 1593-1594 (Docket EPA-HQ-OAR-2009-0472-0041).
    \445\ Allcott, Hunt, and Nathan Wozny, ``Gasoline Prices, Fuel 
Economy, and the Energy Paradox'' (2010), available at http://
web.mit.edu/allcott/www/Allcott%20and%20Wozny%202010%20-
%20Gasoline%20Prices,%20Fuel%20Economy,%20and%20the%20Energy%20Parado
x.pdf (Docket EPA-HQ-OAR-2009-0472-11554).
    \446\ Sanstad, A., and R. Howarth (1994). `` `Normal' Markets, 
Market Imperfections, and Energy Efficiency.'' Energy Policy 22(10): 
811-818 (Docket EPA-HQ-OAR-2009-0472-11415); Larrick, R. P., and 
J.B. Soll (2008). ``The MPG illusion.'' Science 320: 1593-1594 
(Docket EPA-HQ-OAR-2009-0472-0043).
    \447\ Hausman J., Joskow P. (1982). ``Evaluating the Costs and 
Benefits of Appliance Efficiency Standards.'' American Economic 
Review 72: 220-25 (Docket EPA-HQ-OAR-2009-0472-11541).
    \448\ E.g., Goldberg, Pinelopi Koujianou, ``Product 
Differentiation and Oligopoly in International Markets: The Case of 
the U.S. Automobile Industry,'' Econometrica 63(4) (July 1995): 891-
951 (Docket EPA-HQ-OAR-2009-0472-0021); Goldberg, Pinelopi 
Koujianou, ``The Effects of the Corporate Average Fuel Efficiency 
Standards in the U.S.,'' Journal of Industrial Economics 46(1) 
(March 1998): 1-33 (Docket EPA-HQ-OAR-2009-0472-0017); Busse, Meghan 
R., Christopher R. Knittel, and Florian Zettelmeyer (2009). ``Pain 
at the Pump: How Gasoline Prices Affect Automobile Purchasing in New 
and Used Markets,'' Working paper (accessed 6/30/09), available at 
http://www.econ.ucdavis.edu/faculty/knittel/papers/gaspaper_
latest.pdf. (Docket EPA-HQ-OAR-2009-0472-0044).
---------------------------------------------------------------------------

    Some studies find that a substantial portion of the Energy Paradox 
can be explained in models of consumer behavior. For instance, one set 
of studies finds that accounting for uncertainty in fuel savings over 
time due to unanticipated changes in fuel prices goes a long way toward 
explaining this paradox. In this case, consumers give up some uncertain 
future fuel savings to avoid higher upfront costs.
    A recent review commissioned by EPA supports the finding of great 
variability, by looking at one key parameter: The role of fuel economy 
in consumers' vehicle purchase decisions.\449\ The review finds no

[[Page 25512]]

consensus on the role of fuel economy in consumer purchase decisions. 
Of 27 studies, significant numbers of them find that consumers 
undervalue, overvalue, or value approximately correctly the fuel 
savings that they will receive from improved fuel economy. The 
variation in the value of fuel economy in these studies is so high that 
it appears to be inappropriate to identify one central estimate from 
the literature. Thus, estimating consumer response to higher vehicle 
fuel economy is still unsettled science.
---------------------------------------------------------------------------

    \449\ Greene, David L. ``How Consumers Value Fuel Economy: A 
Literature Review.'' EPA Report EPA-420-R-10-008, March 2010 (Docket 
EPA-HQ-OAR-2009-0472-11575).
---------------------------------------------------------------------------

    If there is a difference between fuel savings and consumers' 
willingness to pay for fuel savings, the next question is, which is the 
appropriate measure of consumer benefit? Fuel savings measure the 
actual monetary value that consumers will receive after purchasing a 
vehicle; the willingness to pay for fuel economy measures the value 
that, before a purchase, consumers place on additional fuel economy. As 
noted, there are a number of reasons that consumers may incorrectly 
estimate the benefits that they get from improved fuel economy, 
including risk or loss aversion, and poor ability to calculate savings. 
Also as noted, fuel economy may not be as salient as other vehicle 
characteristics when a consumer is considering vehicles. If these 
arguments are valid, then there will be significant gains to consumers 
of the government mandating additional fuel economy.
    EPA requested and received a number of comments discussing the role 
of the Energy Paradox in consumer vehicle purchase decisions. Ten 
commenters, primarily from a number of academic and non-governmental 
organizations, argued that there is a gap between the fuel economy that 
consumers purchased and the cost-effective amount, due to a number of 
market and behavioral phenomena. These include consumers having 
inadequate information about future fuel savings relative to up-front 
costs; imperfect competition among auto manufacturers; lack of choice 
over fuel economy within classes; lack of salience of fuel economy 
relative to other vehicle features at the time of vehicle purchase; 
consumer use of heuristic decision-making processes or other rules of 
thumb, rather than analyzing fuel economy decisions; consumer risk and 
loss aversion leading to more attention to up-front costs than future 
fuel savings; and consumer emphasis on visible, status-providing 
features of vehicles more than on relatively invisible features such as 
fuel economy. The RIA, Chapter 8.1.2, includes further discussion of 
these phenomena.
    Because of the gap between the fuel economy consumers purchase and 
the cost-effective amount, those and additional commenters support 
using the full value of fuel savings as a benefit of the rule. A few 
asserted, in addition, that auto companies would benefit from offering 
vehicles with improved fuel economy. Automakers might underprovide fuel 
economy because they believe consumers would not buy it, or that it is 
not as salient as price when consumers are buying a vehicle. The 
commenters who supported the existence of the gap cite these phenomena 
as a basis for regulation of fuel economy. In contrast, two commenters 
(the United Auto Workers and one nonprofit research organization) 
argued that the market for fuel economy works efficiently; consumers 
reveal through their purchase decisions that additional fuel economy is 
not important for them. These commenters expressed concern that 
regulation to promote more fuel economy would limit consumers' choices 
as well as the value of the vehicles to consumers. Yet other commenters 
(including some states) noted that the rule protects the existing 
variety and choice of vehicles in the market; for this reason, the 
value of vehicles to consumers should not suffer as a result of the 
rule.
    While acknowledging the diversity of perspectives, EPA continues to 
include the full fuel savings as private benefits of the rule. Improved 
fuel economy will significantly reduce consumer expenditures on fuel, 
thus benefiting consumers. It is true that limitations in modeling 
affect our ability to estimate how much of these savings would have 
occurred in the absence of the rule. For example, some of the 
technologies predicted to be adopted in response to the rule may 
already be developing due to shifts in consumer demand for fuel 
economy. It is possible that some of these savings would have occurred 
in the absence of the rule. To the extent that greater fuel economy 
improvements than those assumed to occur under the baseline may have 
occurred due to market forces alone (absent the rule), the analysis 
overestimates private and social net benefits. In the absence of robust 
means to identify the changes in fuel economy that would have occurred 
without the rule, we estimate the benefits and costs under the 
assumption that the rule will lead to more fuel-efficient vehicles than 
would have occurred without the rule. As discussed below, limitations 
in modeling also affect our ability to estimate the effects of the rule 
on net benefits in the market for vehicles.
    Consumer vehicle choice models estimate what vehicles consumers buy 
based on vehicle and consumer characteristics. In principle, such 
models could provide a means of understanding both the role of fuel 
economy in consumers' purchase decisions and the effects of this rule 
on the benefits that consumers will get from vehicles. The NPRM 
included a discussion of the wide variation in the structure and 
results of these models. Models or model results have not frequently 
been systematically compared to each other. When they have, the results 
show large variation over, for instance, the value that consumers place 
on additional fuel economy. As a result, EPA found that further 
assessment needed to be done before adopting a consumer vehicle choice 
model. In the NPRM, EPA asked for comment on the state of the art of 
consumer vehicle choice modeling and whether it is sufficiently 
developed for use in regulatory analysis.
    The responses were varied. Of the six commenters on this issue, 
five supported EPA's performing consumer vehicle choice modeling, but 
only in general terms; they did not provide recommendations for how to 
evaluate the quality of different models or identify a model 
appropriate for EPA's purposes. One commenter argued that, if key 
differences across models were controlled, then different models would 
produce similar results, but there were no suggestions for what choices 
to make to control the key differences. One commenter specifically 
asked for estimates that quantify losses to consumer welfare. Two 
commenters mentioned the importance of taking into account any losses 
in vehicle attributes due to increasing fuel economy, but without 
specific guidance for how to do so. Some commenters, including some who 
supported the use of these models, highlighted some of the models' 
potential limitations. Two commenters noted the challenges of modeling 
for vehicles that are not yet in the market. Most consumer vehicle 
choice models are based on existing vehicle fleets. Future vehicles 
will present combinations of vehicle characteristics not previously 
seen in markets, such as higher fuel economy and higher price with 
other characteristics constant; the existing models may not do well in 
predicting consumer responses to these changes. One comment suggested 
that the models might be sufficient for predicting changes in consumer 
purchase patterns, but not for calculating the welfare gains and losses 
to consumers of the changes.
    EPA has not used a consumer vehicle choice model for the final rule 
analysis, due to concerns we explained in the

[[Page 25513]]

proposal (and discussed in Chapter 8.1 of the RIA), and because no new 
information became available to resolve those concerns. It is likely 
that variation exists in measuring consumer response to changes in fuel 
economy as well as other vehicle characteristics, such as performance. 
Thus, there does not appear to be evidence at this time to develop 
robust estimates of consumer welfare effects of changes in vehicle 
attributes. As noted earlier, EPA's and NHTSA's cost estimates are 
based on maintaining these other vehicle attributes. Comments generally 
supported the finding that our cost and technology estimates succeeded 
in maintaining these other attributes.
    EPA will continue its efforts to review the literature, but, given 
the known difficulties, EPA has not conducted an analysis using these 
models for this program. These issues are discussed in detail in RIA 
Chapter 8.1.2.
    The next issue is the potential for loss in consumer welfare due to 
the rule. As mentioned above (and discussed more thoroughly in Section 
III.D of this preamble), the technology cost estimates developed here 
take into account the costs to hold other vehicle attributes, such as 
size and performance, constant. In addition, the analysis assumes that 
the full technology costs are passed along to consumers. With these 
assumptions, because welfare losses are monetary estimates of how much 
consumers would have to be compensated to be made as well off as in the 
absence of the change,\450\ the price increase measures the loss to the 
consumer.\451\ Assuming that the full technology cost gets passed along 
to the consumer as an increase in price, the technology cost thus 
measures the welfare loss to the consumer. Increasing fuel economy 
would have to lead to other changes in the vehicles that consumers find 
undesirable for there to be additional losses not included in the 
technology costs.
---------------------------------------------------------------------------

    \450\ This approach describes the economic concept of 
compensating variation, a payment of money after a change that would 
make a consumer as well off after the change as before it. A related 
concept, equivalent variation, estimates the income change that 
would be an alternative to the change taking place. The difference 
between them is whether the consumer's point of reference is her 
welfare before the change (compensating variation) or after the 
change (equivalent variation). In practice, these two measures are 
typically very close together.
    \451\ Indeed, it is likely to be an overestimate of the loss to 
the consumer, because the consumer has choices other than buying the 
same vehicle with a higher price; she could choose a different 
vehicle, or decide not to buy a new vehicle. The consumer would 
choose one of those options only if the alternative involves less 
loss than paying the higher price. Thus, the increase in price that 
the consumer faces would be the upper bound of loss of consumer 
welfare, unless there are other changes to the vehicle due to the 
fuel economy improvements that make the vehicle less desirable to 
consumers.
---------------------------------------------------------------------------

    At this time EPA has no available methods to estimate potential 
additional effects on consumers not included in the technology cost 
estimates, e.g., due to changes in vehicles that consumers find 
undesirable, shifts in consumer demand for other attributes, and 
uncertainties about the long term reliability of new technologies. 
Comments on the rule generally supported EPA's analysis of the 
technology costs and the assumption that other vehicle characteristics 
were not adversely affected. Any consumer welfare loss cannot be 
quantified at this time. For reasons stated above, EPA believes that 
any such loss is likely far smaller than the private gains, including 
fuel savings and reduced refueling time.
    Chapter 8.1 of the RIA discusses in more depth the research on the 
Energy Paradox and the state of the art of consumer vehicle choice 
modeling.
2. Costs Associated With the Vehicle Program
    In this section, EPA presents our estimate of the costs associated 
with the final vehicle program. The presentation here summarizes the 
costs associated with the new vehicle technology expected to be added 
to meet the new GHG standards, including hardware costs to comply with 
the A/C credit program. The analysis summarized here provides our 
estimate of incremental costs on a per vehicle basis and on an annual 
total basis.
    The presentation here summarizes the outputs of the OMEGA model 
that was discussed in some detail in Section III.D of this preamble. 
For details behind the analysis such as the OMEGA model inputs and the 
estimates of costs associated with individual technologies, the reader 
is directed to Chapters 1 and 2 of the RIA, and Chapter 3 of the Joint 
TSD. For more detail on the outputs of the OMEGA model and the overall 
vehicle program costs summarized here, the reader is directed to 
Chapters 4 and 7 of the RIA.
    With respect to the cost estimates for vehicle technologies, EPA 
notes that, because these estimates relate to technologies which are in 
most cases already available, these cost estimates are technically 
robust. Some comments were received that addressed the technology costs 
that served as inputs to the OMEGA model as was mentioned in Section 
II.E. While those comments did not result in changes to the technology 
cost inputs, the technology cost estimates for a select group of 
technologies have changed since the NPRM thus changing the vehicle 
program costs presented here. These changes, as summarized in Section 
II.E and in Chapter 3 of the Joint TSD, were made in response to 
updated cost estimates, from the FEV teardown study, available to the 
agencies shortly after publication of the NPRM, not in response to 
comments. Those cost changes are summarized in Section II.E and in 
Chapter 3 of the Joint TSD. EPA believes that we have been conservative 
in estimating the vehicle hardware costs associated with this rule.
    With respect to the aggregate cost estimations presented in Section 
III.H.2.b, EPA notes that there are a number of areas where the results 
of our analysis may be conservative and, in general, EPA believes we 
have directionally overestimated the costs of compliance with these new 
standards, especially in not accounting for the full range of credit 
opportunities available to manufacturers. For example, some cost saving 
programs are considered in our analysis, such as full car/truck 
trading, while others are not, such as early credit generation and 
advanced vehicle technology credits.
a. Vehicle Compliance Costs Associated With the CO2 
Standards
    For the technology and vehicle package costs associated with adding 
new CO2-reducing technology to vehicles, EPA began with 
EPA's 2008 Staff Report and NHTSA's 2011 CAFE FRM both of which 
presented costs generated using existing literature, meetings with 
manufacturers and parts suppliers, and meetings with other experts in 
the field of automotive cost estimation.\452\ EPA has updated some of 
those technology costs with new information from our contract with FEV, 
through further discussion with NHTSA, and by converting from 2006 
dollars to 2007 dollars using the GDP price deflator. The estimated 
costs presented here represent the incremental costs associated with 
this rule relative to what the future vehicle fleet would be expected 
to look like absent this rule. A more detailed description of the 
factors considered in our reference case is presented in Section III.D.
---------------------------------------------------------------------------

    \452\ ``EPA Staff Technical Report: Cost and Effectiveness 
Estimates of Technologies Used to Reduce Light-Duty Vehicle Carbon 
Dioxide Emissions,'' EPA 420-R-08-008; NHTSA 2011 CAFE FRM is at 74 
FR 14196; both documents are contained in Docket EPA-HQ-OAR-2009-
0472.
---------------------------------------------------------------------------

    The estimates of vehicle compliance costs cover the years of 
implementation of the program--2012 through 2016. EPA has also 
estimated compliance costs for the years following implementation so 
that we can shed

[[Page 25514]]

light on the long term (2022 and later) cost impacts of the 
program.\453\ EPA used the year 2022 here because our short-term and 
long-term markup factors described shortly below are applied in five 
year increments with the 2012 through 2016 implementation span and the 
2017 through 2021 span both representing the short-term. Some of the 
individual technology cost estimates are presented in brief in Section 
III.D, and account for both the direct and indirect costs incurred in 
the automobile manufacturing and dealer industries (for a complete 
presentation of technology costs, please refer to Chapter 3 of the 
Joint TSD). To account for the indirect costs, EPA has applied an 
indirect cost markup (ICM) factor to all of our direct costs to arrive 
at the estimated technology cost.\454\ The ICM factors used range from 
1.11 to 1.64 in the short-term (2012 through 2021), depending on the 
complexity of the given technology, to account for differences in the 
levels of R&D, tooling, and other indirect costs that will be incurred. 
Once the program has been fully implemented, some of the indirect costs 
will no longer be attributable to these standards and, as such, a lower 
ICM factor is applied to direct costs in years following full 
implementation. The ICM factors used range from 1.07 to 1.39 in the 
long-term (2022 and later) depending on the complexity of the given 
technology.\455\ Note that the short-term ICMs are used in the 2012 
through 2016 years of implementation and continue through 2021. EPA 
does this since the standards are still being implemented during the 
2012 through 2016 model years. Therefore, EPA considers the five year 
period following full implementation also to be short-term. Note that, 
in general the comments received were supportive of our use of ICMs as 
opposed to the more traditional Retail Price Equivalent (RPE).\456\ 
However, we did receive some comment that we applied inappropriate ICM 
factors to some technologies. We have not changed our approach in 
response to those comments as explained in greater detail in our 
Response to Comments document.
---------------------------------------------------------------------------

    \453\ Note that the assumption made here is that the standards 
would continue to apply for years beyond 2016 so that new vehicles 
sold in model years 2017 and later would continue to incur costs as 
a result of this rule. Those costs are estimated to get lower in 
2022 because some of the indirect costs attributable to this rule in 
the years prior to 2022 would be eliminated in 2022 and later.
    \454\ Need to add the recent reference for this study by RTI. 
Alex Rogozhin et al., Automobile Industry Regail Price Equivalent 
and Indirect Cost Multipliers. Prepared for EPA by RTI International 
and Transportation Research Institute, University of Michigan. EPA-
420-R-09-003, February 2009 (Docket EPA-HQ-OAR-2009-0472).
    \455\ Gloria Helfand and Todd Sherwood, ``Documentation of the 
Development of Indirect Cost Multipliers for Three Automotive 
Technologies,'' Office of Transportation and Air Quality, U.S. EPA, 
August 2009 (Docket EPA-HQ-OAR-2009-0472).
    \456\ The RPE is based on the historical relationship between 
direct costs and consumer prices; it is intended to reflect the 
average markup over time required to sustain the industry as a 
viable operation. Unlike the RPE approach, the ICM focuses more 
narrowly on the changes that are required in direct response to 
regulation-induced vehicle design changes which may not directly 
influence all of the indirect costs that are incurred in the normal 
course of business. For example, an RPE markup captures all indirect 
costs including costs such as the retirement benefits of retired 
employees. However, the retirement benefits for retired employees 
are not expected to change as a result of a new GHG regulation and, 
therefore, those indirect costs should not increase in relation to 
newly added hardware in response to a regulation.
---------------------------------------------------------------------------

    EPA has also considered the impacts of manufacturer learning on the 
technology cost estimates. Consistent with past EPA rulemakings, EPA 
has estimated that some costs would decline by 20 percent with each of 
the first two doublings of production beginning with the first year of 
implementation. These volume-based cost declines, which EPA calls 
``volume'' based learning, take place after manufacturers have had the 
opportunity to find ways to improve upon their manufacturing processes 
or otherwise manufacture these technologies in a more efficient way. 
After two 20 percent cost reduction steps, the cost reduction learning 
curve flattens out considerably as only minor improvements in 
manufacturing techniques and efficiencies remain to be had. By then, 
costs decline roughly three percent per year as manufacturers and 
suppliers continually strive to reduce costs. These time-based cost 
declines, which EPA calls ``time'' based learning, take place at a rate 
of three percent per year. EPA has considered learning impacts on most 
but not all of the technologies expected to be used because some of the 
expected technologies are already used rather widely in the industry 
and, presumably, learning impacts have already occurred. EPA has 
considered volume-based learning for only a handful of technologies 
that EPA considers to be new or emerging technologies such as the 
hybrids and electric vehicles. For most technologies, EPA has 
considered them to be more established given their current use in the 
fleet and, hence, we have applied the lower time based learning. We 
have more discussion of our learning approach and the technologies to 
which we have applied which type of learning in Chapter 3 of the Joint 
TSD.
    The technology cost estimates discussed in Section III.D and 
detailed in Chapter 3 of the Joint TSD are used to build up technology 
package cost estimates which are then used as inputs to the OMEGA 
model. EPA discusses our technology packages and package costs in 
Chapter 1 of the RIA. The model determines what level of CO2 
improvement is required considering the reference case for each 
manufacturer's fleet. The vehicle compliance costs are the outputs of 
the model and take into account FFV credits through 2015, TLAAS, full 
car/truck trading, and the A/C credit program. Table III.H.2-1 presents 
the fleet average incremental vehicle compliance costs for this rule. 
As the table indicates, 2012-2016 costs increase every year as the 
standards become more stringent. Costs per car and per truck then 
remain stable through 2021 while cost per vehicle (car/truck combined) 
decline slightly as the fleet mix trends slowly to increasing car 
sales. In 2022, costs per car and per truck decline as the long-term 
ICM is applied because some indirect costs decrease or are no longer 
considered attributable to the program (e.g., warranty costs go down). 
Costs per car and per truck remain constant thereafter while the cost 
per vehicle declines slightly as the fleet continues to trend toward 
cars. By 2030, projections of fleet mix changes become static and the 
cost per vehicle remains constant. EPA has a more detailed presentation 
of vehicle compliance costs on a manufacturer by manufacturer basis in 
Chapter 6 of the RIA.

  Table III.H.2-1--Industry Average Vehicle Compliance Costs Associated
                     With the Tailpipe CO2 Standards
                       [$/vehicle in 2007 dollars]
------------------------------------------------------------------------
                                                              $/vehicle
                                                                (car &
          Calendar year               $/car       $/truck       truck
                                                              combined)
------------------------------------------------------------------------
2012.............................         $342         $314         $331

[[Page 25515]]

2013.............................          507          496          503
2014.............................          631          652          639
2015.............................          749          820          774
2016.............................          869        1,098          948
2017.............................          869        1,098          947
2018.............................          869        1,098          945
2019.............................          869        1,098          943
2020.............................          869        1,098          940
2021.............................          869        1,098          939
2022.............................          817        1,032          882
2030.............................          817        1,032          878
2040.............................          817        1,032          875
2050.............................          817        1,032          875
------------------------------------------------------------------------

b. Annual Costs of the Vehicle Program
    The costs presented here represent the incremental costs for newly 
added technology to comply with the final program. Together with the 
projected increases in car and light-truck sales, the increases in per-
vehicle average costs shown in Table III.H.2-1 above result in the 
total annual costs reported in Table III.H.2-2 below. Note that the 
costs presented in Table III.H.2-2 do not include the savings that 
would occur as a result of the improvements to fuel consumption. Those 
impacts are presented in Section III.H.4.

  Table III.H.2-2--Quantified Annual Costs Associated With the Vehicle
                                 Program
                       [$Millions of 2007 dollars]
------------------------------------------------------------------------
                                                            Quantified
                          Year                             annual costs
------------------------------------------------------------------------
2012....................................................          $4,900
2013....................................................           8,000
2014....................................................          10,300
2015....................................................          12,700
2016....................................................          15,600
2020....................................................          15,600
2030....................................................          15,800
2040....................................................          17,400
2050....................................................          19,000
NPV, 3%.................................................         345,900
NPV, 7%.................................................         191,900
------------------------------------------------------------------------

3. Cost per Ton of Emissions Reduced
    EPA has calculated the cost per ton of GHG (CO2-
equivalent, or CO2e) reductions associated with this rule 
using the above costs and the emissions reductions described in Section 
III.F. More detail on the costs, emission reductions, and the cost per 
ton can be found in the RIA and Joint TSD. EPA has calculated the cost 
per metric ton of GHG emissions reductions in the years 2020, 2030, 
2040, and 2050 using the annual vehicle compliance costs and emission 
reductions for each of those years. The value in 2050 represents the 
long-term cost per ton of the emissions reduced. EPA has also 
calculated the cost per metric ton of GHG emission reductions including 
the savings associated with reduced fuel consumption (presented below 
in Section III.H.4). This latter calculation does not include the other 
benefits associated with this rule such as those associated with 
criteria pollutant reductions or energy security benefits as discussed 
later in sections III.H.4 through III.H.9. By including the fuel 
savings in the cost estimates, the cost per ton is less than $0, since 
the estimated value of fuel savings outweighs the vehicle program 
costs. With regard to the CH4 and N2O standards, 
since these standards will be emissions caps designed to ensure that 
manufacturers do not backslide from current levels, EPA has not 
estimated costs associated with the standards (since the standards will 
not require any change from current practices nor does EPA estimate 
they will result in emissions reductions).
    The results for CO2e costs per ton under the rule are 
shown in Table III.H.3-1.

                 Table III.H.3-1-- Annual Cost Per Metric Ton of CO2e Reduced, in $2007 Dollars
----------------------------------------------------------------------------------------------------------------
                                                                                                   Cost per ton
                                      Vehicle      Fuel savings    CO2e reduced    Cost per ton   of the vehicle
              Year                 program cost         \b\          (million     of the vehicle   program with
                                        \a\         ($millions)    metric tons)    program only    fuel savings
                                    ($millions)                                         \a\             \b\
----------------------------------------------------------------------------------------------------------------
2020............................         $15,600        -$35,700             160            $100           -$130
2030............................          15,800         -79,800             310              50            -210
2040............................          17,400        -119,300             400              40            -250
2050............................          19,000        -171,200             510              40            -300
----------------------------------------------------------------------------------------------------------------
\a\ Costs here include vehicle compliance costs and do not include any fuel savings.
\b\ Fuel savings calculated using pre-tax fuel prices.

[[Page 25516]]

4. Reduction in Fuel Consumption and Its Impacts
a. What are the projected changes in fuel consumption?
    The new CO2 standards will result in significant 
improvements in the fuel efficiency of affected vehicles. Drivers of 
those vehicles will see corresponding savings associated with reduced 
fuel expenditures. EPA has estimated the impacts on fuel consumption 
for both the tailpipe CO2 standards and the A/C credit 
program. To do this, fuel consumption is calculated using both current 
CO2 emission levels and the new CO2 standards. 
The difference between these estimates represents the net savings from 
the CO2 standards. Note that the total number of miles that 
vehicles are driven each year is different under each of the control 
case scenarios than in the reference case due to the ``rebound 
effect,'' which is discussed in Section III.H.4.c. EPA also notes that 
consumers who drive more than our average estimates for vehicle miles 
traveled (VMT) will experience more fuel savings; consumers who drive 
less than our average VMT estimates will experience less fuel savings.
    The expected impacts on fuel consumption are shown in Table 
III.H.4-1. The gallons shown in the tables reflect impacts from the new 
CO2 standards, including the A/C credit program, and include 
increased consumption resulting from the rebound effect.

Table III.H.4-1--Fuel Consumption Impacts of the Vehicle Standards and A/
                            C Credit Programs
                            [Million gallons]
------------------------------------------------------------------------
                            Year                                Total
------------------------------------------------------------------------
2012.......................................................          550
2013.......................................................        1,320
2014.......................................................        2,330
2015.......................................................        3,750
2016.......................................................        5,670
2020.......................................................       12,590
2030.......................................................       24,730
2040.......................................................       32,620
2050.......................................................       41,520
------------------------------------------------------------------------

b. What are the monetized fuel savings?
    Using the fuel consumption estimates presented in Section 
III.H.4.a, EPA can calculate the monetized fuel savings associated with 
the CO2 standards. To do this, we multiply reduced fuel 
consumption in each year by the corresponding estimated average fuel 
price in that year, using the reference case taken from the AEO 2010 
Early Release.\457\ AEO is the government consensus estimate used by 
NHTSA and many other government agencies to estimate the projected 
price of fuel. EPA has done this calculation using both the pre-tax and 
post-tax fuel prices. Since the post-tax fuel prices are what consumers 
pay, the fuel savings calculated using these prices represent the 
savings consumers will see. The pre-tax fuel savings are those savings 
that society will see. These results are shown in Table III.H.4-2. Note 
that in Section III.H.10, EPA presents the benefit-cost of the rule 
and, for that reason, presents only the pre-tax fuel savings.
---------------------------------------------------------------------------

    \457\ Energy Information Administration. Annual Energy Outlook 
2010 Early Release. Supplemental Transportation Tables. December 
2009. http://www.eia.doe.gov/oiaf/aeo/supplement/sup_tran.xls.

            Table III.H.4-2--Estimated Monetized Fuel Savings
                       [Millions of 2007 dollars]
------------------------------------------------------------------------
                                           Fuel savings    Fuel savings
              Calendar year                  (pre-tax)      (post-tax)
------------------------------------------------------------------------
2012....................................          $1,137          $1,400
2013....................................           2,923           3,800
2014....................................           5,708           6,900
2015....................................           9,612          11,300
2016....................................          14,816          17,400
2020....................................          35,739          41,100
2030....................................          79,838          89,100
2040....................................         119,324         131,700
2050....................................         171,248         186,300
NPV, 3%.................................       1,545,638       1,723,900
NPV, 7%.................................         672,629         755,700
------------------------------------------------------------------------

    As shown in Table III.H.4-2, EPA is projecting that consumers would 
realize very large fuel savings as a result of the standards contained 
in this rule. As discussed further in Section III.H.1, it is a 
conundrum from an economic perspective that these large fuel savings 
have not been provided by automakers and purchased by consumers. A 
number of behavioral and market phenomena may lead to this disparity 
between the fuel economy that makes financial sense to consumers and 
the fuel economy they purchase. Regardless how consumers make their 
decisions on how much fuel economy to purchase, EPA expects that, in 
the aggregate, they will gain these fuel savings, which will provide 
actual money in consumers' pockets. We received considerable comment on 
this issue, as discussed in Section III.H.1, and the issue is discussed 
further in Chapter 8 of the RIA.
c. VMT Rebound Effect
    The fuel economy rebound effect refers to the fraction of fuel 
savings expected to result from an increase in vehicle fuel economy, 
particularly one required by higher fuel efficiency standards, that is 
offset by additional vehicle use. The increase in vehicle use occurs 
because higher fuel economy reduces the fuel cost of driving, which is 
typically the largest single component of the monetary cost of 
operating a

[[Page 25517]]

vehicle, and vehicle owners respond to this reduction in operating 
costs by driving slightly more.
    For this rule, EPA is using an estimate of 10% for the rebound 
effect. This value is based on the most recent time period analyzed in 
the Small and Van Dender 2007 paper,\458\ and falls within the range of 
the larger body of historical work on the rebound effect.\459\ Recent 
work by David Greene on the rebound effect for light-duty vehicles in 
the U.S. further supports the hypothesis that the rebound effect is 
decreasing over time.\460\ If we were to use a dynamic estimate of the 
future rebound effect, our analysis shows that the rebound effect could 
be in the range of 5% or lower.\461\ The rebound effect is also further 
discussed in Chapter 4 of the Joint TSD which reviews the relevant 
literature and discusses in more depth the reasoning for the rebound 
values used here.
---------------------------------------------------------------------------

    \458\ Small, K. and K. Van Dender, 2007a. ``Fuel Efficiency and 
Motor Vehicle Travel: The Declining Rebound Effect'', The Energy 
Journal, vol. 28, no. 1, pp. 25-51 (Docket EPA-HQ-OAR-2009-0472-
0018).
    \459\ Sorrell, S. and J. Dimitropoulos, 2007. ``UKERC Review of 
Evidence for the Rebound Effect, Technical Report 2: Econometric 
Studies'', UKERC/WP/TPA/2007/010, UK Energy Research Centre, London, 
October (Docket EPA-HQ-OAR-2009-0472-0012).
    \460\ Report by Kenneth A. Small of University of California at 
Irvine to EPA, ``The Rebound Effect from Fuel Efficiency Standards: 
Measurement and Projection to 2030'', June 12, 2009 (Docket EPA-HQ-
OAR-2009-0472-0002).
    \461\ Revised Report by David Greene of Oak Ridge National 
Laboratory to EPA, ``Rebound 2007: Analysis of National Light-Duty 
Vehicle Travel Statistics,'' February 9, 2010 (Docket EPA-HQ-OAR-
2009-0472-0220). This paper has been accepted for an upcoming 
special issue of Energy Policy, although the publication date has 
not yet been determined.
---------------------------------------------------------------------------

    We received several comments on the proposed value of the rebound 
effect. The California Air Resources Board (CARB) and the New Jersey 
Department of Environmental Protection supported the use of a 10% 
rebound effect, although CARB encouraged EPA to consider lowering the 
value to 5%. Other commenters, such as the Missouri Department of 
Natural Resources, the International Council on Clean Transportation 
(ICCT), the Center for Biological Diversity, and the Consumer 
Federation of America, recommended using a lower rebound effect. ICCT 
specifically recommended that the dynamic rebound effect methodology 
utilized by Small & Van Dender was the most appropriate methodology, 
which would support a rebound effect of 5% or lower. In contrast, the 
National Association of Dealerships asserted that the rebound effect 
should be higher (e.g., in the lower range of the 15-30% historical 
range), but did not submit any data to support this claim.
    While we appreciate the input provided by commenters, we did not 
receive any new data or analysis to justify revising our initial 
estimates of the rebound effect at this time. Based on the positive 
comments we received, we will continue using the dynamic rebound effect 
to help inform our estimate of the rebound effect in future 
rulemakings. However, given the relatively new nature of this 
analytical approach, we believe the larger body of historical studies 
should also be considered when determining the value of the rebound 
effect. As we described in the Technical Support Document, the more 
recent literature suggests that the rebound effect is 10% or lower, 
whereas the larger body of historical studies suggests a higher rebound 
effect. Therefore, we will continue to use the 10% rebound effect for 
this rulemaking. However, we plan to update our estimate of the rebound 
effect in future rulemakings as new data becomes available.
    We also invited comments on whether we should also explore other 
alternatives for estimating the rebound effect, such as whether it 
would be appropriate to use the price elasticity of demand for gasoline 
to guide the choice of a value for the rebound effect. We received only 
one comment on this issue from ICCT. In their comments, ICCT stated 
that the short run elasticity can provide a useful point of comparison 
for rebound effect estimates, but it should not be used to guide the 
choice of a value for the rebound effect. Therefore, we have not 
incorporated this metric into our analysis.
5. Impacts on U.S. Vehicle Sales and Payback Period
a. Vehicle Sales Impacts
    This analysis compares two effects. On the one hand, the vehicles 
will become more expensive, which would, by itself, discourage sales. 
On the other hand, the vehicles will have improved fuel economy and 
thus lower operating costs. If consumers do not accurately compare the 
value of fuel savings with the increased cost of fuel economy 
technology in their vehicle purchase decisions, as discussed in 
Preamble III.H.1, they will continue to behave in this way after this 
rule. If auto makers have accurately gauged how consumers consider fuel 
economy when purchasing vehicles and have provided the amount that 
consumers want in vehicles, then consumers should not be expected to 
want the more fuel-efficient vehicles. After all, auto makers would 
have provided as much fuel economy as consumers want. If, on the other 
hand, auto makers underestimated consumer demand for fuel economy, as 
suggested by some commenters and discussed in Preamble Section III.H.1 
and RIA Section 8.1.2, then this rule may lead to production of more 
desirable vehicles, and vehicle sales may increase. This assumption 
implies that auto makers have missed some profit-making opportunities.
    The methodology EPA used for estimating the impact on vehicle sales 
is relatively straightforward, but makes a number of simplifying 
assumptions. According to the literature, the price elasticity of 
demand for vehicles is commonly estimated to be -1.0.\462\ In other 
words, a one percent increase in the price of a vehicle would be 
expected to decrease sales by one percent, holding all other factors 
constant. For our estimates, EPA calculated the effect of an increase 
in vehicle costs due to the GHG standards and assumes that consumers 
will face the full increase in costs, not an actual (estimated) change 
in vehicle price. (The estimated increases in vehicle cost due to the 
rule are discussed in Section III.H.2.) This is a conservative 
methodology, since an increase in cost may not pass fully into an 
increase in market price in an oligopolistic industry such as the 
automotive sector.\463\ EPA also notes that we have not used these 
estimated sales impacts in the OMEGA Model.
---------------------------------------------------------------------------

    \462\ Kleit A.N., 1990. ``The Effect of Annual Changes in 
Automobile Fuel Economy Standards.'' Journal of Regulatory Economics 
2: 151-172 (Docket EPA-HQ-OAR-2009-0472-0015); McCarthy, Patrick S., 
1996. ``Market Price and Income Elasticities of New Vehicle 
Demands.'' Review of Economics and Statistics 78: 543-547 (Docket 
EPA-HQ-OAR-2009-0472-0016); Goldberg, Pinelopi K., 1998. ``The 
Effects of the Corporate Average Fuel Efficiency Standards in the 
U.S.,'' Journal of Industrial Economics 46(1): 1-33 (Docket EPA-HQ-
OAR-2009-0472-0017).
    \463\ See, for instance, Gron, Ann, and Deborah Swenson, 2000. 
``Cost Pass-Through in the U.S. Automobile Market,'' Review of 
Economics and Statistics 82: 316-324 (Docket EPA-HQ-OAR-2009-0472-
0007).
---------------------------------------------------------------------------

    Although EPA uses the one percent price elasticity of demand for 
vehicles as the basis for our vehicle sales impact estimates, we 
assumed that the consumer would take into account both the higher 
vehicle purchasing costs as well as some of the fuel savings benefits 
when deciding whether to purchase a new vehicle. Therefore, the 
incremental cost increase of a new vehicle would be offset by reduced 
fuel expenditures over a certain period of time (i.e., the ``payback 
period''). For the purposes of this rulemaking, EPA used a five-year 
payback period, which is consistent with the length of a typical new 
light-

[[Page 25518]]

duty vehicle loan.\464\ The one commenter on this analysis stated that 
use of the five-year payback period was reasonable. This approach may 
not accurately reflect the role of fuel savings in consumers' purchase 
decisions, as the discussion in Section III.H.1 suggests. If consumers 
consider fuel savings in a different fashion than modeled here, then 
this approach will not accurately reflect the impact of this rule on 
vehicle sales.
---------------------------------------------------------------------------

    \464\ As discussed further in Section III.H.1, there is not a 
consensus in the literature on how consumers consider fuel economy 
in their vehicle purchases. Results are inconsistent, possibly due 
to fuel economy not being a major focus of many of the studies, and 
possibly due to sensitivity of results to modeling and data used. A 
survey by Greene (Greene, David L. ``How Consumers Value Fuel 
Economy: A Literature Review.'' EPA Report EPA-420-R-10-008, March 
2010 (Docket EPA-HQ-OAR-2009-0472-11575)) finds that estimates in 
the literature of the value that consumers place on fuel economy 
when buying a vehicle range from negative--consumers would pay to 
reduce fuel economy--to more than 1000 times the value of fuel 
savings.
---------------------------------------------------------------------------

    This increase in costs has other effects on consumers as well: if 
vehicle prices increase, consumers will face higher insurance costs and 
sales tax, and additional finance costs if the vehicle is bought on 
credit. In addition, the resale value of the vehicles will increase. 
EPA received no comments on these adjustments. The only change to these 
adjustments between the NPRM and this discussion is an updating of the 
interest rate on auto loans. EPA estimates that, with corrections for 
these factors, the effect on consumer expenditures of the cost of the 
new technology should be 0.914 times the cost of the technology at a 3% 
discount rate, and 0.876 times the cost of the technology at a 7% 
discount rate. The details of this calculation are in the RIA, Chapter 
8.1.
    Once the cost estimates are adjusted for these additional factors, 
the fuel cost savings associated with the rule, discussed in Section 
III.H.4, are subtracted to get the net effect on consumer expenditures 
for a new vehicle. With the assumed elasticity of demand of -1, the 
percent change in this ``effective price,'' estimated as the adjusted 
increase in cost, is equal to the negative of the percent change in 
vehicle purchases. The net effect of this calculation is in Table 
III.H.5-1 and Table III.H.5-2. The values have changed slightly from 
the NPRM, due to changes in fuel prices and fuel savings, technology 
costs, and baseline vehicle sales projections, in addition to the 
adjustment in financing costs.
    The estimates provided in Table III.H.5-1 and Table III.H.5-2 are 
meant to be illustrative rather than a definitive prediction. When 
viewed at the industry-wide level, they give a general indication of 
the potential impact on vehicle sales. As shown below, the overall 
impact is positive and growing over time for both cars and trucks. 
Because the fuel savings associated with this rule are expected to 
exceed the technology costs, the effective prices of vehicles (the 
adjusted increase in technology cost less the fuel savings over five 
years) to consumers will fall, and consumers will buy more new 
vehicles. As a result, the lower net cost of the vehicles is projected 
to lead to an increase in sales for both cars and trucks.
    As discussed above, this result depends on the assumption that more 
fuel efficient vehicles that yield net consumer benefits over five 
years would not otherwise be offered on the vehicle market due to 
market failures on the part of vehicle manufacturers. If vehicles that 
achieve the fuel economy standards prescribed by today's rulemaking 
would already be available, but consumers chose not to purchase them, 
then this rulemaking would not result in an increase in vehicle sales, 
because it does not alter how consumers make decisions about which 
vehicles to purchase. In addition, this analysis has not accounted for 
a number of factors that might affect consumer vehicle purchases, such 
as changing market conditions, changes in vehicle characteristics that 
might accompany improvements in fuel economy, or consumers considering 
a different ``payback period'' for their fuel economy purchases. If 
consumers use a shorter payback period, the sales impacts will be less 
positive, possibly negative; if consumers use a higher payback period, 
the impacts will be more positive. Also, this is an aggregate analysis; 
some individual consumers (those who drive less than estimated here) 
will face lower net benefits, while others (who drive more than 
estimated here) will have even greater savings. These complications add 
considerable uncertainty to our vehicle sales impact analysis.

                         Table III.H.5-1--Vehicle Sales Impacts Using a 3% Discount Rate
----------------------------------------------------------------------------------------------------------------
                                                               Change in                 Change in
                                                               car sales     % Change   truck sales    % Change
----------------------------------------------------------------------------------------------------------------
2012........................................................       67,500          0.7       62,100          1.1
2013........................................................       76,000          0.8      190,200          3.2
2014........................................................      114,000          1.1      254,900          4.3
2015........................................................      222,200          2.1      352,800          6.1
2016........................................................      360,500          3.3      488,000          8.6
----------------------------------------------------------------------------------------------------------------

    Table III.H.5-1 shows the impacts on new vehicle sales using a 3% 
discount rate. The fuel savings over five years are always higher than 
the technology costs. Although both cars and trucks show very small 
effects initially, over time vehicle sales become increasingly 
positive, as increased fuel prices make improved fuel economy more 
desirable. The increases in sales for trucks are larger than the 
increases for trucks (except in 2012) in both absolute numbers and 
percentage terms.

                       Table III.H.5-2--New Vehicle Sales Impacts Using a 7% Discount Rate
----------------------------------------------------------------------------------------------------------------
                                                             Change in                  Change in
                                                             car sales     % Change    truck sales    % Change
----------------------------------------------------------------------------------------------------------------
2012......................................................       62,800           0.7       58,300           1
2013......................................................       70,500           0.7       92,300           1.5
2014......................................................      106,100           1        127,700           2.1

[[Page 25519]]

2015......................................................      208,400           2        194,200           3.3
2016......................................................      339,400           3.1      280,000           4.9
----------------------------------------------------------------------------------------------------------------

    Table III.H.5-2 shows the impacts on new vehicle sales using a 7% 
interest rate. While a 7% interest rate shows slightly lower impacts 
than using a 3% discount rate, the results are qualitatively similar to 
those using a 3% discount rate. Sales increase for every year. For both 
cars and trucks, sales become increasingly positive over time, as 
higher fuel prices make improved fuel economy more valuable. The car 
market grows more than the truck market in absolute numbers, but less 
on a percentage basis.
    The effect of this rule on the use and scrappage of older vehicles 
will be related to its effects on new vehicle prices, the fuel 
efficiency of new vehicle models, and the total sales of new vehicles. 
If the value of fuel savings resulting from improved fuel efficiency to 
the typical potential buyer of a new vehicle outweighs the average 
increase in new models' prices, sales of new vehicles will rise, while 
scrappage rates of used vehicles will increase slightly. This will 
cause the ``turnover'' of the vehicle fleet (i.e., the retirement of 
used vehicles and their replacement by new models) to accelerate 
slightly, thus accentuating the anticipated effect of the rule on 
fleet-wide fuel consumption and CO2 emissions. However, if 
potential buyers value future fuel savings resulting from the increased 
fuel efficiency of new models at less than the increase in their 
average selling price, sales of new vehicles will decline, as will the 
rate at which used vehicles are retired from service. This effect will 
slow the replacement of used vehicles by new models, and thus partly 
offset the anticipated effects of this rule on fuel use and emissions.
    Because the agencies are uncertain about how the value of projected 
fuel savings from this rule to potential buyers will compare to their 
estimates of increases in new vehicle prices, we have not attempted to 
estimate explicitly the effects of the rule on scrappage of older 
vehicles and the turnover of the vehicle fleet.
    A detailed discussion of the vehicle sales impacts methodology is 
provided in the Chapter 8 of EPA's RIA.
b. Consumer Payback Period and Lifetime Savings on New Vehicle 
Purchases
    Another factor of interest is the payback period on the purchase of 
a new vehicle that complies with the new standards. In other words, how 
long would it take for the expected fuel savings to outweigh the 
increased cost of a new vehicle? For example, a new 2016 MY vehicle is 
estimated to cost $948 more (on average, and relative to the reference 
case vehicle) due to the addition of new GHG reducing technology (see 
Section III.D.6 for details on this cost estimate). This new technology 
will result in lower fuel consumption and, therefore, savings in fuel 
expenditures (see Section III.H.10) for details on fuel savings). But 
how many months or years would pass before the fuel savings exceed the 
upfront cost of $948?
    Table III.H.5-3 provides the answer to this question for a vehicle 
purchaser who pays for the new vehicle upfront in cash (we discuss 
later in this section the payback period for consumers who finance the 
new vehicle purchase with a loan). The table uses annual miles driven 
(vehicle miles traveled, or VMT) and survival rates consistent with the 
emission and benefits analyses presented in Chapter 4 of the Joint TSD. 
The control case includes rebound VMT but the reference case does not, 
consistent with other parts of the analysis. Also included are fuel 
savings associated with A/C controls (in the control case only). Not 
included here are the likely A/C-related maintenance savings as 
discussed in Chapter 2 of EPA's RIA. Further, this analysis does not 
include other societal impacts such as the value of increased driving, 
or noise, congestion and accidents since the focus is meant to be on 
those factors consumers think about most while in the showroom 
considering a new car purchase. Car/truck fleet weighting is handled as 
described in Chapter 1 of the Joint TSD. As can be seen in the table, 
it will take under 3 years (2 years and 7 months at a 3% discount rate, 
2 years and 9 months at a 7% discount rate) for the cumulative 
discounted fuel savings to exceed the upfront increase in vehicle cost. 
More detail on this analysis can be found in Chapter 8 of EPA's RIA.

                   Table III.H.5-3--Payback Period on a 2016 MY New Vehicle Purchase via Cash
                                                 [2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                    Cumulative      Cumulative
                                                     Increased      Annual fuel     discounted      discounted
                Year of ownership                  vehicle cost     savings \b\    fuel savings    fuel savings
                                                        \a\                            at 3%           at 7%
----------------------------------------------------------------------------------------------------------------
1...............................................          $1,018            $424            $418            $410
2...............................................  ..............            $420            $820            $790
3...............................................  ..............            $414          $1,204          $1,139
4...............................................  ..............            $402          $1,567          $1,457
----------------------------------------------------------------------------------------------------------------
\a\ Increased vehicle cost due to the rule is $948; the value here includes nationwide average sales tax of 5.3%
  and increased insurance premiums of 1.98%; both of these percentages are discussed in Section 8.1.1 of EPA's
  RIA.
\b\ Calculated using AEO 2010 Early Release reference case fuel price including taxes.

    However, most people purchase a new vehicle using credit rather 
than paying cash up front. The typical car loan today is a five year, 
60 month loan. As of February 9, 2010, the national average interest 
rate for a 5 year new car loan was 6.54 percent. If the increased 
vehicle cost is spread out over 5 years at 6.54 percent, the analysis 
would look like that shown in Table III.H.5-4. As can be seen in this 
table, the fuel savings immediately outweigh the

[[Page 25520]]

increased payments on the car loan, amounting to $177 in discounted net 
savings (3% discount rate) in the first year and similar savings for 
the next two years before reduced VMT starts to cause the fuel savings 
to fall. Results are similar using a 7% discount rate. This means that 
for every month that the average owner is making a payment for the 
financing of the average new vehicle their monthly fuel savings would 
be greater than the increase in the loan payments. This amounts to a 
savings on the order of $9 to $15 per month throughout the duration of 
the 5 year loan. Note that in year six when the car loan is paid off, 
the net savings equal the fuel savings (as would be the case for the 
remaining years of ownership).

                  Table III.H.5-4--Payback Period on a 2016 MY New Vehicle Purchase via Credit
                                                 [2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                     Increased                        Annual          Annual
                Year of ownership                  vehicle cost     Annual fuel   discounted net  discounted net
                                                        \a\         savings \b\    savings at 3%   savings at 7%
----------------------------------------------------------------------------------------------------------------
1...............................................            $245            $424            $177            $173
2...............................................            $245            $420            $167            $158
3...............................................            $245            $414            $157            $142
4...............................................            $245            $402            $142            $124
5...............................................            $245            $391            $127            $107
6...............................................              $0            $374            $318            $258
----------------------------------------------------------------------------------------------------------------
\a\ This uses the same increased cost as Table III.H.4-3 but spreads it out over 5 years assuming a 5 year car
  loan at 6.54 percent.
\b\ Calculated using AEO 2010 Early Release reference case fuel price including taxes.

    The lifetime fuel savings and net savings can also be calculated 
for those who purchase the vehicle using cash and for those who 
purchase the vehicle with credit. This calculation applies to the 
vehicle owner who retains the vehicle for its entire life and drives 
the vehicle each year at the rate equal to the national projected 
average. The results are shown in Table III.H.5-5. In either case, the 
present value of the lifetime net savings is greater than $3,100 at a 
3% discount rate, or $2,300 at a 7% discount rate.

               Table III.H.5-5--Lifetime Discounted Net Savings on a 2016 MY New Vehicle Purchase
                                                 [2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                     Lifetime
                                                                     Increased      discounted       Lifetime
                         Purchase option                            discounted     fuel savings   discounted net
                                                                   vehicle cost         \b\           savings
----------------------------------------------------------------------------------------------------------------
                                                3% discount rate
----------------------------------------------------------------------------------------------------------------
Cash............................................................          $1,018          $4,306          $3,303
Credit \a\......................................................           1,140           4,306           3,166
----------------------------------------------------------------------------------------------------------------
                                                7% discount rate
----------------------------------------------------------------------------------------------------------------
Cash............................................................           1,018           3,381           2,396
Credit \a\......................................................           1,040           3,381           2,340
----------------------------------------------------------------------------------------------------------------
\a\ Assumes a 5 year loan at 6.54 percent.
\b\ Fuel savings here were calculated using AEO 2010 Early Release reference case fuel price including taxes.

    Note that throughout this consumer payback discussion, the average 
number of vehicle miles traveled per year has been used. Drivers who 
drive more miles than the average would incur fuel related savings more 
quickly and, therefore, the payback would come sooner. Drivers who 
drive fewer miles than the average would incur fuel related savings 
more slowly and, therefore, the payback would come later.
6. Benefits of Reducing GHG Emissions
a. Social Cost of Carbon
    In today's final rule, EPA and NHTSA assigned a dollar value to 
reductions in CO2 emissions using the marginal dollar value 
of climate-related damages resulting from carbon emissions, also 
referred to as ``social cost of carbon'' (SCC). The SCC estimates used 
in today's rule were recently developed by an interagency process, in 
which EPA and NHTSA participated. As part of the interagency group, EPA 
and NHTSA have critically evaluated the new SCC estimates and endorse 
them for use in these regulatory analyses, for the reasons presented 
below. The SCC TSD, Social Cost of Carbon for Regulatory Impact 
Analysis Under Executive Order 12866, presents a more detailed 
description of the methodology used to generate the new estimates, the 
underlying assumptions, and the limitations of the new SCC estimates.
    Under Executive Order 12866, agencies are required, to the extent 
permitted by law, ``to assess both the costs and the benefits of the 
intended regulation and, recognizing that some costs and benefits are 
difficult to quantify, propose or adopt a regulation only upon a 
reasoned determination that the benefits of the intended regulation 
justify its costs.'' The purpose of the SCC estimates presented here is 
to incorporate the social benefits of reducing carbon dioxide 
(CO2) emissions from light-duty vehicles into a cost-benefit 
analysis of this final rule, which has a small, or ``marginal,'' impact 
on cumulative global emissions. The estimates are presented with an 
acknowledgement of the many

[[Page 25521]]

uncertainties involved and with a clear understanding that they should 
be updated over time to reflect increasing knowledge of the science and 
economics of climate impacts.
    The interagency process that developed these SCC estimates involved 
a group of technical experts from numerous agencies, which met on a 
regular basis to consider public comments, explore the technical 
literature in relevant fields, and discuss key model inputs and 
assumptions. The main objective of this process was to develop a range 
of SCC values using a defensible set of input assumptions grounded in 
the existing scientific and economic literatures. In this way, key 
uncertainties and model differences transparently and consistently 
inform the range of SCC estimates used in this rulemaking process.
    The interagency group selected four SCC values for use in 
regulatory analyses, which EPA and NHTSA have applied to this final 
rule. Three values are based on the average SCC from three integrated 
assessment models, at discount rates of 2.5, 3, and 5 percent. The 
fourth value, which represents the 95th percentile SCC estimate across 
all three models at a 3 percent discount rate, is included to represent 
higher-than-expected impacts from temperature change further out in the 
tails of the SCC distribution.

            Table III.H.6-1--Social Cost of CO2, 2010--2050a
                            [in 2007 dollars]
------------------------------------------------------------------------
                                             Discount Rate
            Year             -------------------------------------------
                                5% Avg     3% Avg    2.5% Avg   3% 95th
------------------------------------------------------------------------
2010........................          5         21         35         65
2015........................          6         24         38         73
2020........................          7         26         42         81
2025........................          8         30         46         90
2030........................         10         33         50        100
2035........................         11         36         54        110
2040........................         13         39         58        119
2045........................         14         42         62        128
2050........................         16         45         65        136
------------------------------------------------------------------------
\a\ The SCC estimates presented above have been rounded to nearest
  dollar for consistency with the benefits analysis. The SCC TSD
  presents estimates rounded to the nearest tenth of a cent.

i. Monetizing Carbon Dioxide Emissions
    The ``social cost of carbon'' (SCC) is an estimate of the monetized 
damages associated with an incremental increase in carbon emissions in 
a given year. It is intended to include (but is not limited to) changes 
in net agricultural productivity, human health, property damages from 
increased flood risk, and the value of ecosystem services. We report 
estimates of the social cost of carbon in dollars per metric ton of 
carbon dioxide throughout this document.
    When attempting to assess the incremental economic impacts of 
carbon dioxide emissions, the analyst faces a number of serious 
challenges. A 2009 report from the National Academies of Science points 
out that any assessment will suffer from uncertainty, speculation, and 
lack of information about (1) future emissions of greenhouse gases, (2) 
the effects of past and future emissions on the climate system, (3) the 
impact of changes in climate on the physical and biological 
environment, and (4) the translation of these environmental impacts 
into economic damages.\465\ As a result, any effort to quantify and 
monetize the harms associated with climate change will raise serious 
questions of science, economics, and ethics and should be viewed as 
provisional.
---------------------------------------------------------------------------

    \465\ National Research Council (2009). Hidden Costs of Energy: 
Unpriced Consequences of Energy Production and Use. National 
Academies Press.
---------------------------------------------------------------------------

    Despite the serious limits of both quantification and monetization, 
SCC estimates can be useful in estimating the social benefits of 
reducing carbon dioxide emissions. Under Executive Order 12866, 
agencies are required, to the extent permitted by law, ``to assess both 
the costs and the benefits of the intended regulation and, recognizing 
that some costs and benefits are difficult to quantify, propose or 
adopt a regulation only upon a reasoned determination that the benefits 
of the intended regulation justify its costs.'' EPA and NHTSA have used 
the SCC estimates to incorporate social benefits from reducing carbon 
dioxide emissions from light-duty vehicles into a cost-benefit analysis 
of this final rule, which has a small, or ``marginal,'' impact on 
cumulative global emissions. Most Federal regulatory actions can be 
expected to have marginal impacts on global emissions.
    For policies that have marginal impacts on global emissions, the 
benefits from reduced (or costs from increased) emissions in any future 
year can be estimated by multiplying the change in emissions in that 
year by the SCC value appropriate for that year. The net present value 
of the benefits can then be calculated by multiplying each of these 
future benefits by an appropriate discount factor and summing across 
all affected years. This approach assumes that the marginal damages 
from increased emissions are constant for small departures from the 
baseline emissions path, an approximation that is reasonable for 
policies that have effects on emissions that are small relative to 
cumulative global carbon dioxide emissions. For policies that have a 
large (non-marginal) impact on global cumulative emissions, there is a 
separate question of whether the SCC is an appropriate tool for 
calculating the benefits of reduced emissions; we do not attempt to 
answer that question here.
    As noted above, the interagency group convened on a regular basis 
to consider public comments, explore the technical literature in 
relevant fields, and discuss key inputs and assumptions in order to 
generate SCC estimates. In addition to EPA and NHTSA, agencies that 
actively participated in the interagency process included the 
Departments of Agriculture, Commerce, Energy, and Treasury. This 
process was convened by the Council of Economic Advisers and the Office 
of Management and Budget, with active participation and regular input 
from the Council on Environmental Quality, National Economic Council, 
Office of Energy and Climate Change, and Office of Science and 
Technology Policy. The main objective of this process was to develop a 
range of SCC values using a defensible

[[Page 25522]]

set of input assumptions that are grounded in the existing literature. 
In this way, key uncertainties and model differences can more 
transparently and consistently inform the range of SCC estimates used 
in the rulemaking process.
    The interagency group selected four global SCC estimates for use in 
regulatory analyses. For 2010, these estimates are $5, $21, $35, and 
$65 (in 2007 dollars). The first three estimates are based on the 
average SCC across models and socio-economic and emissions scenarios at 
the 5, 3, and 2.5 percent discount rates, respectively. The fourth 
value is included to represent the higher-than-expected impacts from 
temperature change further out in the tails of the SCC distribution. 
For this purpose, we use the SCC value for the 95th percentile at a 3 
percent discount rate. The central value is the average SCC across 
models at the 3 percent discount rate. For purposes of capturing the 
uncertainties involved in regulatory impact analysis, we emphasize the 
importance and value of considering the full range. These SCC estimates 
also grow over time. For instance, the central value increases to $24 
per ton of CO2 in 2015 and $26 per ton of CO2 in 
2020. See the SCC TSD for the full range of annual SCC estimates from 
2010 to 2050.
    These new SCC estimates represent global measures and the center of 
our current attention because of the distinctive nature of the climate 
change problem. The climate change problem is highly unusual in at 
least two respects. First, it involves a global externality: Emissions 
of most greenhouse gases contribute to damages around the world even 
when they are emitted in the United States. Consequently, to address 
the global nature of the problem, the SCC must incorporate the full 
(global) damages caused by GHG emissions. Second, climate change 
presents a problem that the United States alone cannot solve. Even if 
the United States were to reduce its greenhouse gas emissions to zero, 
that step would be far from enough to avoid substantial climate change. 
Other countries would also need to take action to reduce emissions if 
significant changes in the global climate are to be avoided.
    It is important to emphasize that the interagency process is 
committed to updating these estimates as the science and economic 
understanding of climate change and its impacts on society improves 
over time. Specifically, the interagency group has set a preliminary 
goal of revisiting the SCC values within two years or at such time as 
substantially updated models become available, and to continue to 
support research in this area. In the meantime, the interagency group 
will continue to explore the issues raised in the SCC TSD and consider 
public comments as part of the ongoing interagency process.
ii. Social Cost of Carbon Values Used in Past Regulatory Analyses
    To date, economic analyses for Federal regulations have used a wide 
range of values to estimate the benefits associated with reducing 
carbon dioxide emissions. In the final model year 2011 CAFE rule, the 
Department of Transportation (DOT) used both a ``domestic'' SCC value 
of $2 per ton of CO2 and a ``global'' SCC value of $33 per 
ton of CO2 for 2007 emission reductions (in 2007 dollars), 
increasing both values at 2.4 percent per year. It also included a 
sensitivity analysis at $80 per ton of CO2. A domestic SCC 
value is meant to reflect the value of damages in the United States 
resulting from a unit change in carbon dioxide emissions, while a 
global SCC value is meant to reflect the value of damages worldwide.
    A 2008 regulation proposed by DOT assumed a domestic SCC value of 
$7 per ton CO2 (in 2006 dollars) for 2011 emission 
reductions (with a range of $0-$14 for sensitivity analysis), also 
increasing at 2.4 percent per year. A regulation finalized by DOE in 
October of 2008 used a domestic SCC range of $0 to $20 per ton 
CO2 for 2007 emission reductions (in 2007 dollars). In 
addition, EPA's 2008 Advance Notice of Proposed Rulemaking for 
Greenhouse Gases identified what it described as ``very preliminary'' 
SCC estimates subject to revision. EPA's global mean values were $68 
and $40 per ton CO2 for discount rates of approximately 2 
percent and 3 percent, respectively (in 2006 dollars for 2007 
emissions).
    In 2009, an interagency process was initiated to offer a 
preliminary assessment of how best to quantify the benefits from 
reducing carbon dioxide emissions. To ensure consistency in how 
benefits are evaluated across agencies, the Administration sought to 
develop a transparent and defensible method, specifically designed for 
the rulemaking process, to quantify avoided climate change damages from 
reduced CO2 emissions. The interagency group did not 
undertake any original analysis. Instead, it combined SCC estimates 
from the existing literature to use as interim values until a more 
comprehensive analysis could be conducted.
    The outcome of the preliminary assessment by the interagency group 
was a set of five interim values: Global SCC estimates for 2007 (in 
2006 dollars) of $55, $33, $19, $10, and $5 per ton of CO2. 
The $33 and $5 values represented model-weighted means of the published 
estimates produced from the most recently available versions of three 
integrated assessment models (DICE, PAGE, and FUND) at approximately 3 
and 5 percent discount rates.\466\ The $55 and $10 values were derived 
by adjusting the published estimates for uncertainty in the discount 
rate (using factors developed by Newell and Pizer (2003)) at 3 and 5 
percent discount rates, respectively.\467\ The $19 value was chosen as 
a central value between the $5 and $33 per ton estimates. All of these 
values were assumed to increase at 3 percent annually to represent 
growth in incremental damages over time as the magnitude of climate 
change increases.
---------------------------------------------------------------------------

    \466\ The DICE (Dynamic Integrated Climate and Economy) model by 
William Nordhaus evolved from a series of energy models and was 
first presented in 1990 (Nordhaus and Boyer 2000, Nordhaus 2008). 
The PAGE (Policy Analysis of the Greenhouse Effect) model was 
developed by Chris Hope in 1991 for use by European decision-makers 
in assessing the marginal impact of carbon emissions (Hope 2006, 
Hope 2008). The FUND (Climate Framework for Uncertainty, 
Negotiation, and Distribution) model, developed by Richard Tol in 
the early 1990s, originally to study international capital transfers 
in climate policy, is now widely used to study climate impacts 
(e.g., Tol 2002a, Tol 2002b, Anthoff et al. 2009, Tol 2009).
    \467\ Newell, R., and W. Pizer. 2003. Discounting the distant 
future: How much do uncertain rates increase valuations? Journal of 
Environmental Economics and Management 46: 52-71.
---------------------------------------------------------------------------

    These interim values represent the first sustained interagency 
effort within the U.S. Government to develop an SCC for use in 
regulatory analysis. The results of this preliminary effort were 
presented in several proposed and final rules and were offered for 
public comment in connection with proposed rules. In particular, EPA 
and NHTSA used the interim SCC estimates in the joint proposal leading 
to this final rule.
iii. Approach and Key Assumptions
    Since the release of the interim values, interagency group has 
reconvened on a regular basis to generate improved SCC estimates, which 
EPA and NHTSA used in this final rule. Specifically, the group has 
considered public comments and further explored the technical 
literature in relevant fields. The general approach to estimating SCC 
values was to run the three integrated assessment models (FUND, DICE, 
and PAGE) using the following inputs agreed upon by the interagency 
group:
     A Roe and Baker distribution for the climate sensitivity 
parameter bounded between 0 and 10 with a median of 3 [deg]C and a 
cumulative probability between 2 and 4.5 [deg]C of two-thirds.\468\
---------------------------------------------------------------------------

    \468\ Roe, G., and M. Baker. 2007. ``Why is climate sensitivity 
so unpredictable?'' Science 318:629-632.

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

[[Page 25523]]

     Five sets of GDP, population and carbon emissions 
trajectories based on the recent Stanford Energy Modeling Forum, EMF-
22.
     Constant annual discount rates of 2.5, 3, and 5 percent.

The SCC TSD presents a summary of the results and details, the modeling 
exercise and the choices and assumptions that underlie the resulting 
estimates of the SCC. The complete model results are available in the 
docket for this final rule [EPA-HQ-OAR-2009-0472].
    It is important to recognize that a number of key uncertainties 
remain, and that current SCC estimates should be treated as provisional 
and revisable since they will evolve with improved scientific and 
economic understanding. The interagency group also recognizes that the 
existing models are imperfect and incomplete. The National Academy of 
Science (2009) points out that there is tension between the goal of 
producing quantified estimates of the economic damages from an 
incremental ton of carbon and the limits of existing efforts to model 
these effects. The SCC TSD highlights a number of concerns and problems 
that should be addressed by the research community, including research 
programs housed in many of the agencies participating in the 
interagency process to estimate the SCC.
    The U.S. Government will periodically review and reconsider 
estimates of the SCC used for cost-benefit analyses to reflect 
increasing knowledge of the science and economics of climate impacts, 
as well as improvements in modeling. In this context, statements 
recognizing the limitations of the analysis and calling for further 
research take on exceptional significance. The interagency group offers 
the new SCC values with all due humility about the uncertainties 
embedded in them and with a sincere promise to continue work to improve 
them.
iv. Use of New SCC Estimates To Calculate GHG Benefits for This Final 
Rule
    The table below summarizes the total GHG benefits for the lifetime 
of the rule, which are calculated by using the four new SCC values. 
Specifically, EPA calculated the total monetized benefits in each year 
by multiplying the marginal benefits estimates per metric ton of 
CO2 (the SCC) by the reductions in CO2 for that 
year.

                  Table III.H.6-2--Monetized CO2 Benefits of Vehicle Program, CO2 Emissions a b
                                                 [Million 2007$]
----------------------------------------------------------------------------------------------------------------
                                                                             Benefits
                                   CO2 emissions ---------------------------------------------------------------
                                     reduction                                                         95th
              Year                   (Million      Avg SCC at 5%   Avg SCC at 3%    Avg SCC at    percentile SCC
                                   metric tons)     ($5-$16) c      ($21-$45) c   2.5% ($35-$65)    at 3% ($65-
                                                                                         c            $136) c
----------------------------------------------------------------------------------------------------------------
2020............................             139            $900          $3,700          $5,800         $11,000
2030............................             273           2,700           8,900          14,000          27,000
2040............................             360           4,600          14,000          21,000          43,000
2050............................             459           7,200          21,000          30,000          62,000
----------------------------------------------------------------------------------------------------------------
\a\ Monetized GHG benefits exclude the value of reductions in non-CO2 GHG emissions (HFC, CH4 and N2O) expected
  under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO2 emissions,
  the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO2 GHGs will
  contribute to this rule's climate benefits, as explained in Section III.F.2. The SCC TSD notes the difference
  between the social cost of non-CO2 emissions and CO2 emissions, and specifies a goal to develop methods to
  value non-CO2 emissions in future analyses.
\b\ Numbers may not compute exactly from Tables III.H.6-1 and III.H.6-2 due to rounding.
\c\ As noted above, SCC increases over time; tables lists ranges for years 2010 through 2050. See Table III.H.6-
  1 for the SCC estimates corresponding to the years in this table.

b. Summary of the Response to Comments
    EPA and NHTSA received extensive public comments about the 
scientific, economic, and ethical issues involved in estimating the 
SCC, including the proposed rule's estimates of the value of emissions 
reductions from new cars and trucks.\469\ In particular, the comments 
addressed the methodology used to derive the interim SCC estimates, 
limitations of integrated assessment models, discount rate selection, 
treatment of uncertainty and catastrophic impacts, use of global and 
domestic SCC, and the presentation and use of SCC estimates. The rest 
of this preamble section briefly summarizes EPA's response to the 
comments; the Response to Comments document provides the complete 
responses to all comments received.
---------------------------------------------------------------------------

    \469\ EPA estimated GHG benefits in the proposed rule using a 
set of interim SCC values developed by an interagency group, in 
which EPA and NHTSA participated. As discussed in the SCC TSD, the 
interagency group selected the interim estimates from the existing 
literature and agreed to use those interim estimates in regulatory 
analyses until it could develop a more comprehensive 
characterization of the SCC.
---------------------------------------------------------------------------

    EPA received extensive comments about the methodology and discount 
rates used to derive the interim SCC estimates. While one commenter 
from the auto industry noted that the interim methodology was 
acceptable given available data, many commenters (representing academic 
and environmental organizations) expressed concerns that the filters 
were too narrow, stated that model-weighting averaging was 
inappropriate, and recommended that EPA use lower discount rates. These 
commenters also discussed alternative approaches to select discount 
rates and generally recommended that EPA use lower rates to give more 
weight to climate damages experienced by future generations.
    For the final rule, EPA conducted new analyses of SCC. EPA did not 
continue with its interim approach to derive estimates from the 
existing literature and instead conducted new model runs that produced 
a vast amount of SCC data at three separate certainty-equivalent 
discount rates (2.5, 3, and 5 percent). As discussed further in the SCC 
TSD, this modeling exercise resulted in a fuller distribution of SCC 
estimates and better accounted for uncertainty through a Monte Carlo 
analysis. Comments on specific issues are addressed in the Response to 
Comments document.
    EPA received comments on the limitations of the integrated 
assessment models concluding that the selection of models and reliance 
on the model authors' datasets contributed to the downward bias of the 
interim SCC estimates. In this final rule, EPA relied on the default 
values in each model for the remaining parameter; research gaps

[[Page 25524]]

and practical constraints required EPA to limit its modification of the 
models to socioeconomic and emissions scenarios, climate sensitivity, 
and discount rate. While EPA recognizes that the models' translations 
of physical impacts to economic values are incomplete, approximate, and 
highly uncertain, it regards them as the best currently available 
representations. EPA also considered, for each model, the treatment of 
uncertainty, catastrophic impacts, and omitted impacts, and as 
discussed in the SCC TSD and the Response to Comments document, used 
best available information and techniques to quantify such impacts as 
feasible and supplemented the SCC with qualitative assessments. 
Comments on specific issues are addressed in the Response to Comments 
document.
    Six commenters, representing academia and environmental 
organizations, supported the proposed rule's preference for global SCC 
estimates while several industry groups stated that under the Clean Air 
Act, EPA is prohibited from using global estimates. EPA agrees that a 
global measure of GHG mitigation benefits is both appropriate and 
lawful for EPA to consider in evaluating the benefits of GHG emissions 
standards adopted under section 202(a). Global climate change 
represents a problem that the United States cannot solve alone without 
global action, and for a variety of reasons there is a value to the 
U.S. from domestic emissions reductions that reduce the harm occurring 
globally. This is not exercise of regulatory authority over conduct 
occurring overseas, but instead is a reasonable exercise of discretion 
in how to place a monetary value on a reduction in domestic emissions. 
See the Response to Comments document for a complete discussion of this 
issue.
    Finally, EPA received various comments regarding the presentation 
of the SCC methodology and resulting estimates. EPA has responded to 
these concerns by presenting a detailed discussion about the 
methodology, including key model assumptions, as well as uncertainties 
and research gaps associated with the SCC estimates and the 
implications for the SCC estimates. Among these key assumptions and 
uncertainties are issues involving discount rates, climate sensitivity 
and socioeconomic scenario assumptions, incomplete treatment of 
potential catastrophic impacts, incomplete treatment of non-
catastrophic impacts, uncertainty in extrapolation of damages to high 
temperatures, incomplete treatment of adaptation and technological 
change, and assumptions about risk aversion to high-impact outcomes 
(see SCC TSD).
7. Non-Greenhouse Gas Health and Environmental Impacts
    This section presents EPA's analysis of the non-GHG health and 
environmental impacts that can be expected to occur as a result of the 
light-duty vehicle GHG rule. GHG emissions are predominantly the 
byproduct of fossil fuel combustion processes that also produce 
criteria and hazardous air pollutants. The vehicles that are subject to 
the standards are also significant sources of mobile source air 
pollution such as direct PM, NOX, VOCs and air toxics. The 
standards will affect exhaust emissions of these pollutants from 
vehicles. They will also affect emissions from upstream sources related 
to changes in fuel consumption. Changes in ambient ozone, 
PM2.5, and air toxics that will result from the standards 
are expected to affect human health in the form of premature deaths and 
other serious human health effects, as well as other important public 
health and welfare effects.
    As many commenters noted, it is important to quantify the health 
and environmental impacts associated with the final rule because a 
failure to adequately consider these ancillary co-pollutant impacts 
could lead to an incorrect assessment of their net costs and benefits. 
Moreover, co-pollutant impacts tend to accrue in the near term, while 
any effects from reduced climate change mostly accrue over a timeframe 
of several decades or longer.
    This section is split into two sub-sections: The first presents the 
PM- and ozone-related health and environmental impacts associated with 
the final rule in calendar year (CY) 2030; the second presents the PM-
related benefits-per-ton values used to monetize the PM-related co-
benefits associated with the model year (MY) analysis of the final 
rule.\470\
---------------------------------------------------------------------------

    \470\ EPA typically analyzes rule impacts (emissions, air 
quality, costs and benefits) in the year in which they occur; for 
this analysis, we selected 2030 as a representative future year. We 
refer to this analysis as the ``Calendar Year'' (CY) analysis. EPA 
also conducted a separate analysis of the impacts over the model 
year lifetimes of the 2012 through 2016 model year vehicles. We 
refer to this analysis as the ``Model Year'' (MY) analysis. In 
contrast to the CY analysis, the MY lifetime analysis shows the 
lifetime impacts of the program on each of these MY fleets over the 
course of its lifetime.
---------------------------------------------------------------------------

a. Quantified and Monetized Non-GHG Human Health Benefits of the 2030 
Calendar Year (CY) Analysis
    This analysis reflects the impact of the final light-duty GHG rule 
in 2030 compared to a future-year reference scenario without the rule 
in place. Overall, we estimate that the final rule will lead to a net 
decrease in PM2.5-related health impacts (see Section 
III.G.5 of this preamble for more information about the air quality 
modeling results). While the PM-related air quality impacts are 
relatively small, the decrease in population-weighted national average 
PM2.5 exposure results in a net decrease in adverse PM-
related human health impacts (the decrease in national population-
weighted annual average PM2.5 is 0.0036 [mu]g/
m3).
    The air quality modeling (discussed in Section III.G.5) projects 
very small increases in ozone concentrations in many areas, but these 
are driven by the ethanol production volumes mandated by the recently 
finalized RFS2 rule and are not due to the standards finalized in this 
rule. While the ozone-related impacts are very small, the increase in 
population-weighted national average ozone exposure results in a small 
increase in ozone-related health impacts (population-weighted maximum 
8-hour average ozone increases by 0.0104 ppb).
    We base our analysis of the final rule's impact on human health in 
2030 on peer-reviewed studies of air quality and human health 
effects.471 472 These methods are described in more detail 
in the RIA that accompanies this action. Our benefits methods are also 
consistent with recent rulemaking analyses such as the proposed 
Portland Cement National Emissions Standards for Hazardous Air 
Pollutants (NESHAP) RIA,\473\ the final NO2 NAAQS,\474\ and 
the final Category 3 Marine Engine rule.\475\ To model the

[[Page 25525]]

ozone and PM air quality impacts of the final rule, we used the 
Community Multiscale Air Quality (CMAQ) model (see Section III.G.5). 
The modeled ambient air quality data serves as an input to the 
Environmental Benefits Mapping and Analysis Program (BenMAP).\476\ 
BenMAP is a computer program developed by the U.S. EPA that integrates 
a number of the modeling elements used in previous analyses (e.g., 
interpolation functions, population projections, health impact 
functions, valuation functions, analysis and pooling methods) to 
translate modeled air concentration estimates into health effects 
incidence estimates and monetized benefits estimates.
---------------------------------------------------------------------------

    \471\ U.S. Environmental Protection Agency. (2006). Final 
Regulatory Impact Analysis (RIA) for the National Ambient Air 
Quality Standards for Particulate Matter. Prepared by: Office of Air 
and Radiation. Retrieved March 26, 2009 at http://www.epa.gov/ttn/
ecas/ria.html. EPA-HQ-OAR-2009-0472-0240.
    \472\ U.S. Environmental Protection Agency. (2008). Final Ozone 
NAAQS Regulatory Impact Analysis. Prepared by: Office of Air and 
Radiation, Office of Air Quality Planning and Standards. Retrieved 
March 26, 2009 at http://www.epa.gov/ttn/ecas/ria.html. EPA-HQ-OAR-
2009-0472-0238.
    \473\ U.S. Environmental Protection Agency (U.S. EPA). 2009. 
Regulatory Impact Analysis: National Emission Standards for 
Hazardous Air Pollutants from the Portland Cement Manufacturing 
Industry. Office of Air Quality Planning and Standards, Research 
Triangle Park, NC. April. Available on the Internet at http://
www.epa.gov/ttn/ecas/regdata/RIAs/portlandcementria_4-20-09.pdf. 
Accessed March 15, 2010. EPA-HQ-OAR-2009-0472-0241.
    \474\ U.S. Environmental Protection Agency (U.S. EPA). 2010. 
Final NO2 NAAQS Regulatory Impact Analysis (RIA). Office 
of Air Quality Planning and Standards, Research Triangle Park, NC. 
April. Available on the Internet at http://www.epa.gov/ttn/ecas/
regdata/RIAs/FinalNO2RIAfulldocument.pdf. Accessed March 15, 2010. 
EPA-HQ-OAR-2009-0472-0237.
    \475\ U.S. Environmental Protection Agency. 2009. Regulatory 
Impact Analysis: Control of Emissions of Air Pollution from Category 
3 Marine Diesel Engines. EPA-420-R-09-019, December 2009. Prepared 
by Office of Air and Radiation. http://www.epa.gov/otaq/regs/
nonroad/marine/ci/420r09019.pdf. Accessed February 9, 2010. EPA-HQ-
OAR-2009-0472-0283.
    \476\ Information on BenMAP, including downloads of the 
software, can be found at http://www.epa.gov/ttn/ecas/
benmodels.html.
---------------------------------------------------------------------------

    The range of total monetized ozone- and PM-related health impacts 
is presented in Table III.H.7-1. We present total benefits based on the 
PM- and ozone-related premature mortality function used. The benefits 
ranges therefore reflect the addition of each estimate of ozone-related 
premature mortality (each with its own row in Table III.H.7-1) to 
estimates of PM-related premature mortality. These estimates represent 
EPA's preferred approach to characterizing a best estimate of benefits. 
As is the nature of Regulatory Impact Analyses (RIAs), the assumptions 
and methods used to estimate air quality benefits evolve to reflect the 
Agency's most current interpretation of the scientific and economic 
literature.

                Table III.H.7-1--Estimated 2030 Monetized PM- and Ozone-Related Health Benefits a
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
   2030 Total Ozone and PM Benefits--PM Mortality Derived from American Cancer Society Analysis and Six-Cities
                                                  Analysis \a\
----------------------------------------------------------------------------------------------------------------
Premature Ozone Mortality Function     Reference                Total Benefits           Total Benefits
                                                                 (Millions, 2007$, 3%    (Millions, 2007$, 7%
                                                                 Discount Rate) b c d     Discount Rate) b c d
----------------------------------------------------------------------------------------------------------------
Multi-city analyses..................  Bell et al., 2004......  Total: $510-$1,300.....  Total: $460-$1,200
                                                                PM: $550-$1,300........  PM: $500-$1,200
                                                                Ozone: -$40............  Ozone: -$40
                                       Huang et al., 2005.....  Total: $490-$1,300.....  Total: $440-$1,200
                                                                PM: $550-$1,300........  PM: $500-$1,200
                                                                Ozone: -$64............  Ozone: -$64
                                       Schwartz, 2005.........  Total: $490-$1,300.....  Total: $440-$1,200
                                                                PM: $550-$1,300........  PM: $500-$1,200
                                                                Ozone: -$60............  Ozone: -$60
Meta-analyses........................  Bell et al., 2005......  Total: $430-$1,200.....  Total: $380-$1,100
                                                                PM: $550-$1,300........  PM: $500-$1,200
                                                                Ozone: -$120...........  Ozone: -$120
                                       Ito et al., 2005.......  Total: $380-$1,200.....  Total: $330-$1,000
                                                                PM: $550-$1,300........  PM: $500-$1,200
                                                                Ozone: -$170...........  Ozone: -$170
                                       Levy et al., 2005......  Total: $380-$1,200.....  Total: $330-$1,000
                                                                PM: $550-$1,300........  PM: $500-$1,200
                                                                Ozone: -$170...........  Ozone: -$170
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Total includes premature mortality-related and morbidity-related ozone and PM2.5 benefits. Range was
  developed by adding the estimate from the ozone premature mortality function to the estimate of PM2.5-related
  premature mortality derived from either the ACS study (Pope et al., 2002) \477\ or the Six-Cities study (Laden
  et al., 2006).\478\
\b\ Note that total benefits presented here do not include a number of unquantified benefits categories. A
  detailed listing of unquantified health and welfare effects is provided in Table III.H.7-2.
\c\ Results reflect the use of both a 3 and 7 percent discount rate, as recommended by EPA's Guidelines for
  Preparing Economic Analyses and OMB Circular A-4. Results are rounded to two significant digits for ease of
  presentation and computation.
\d\ Negatives indicate a disbenefit, or an increase in health effect incidence.

    The benefits in Table III.H.7-1 include all of the human health 
impacts we are able to quantify and monetize at this time. However, the 
full complement of human health and welfare effects associated with PM 
and ozone remain unquantified because of current limitations in methods 
or available data. We have not quantified a number of known or 
suspected health effects linked with ozone and PM for which appropriate 
health impact functions are not available or which do not provide 
easily interpretable outcomes (e.g., changes in heart rate 
variability). Additionally, we are unable to quantify a number of known 
welfare effects, including reduced acid and particulate deposition 
damage to cultural monuments and other materials, and environmental 
benefits due to reductions of impacts of eutrophication in coastal 
areas. These are listed in Table III.H.7-2. As a result, the health 
benefits quantified in this section are likely underestimates of the 
total benefits attributable to the final rule.
---------------------------------------------------------------------------

    \477\ Pope, C.A., III, R.T. Burnett, M.J. Thun, E.E. Calle, D. 
Krewski, K. Ito, and G.D. Thurston (2002). ``Lung Cancer, 
Cardiopulmonary Mortality, and Long-term Exposure to Fine 
Particulate Air Pollution.'' Journal of the American Medical 
Association 287:1132-1141. EPA-HQ-OAR-2009-0472-0263.
    \478\ Laden, F., J. Schwartz, F.E. Speizer, and D.W. Dockery 
(2006). Reduction in Fine Particulate Air Pollution and Mortality. 
American Journal of Respiratory and Critical Care Medicine. 173:667-
672. EPA-HQ-OAR-2009-0472-1661.

[[Page 25526]]

    Table III.H.7-2--Unquantified and Non-Monetized Potential Effects
------------------------------------------------------------------------
                               Effects not included in analysis--changes
      Pollutant/effects                           in:
------------------------------------------------------------------------
Ozone Health \a\.............  Chronic respiratory damage \b\.
                               Premature aging of the lungs \b\.
                               Non-asthma respiratory emergency room
                                visits.
                               Exposure to UVb (+/-) \e\.
Ozone Welfare................  Yields for
                               --commercial forests.
                               --some fruits and vegetables.
                               --non-commercial crops.
                               Damage to urban ornamental plants.
                               Impacts on recreational demand from
                                damaged forest aesthetics.
                               Ecosystem functions.
                               Exposure to UVb (+/-) \e\.
PM Health \c\................  Premature mortality--short term exposures
                                \d\.
                               Low birth weight.
                               Pulmonary function.
                               Chronic respiratory diseases other than
                                chronic bronchitis.
                               Non-asthma respiratory emergency room
                                visits.
                               Exposure to UVb (+/-) \e\.
PM Welfare...................  Residential and recreational visibility
                                in non-Class I areas.
                               Soiling and materials damage.
                               Damage to ecosystem functions.
                               Exposure to UVb (+/-) \e\.
Nitrogen and Sulfate           Commercial forests due to acidic sulfate
 Deposition Welfare.            and nitrate deposition.
                               Commercial freshwater fishing due to
                                acidic deposition.
                               Recreation in terrestrial ecosystems due
                                to acidic deposition.
                               Existence values for currently healthy
                                ecosystems.
                               Commercial fishing, agriculture, and
                                forests due to nitrogen deposition.
                               Recreation in estuarine ecosystems due to
                                nitrogen deposition.
                               Ecosystem functions.
                               Passive fertilization.
CO Health....................  Behavioral effects.
HC/Toxics Health \f\.........  Cancer (benzene, 1,3-butadiene,
                                formaldehyde, acetaldehyde).
                               Anemia (benzene).
                               Disruption of production of blood
                                components (benzene).
                               Reduction in the number of blood
                                platelets (benzene).
                               Excessive bone marrow formation
                                (benzene).
                               Depression of lymphocyte counts
                                (benzene).
                               Reproductive and developmental effects
                                (1,3-butadiene).
                               Irritation of eyes and mucus membranes
                                (formaldehyde).
                               Respiratory irritation (formaldehyde).
                               Asthma attacks in asthmatics
                                (formaldehyde).
                               Asthma-like symptoms in non-asthmatics
                                (formaldehyde).
                               Irritation of the eyes, skin, and
                                respiratory tract (acetaldehyde).
                               Upper respiratory tract irritation and
                                congestion (acrolein).
HC/Toxics Welfare............  Direct toxic effects to animals.
                               Bioaccumulation in the food chain.
                               Damage to ecosystem function.
                               Odor.
------------------------------------------------------------------------
Notes:
\a\ The public health impact of biological responses such as increased
  airway responsiveness to stimuli, inflammation in the lung, acute
  inflammation and respiratory cell damage, and increased susceptibility
  to respiratory infection are likely partially represented by our
  quantified endpoints.
\b\ The public health impact of effects such as chronic respiratory
  damage and premature aging of the lungs may be partially represented
  by quantified endpoints such as hospital admissions or premature
  mortality, but a number of other related health impacts, such as
  doctor visits and decreased athletic performance, remain unquantified.
\c\ In addition to primary economic endpoints, there are a number of
  biological responses that have been associated with PM health effects
  including morphological changes and altered host defense mechanisms.
  The public health impact of these biological responses may be partly
  represented by our quantified endpoints.
\d\ While some of the effects of short-term exposures are likely to be
  captured in the estimates, there may be premature mortality due to
  short-term exposure to PM not captured in the cohort studies used in
  this analysis. However, the PM mortality results derived from the
  expert elicitation do take into account premature mortality effects of
  short term exposures.
\e\ May result in benefits or disbenefits.
\f\ Many of the key hydrocarbons related to this rule are also hazardous
  air pollutants listed in the CAA.

    While there will be impacts associated with air toxic pollutant 
emission changes that result from the final rule, we do not attempt to 
monetize those impacts. This is primarily because currently available 
tools and methods to assess air toxics risk from mobile sources at the 
national scale are not adequate for extrapolation to incidence 
estimations or benefits assessment. The best suite of tools and methods 
currently available for assessment at the national scale are those used 
in the National-Scale Air Toxics Assessment (NATA). The EPA Science 
Advisory Board specifically commented in their review of the 1996 NATA 
that these tools were not yet

[[Page 25527]]

ready for use in a national-scale benefits analysis, because they did 
not consider the full distribution of exposure and risk, or address 
sub-chronic health effects.\479\ While EPA has since improved the 
tools, there remain critical limitations for estimating incidence and 
assessing benefits of reducing mobile source air toxics. EPA continues 
to work to address these limitations; however, we did not have the 
methods and tools available for national-scale application in time for 
the analysis of the final rule.\480\
---------------------------------------------------------------------------

    \479\ Science Advisory Board. 2001. NATA--Evaluating the 
National-Scale Air Toxics Assessment for 1996--an SAB Advisory. 
http://www.epa.gov/ttn/atw/sab/sabrev.html. EPA-HQ-OAR-2009-0472-
0244.
    \480\ In April 2009, EPA hosted a workshop on estimating the 
benefits or reducing hazardous air pollutants. This workshop built 
upon the work accomplished in the June 2000 Science Advisory Board/
EPA Workshop on the Benefits of Reductions in Exposure to Hazardous 
Air Pollutants, which generated thoughtful discussion on approaches 
to estimating human health benefits from reductions in air toxics 
exposure, but no consensus was reached on methods that could be 
implemented in the near term for a broad selection of air toxics. 
Please visit http://epa.gov/air/toxicair/2009workshop.html. for more 
information about the workshop and its associated materials.
---------------------------------------------------------------------------

    EPA is also unaware of specific information identifying any effects 
on listed endangered species from the small fluctuations in pollutant 
concentrations associated with this rule (see Section III.G.5). 
Furthermore, our current modeling tools are not designed to trace 
fluctuations in ambient concentration levels to potential impacts on 
particular endangered species.
i. Quantified Human Health Impacts
    Tables III.H.7-3 and III.H.7-4 present the annual PM2.5 
and ozone health impacts in the 48 contiguous U.S. states associated 
with the final rule for 2030. For each endpoint presented in Tables 
III.H.7-3 and III.H.7-4, we provide both the mean estimate and the 90% 
confidence interval.
    Using EPA's preferred estimates, based on the American Cancer 
Society (ACS) and Six-Cities studies and no threshold assumption in the 
model of mortality, we estimate that the final rule will result in 
between 60 and 150 cases of avoided PM2.5-related premature 
deaths annually in 2030. As a sensitivity analysis, when the range of 
expert opinion is used, we estimate between 22 and 200 fewer premature 
mortalities in 2030 (see Table 7.7 in the RIA that accompanies this 
rule). For ozone-related premature mortality in 2030, we estimate a 
range of between 4 to 18 additional premature mortalities related to 
the ethanol production volumes mandated by the recently finalized RFS2 
rule \481\ (and reflected in the air quality modeling for this rule), 
but are not due to the final standards themselves.
---------------------------------------------------------------------------

    \481\ EPA 2010, Renewable Fuel Standard Program (RFS2) 
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket 
EPA-HQ-OAR-2009-0472-11332. EPA-HQ-OAR-2009-0472-11332. See also 75 
FR 14670, March 26, 2010.

        Table III.H.7-3--Estimated PM2.5-Related Health Impacts a
------------------------------------------------------------------------
                                                2030 Annual reduction in
                Health effect                      incidence  (5th%-
                                                       95th%ile)
------------------------------------------------------------------------
Premature Mortality--Derived from
 epidemiology literature: \b\
    Adult, age 30+, ACS Cohort Study (Pope et  60 (23-96)
     al., 2002).
    Adult, age 25+, Six-Cities Study (Laden    150 (83-220)
     et al., 2006).
    Infant, age <1 year (Woodruff et al.,      0 (0-1)
     1997).
Chronic bronchitis (adult, age 26 and over)..  42 (8-77)
Non-fatal myocardial infarction (adult, age    100 (38-170)
 18 and over).
Hospital admissions--respiratory (all ages)    13 (7-20)
 \c\.
Hospital admissions--cardiovascular (adults,   32 (23-38)
 age >18) \d\.
Emergency room visits for asthma (age 18       42 (25-59)
 years and younger).
Acute bronchitis (children, age 8-12)........  95 (0-190)
Lower respiratory symptoms (children, age 7-   1,100 (540-1,700)
 14).
Upper respiratory symptoms (asthmatic          850 (270-1,400)
 children, age 9-18).
Asthma exacerbation (asthmatic children, age   1,000 (120-2,900)
 6-18).
Work loss days...............................  7,600 (6,600-8,500)
Minor restricted activity days (adults age 18- 45,000 (38,000-52,000)
 65).
------------------------------------------------------------------------
Notes:

\a\ Incidence is rounded to two significant digits. Estimates represent
  incidence within the 48 contiguous United States.
\b\ PM-related adult mortality based upon the American Cancer Society
  (ACS) Cohort Study (Pope et al., 2002) and the Six-Cities Study (Laden
  et al., 2006). Note that these are two alternative estimates of adult
  mortality and should not be summed. PM-related infant mortality based
  upon a study by Woodruff, Grillo, and Schoendorf (1997).\482\
\c\ Respiratory hospital admissions for PM include admissions for
  chronic obstructive pulmonary disease (COPD), pneumonia and asthma.
\d\ Cardiovascular hospital admissions for PM include total
  cardiovascular and subcategories for ischemic heart disease,
  dysrhythmias, and heart failure.

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

    \482\ Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997. 
``The Relationship Between Selected Causes of Postneonatal Infant 
Mortality and Particulate Air Pollution in the United States.'' 
Environmental Health Perspectives 105(6):608-612. EPA-HQ-OAR-2009-
0472-0382.

        Table III.H.7-4--Estimated Ozone-Related Health Impacts a
------------------------------------------------------------------------
                                                2030 Annual reduction in
                Health effect                      incidence  (5th%-
                                                       95th%ile)
------------------------------------------------------------------------
Premature Mortality, All ages \b\
Multi-City Analyses:
    Bell et al. (2004)--Non-accidental.......  -4 (-8-0)
    Huang et al. (2005)--Cardiopulmonary.....  -7 (-14-1)

[[Page 25528]]

    Schwartz (2005)--Non-accidental..........  -6 (-13-1)
Meta-analyses:
    Bell et al. (2005)--All cause............  -13 (-24--2)
    Ito et al. (2005)--Non-accidental........  -18 (-30--6)
    Levy et al. (2005)--All cause............  -18 (-28--9)
Hospital admissions--respiratory causes        -38 (-86--6)
 (adult, 65 and older) \c\.
Hospital admissions--respiratory causes        -6 (-13-1)
 (children, under 2).
Emergency room visit for asthma (all ages)...  -16 (-51-8)
Minor restricted activity days (adults, age    -18,000 (-40,000-3,700)
 18-65).
School absence days..........................  -7,700 (-16,000-1,200)
------------------------------------------------------------------------
Notes:

\a\ Negatives indicate a disbenefit, or an increase in health effect
  incidence. Incidence is rounded to two significant digits. Estimates
  represent incidence within the 48 contiguous U.S.
\b\ Estimates of ozone-related premature mortality are based upon
  incidence estimates derived from several alternative studies: Bell et
  al. (2004); Huang et al. (2005); Schwartz (2005); Bell et al. (2005);
  Ito et al. (2005); Levy et al. (2005). The estimates of ozone-related
  premature mortality should therefore not be summed.
\c\ Respiratory hospital admissions for ozone include admissions for all
  respiratory causes and subcategories for COPD and pneumonia.

ii. Monetized Benefits
    Table III.H.7-5 presents the estimated monetary value of changes in 
the incidence of ozone and PM2.5-related health effects. All 
monetized estimates are stated in 2007$. These estimates account for 
growth in real gross domestic product (GDP) per capita between the 
present and 2030. Our estimate of total monetized benefits in 2030 for 
the final rule, using the ACS and Six-Cities PM mortality studies and 
the range of ozone mortality assumptions, is between $380 and $1,300 
million, assuming a 3 percent discount rate, or between $330 and $1,200 
million, assuming a 7 percent discount rate. As the results indicate, 
total benefits are driven primarily by the reduction in 
PM2.5-related premature fatalities each year.

         Table III.H.7-5--Estimated Monetary Value of Changes in Incidence of Health and Welfare Effects
                                           [In Millions of 2007$] a b
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
                     PM2.5-related health effect                                         2030
                                                                      (5th and 95th%ile)
----------------------------------------------------------------------------------------------------------------
Premature Mortality--Derived from      Adult, age 30+ --ACS study
 Epidemiology Studies c d.              (Pope et al., 2002)
                                       3% discount rate.............  $510 ($70-$1,300)
                                       7% discount rate.............  $460 ($63-$1,200)
                                       Adult, age 25+ --Six-Cities
                                        study (Laden et al., 2006)
                                       3% discount rate.............  $1,300 ($190-$3,300)
                                       7% discount rate.............  $1,200 ($180-$3,000)
                                       Infant Mortality, <1 year--    $1.8 ($0-$7.0)
                                        (Woodruff et al. 1997).
----------------------------------------------------------------------------------------------------------------
Chronic bronchitis (adults, 26 and over)............................  $22 ($1.9-$77)
Non-fatal acute myocardial infarctions
    3% discount rate................................................  $14 ($3.9-$35)
    7% discount rate................................................  $14 ($3.6-$35)
Hospital admissions for respiratory causes..........................  $0.20 ($0.01-$0.29)
Hospital admissions for cardiovascular causes.......................  $0.91 ($0.58-$1.3)
Emergency room visits for asthma....................................  $0.016 ($0.009-$0.024)
Acute bronchitis (children, age 8-12)...............................  $0.007 ($0-$0.018)
Lower respiratory symptoms (children, 7-14).........................  $0.022 ($0.009-$0.043)
Upper respiratory symptoms (asthma, 9-11)...........................  $0.027 ($0.008-$0.061)
Asthma exacerbations................................................  $0.058 ($0.006-$0.17)
Work loss days......................................................  $1.2 ($1.0-$1.3)
Minor restricted-activity days (MRADs)..............................  $2.9 ($1.7-$4.2)
----------------------------------------------------------------------------------------------------------------
Ozone-related Health Effect
----------------------------------------------------------------------------------------------------------------
Premature Mortality, All ages--        Bell et al., 2004............  -$38 (-$110-$4.2)
 Derived from Multi-city analyses.
                                       Huang et al., 2005...........  -$62 (-$180-$4.7)
                                       Schwartz, 2005...............  -$58 (-$170-$8.8)
Premature Mortality, All ages--        Bell et al., 2005............  -$120 (-$330--$7.9)
 Derived from Meta-analyses.
                                       Ito et al., 2005.............  -$170 (-$430--$19)
                                       Levy et al., 2005............  -$170 (-$410--$21)
----------------------------------------------------------------------------------------------------------------
Hospital admissions--respiratory causes (adult, 65 and older).......  -$0.92 (-$2.1-$0.27)

[[Page 25529]]

                     PM2.5-related health effect                                         2030
                                                                      (5th and 95th%ile)
----------------------------------------------------------------------------------------------------------------
Hospital admissions--respiratory causes (children, under 2).........  -$.21 (-$.45-$0.031)
Emergency room visit for asthma (all ages)..........................  -$0.006 (-$0.018-$0.003)
Minor restricted activity days (adults, age 18-65)..................  -$1.2 (-$2.7-$0.25)
School absence days.................................................  -$0.71 (-$1.4-$0.11)
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Negatives indicate a disbenefit, or an increase in health effect incidence. Monetary benefits are rounded to
  two significant digits for ease of presentation and computation. PM and ozone benefits are nationwide.
\b\ Monetary benefits adjusted to account for growth in real GDP per capita between 1990 and the analysis year
  (2030).
\c\ Valuation assumes discounting over the SAB recommended 20 year segmented lag structure. Results reflect the
  use of 3 percent and 7 percent discount rates consistent with EPA and OMB guidelines for preparing economic
  analyses.

iii. What are the limitations of the benefits analysis?
    Every benefit-cost analysis examining the potential effects of a 
change in environmental protection requirements is limited to some 
extent by data gaps, limitations in model capabilities (such as 
geographic coverage), and uncertainties in the underlying scientific 
and economic studies used to configure the benefit and cost models. 
Limitations of the scientific literature often result in the inability 
to estimate quantitative changes in health and environmental effects, 
such as potential increases in premature mortality associated with 
increased exposure to carbon monoxide. Deficiencies in the economics 
literature often result in the inability to assign economic values even 
to those health and environmental outcomes which can be quantified. 
These general uncertainties in the underlying scientific and economics 
literature, which can lead to valuations that are higher or lower, are 
discussed in detail in the RIA and its supporting references. Key 
uncertainties that have a bearing on the results of the benefit-cost 
analysis of the final rule include the following:
     The exclusion of potentially significant and unquantified 
benefit categories (such as health, odor, and ecological impacts of air 
toxics, ozone, and PM);
     Errors in measurement and projection for variables such as 
population growth;
     Uncertainties in the estimation of future year emissions 
inventories and air quality;
     Uncertainty in the estimated relationships of health and 
welfare effects to changes in pollutant concentrations including the 
shape of the C-R function, the size of the effect estimates, and the 
relative toxicity of the many components of the PM mixture;
     Uncertainties in exposure estimation; and
     Uncertainties associated with the effect of potential 
future actions to limit emissions.
    As Table III.H.7-5 indicates, total benefits are driven primarily 
by the reduction in PM2.5-related premature mortalities each 
year. Some key assumptions underlying the premature mortality estimates 
include the following, which may also contribute to uncertainty:
     Inhalation of fine particles is causally associated with 
premature death at concentrations near those experienced by most 
Americans on a daily basis. Although biological mechanisms for this 
effect have not yet been completely established, the weight of the 
available epidemiological, toxicological, and experimental evidence 
supports an assumption of causality. The impacts of including a 
probabilistic representation of causality were explored in the expert 
elicitation-based results of the PM NAAQS RIA.
     All fine particles, regardless of their chemical 
composition, are equally potent in causing premature mortality. This is 
an important assumption, because PM produced via transported precursors 
emitted from engines may differ significantly from PM precursors 
released from electric generating units and other industrial sources. 
However, no clear scientific grounds exist for supporting differential 
effects estimates by particle type.
     The C-R function for fine particles is approximately 
linear within the range of ambient concentrations under consideration. 
Thus, the estimates include health benefits from reducing fine 
particles in areas with varied concentrations of PM, including both 
regions that may be in attainment with PM2.5 standards and 
those that are at risk of not meeting the standards.
     There is uncertainty in the magnitude of the association 
between ozone and premature mortality. The range of ozone impacts 
associated with the final rule is estimated based on the risk of 
several sources of ozone-related mortality effect estimates. In a 
recent report on the estimation of ozone-related premature mortality 
published by the National Research Council, a panel of experts and 
reviewers concluded that short-term exposure to ambient ozone is likely 
to contribute to premature deaths and that ozone-related mortality 
should be included in estimates of the health benefits of reducing 
ozone exposure.\483\ EPA has requested advice from the National Academy 
of Sciences on how best to quantify uncertainty in the relationship 
between ozone exposure and premature mortality in the context of 
quantifying benefits.
---------------------------------------------------------------------------

    \483\ National Research Council (NRC), 2008. Estimating 
Mortality Risk Reduction and Economic Benefits from Controlling 
Ozone Air Pollution. The National Academies Press: Washington, DC. 
EPA-HQ-OAR-2009-0472-0322.
---------------------------------------------------------------------------

    Acknowledging omissions and uncertainties, we present a best 
estimate of the total benefits based on our interpretation of the best 
available scientific literature and methods supported by EPA's 
technical peer review panel, the Science Advisory Board's Health 
Effects Subcommittee (SAB-HES). The National Academies of Science (NRC, 
2002) has also reviewed EPA's methodology for analyzing the health 
benefits of measures taken to reduce air pollution. EPA addressed many 
of these comments in the analysis of the final PM 
NAAQS.484 485 This

[[Page 25530]]

analysis incorporates this most recent work to the extent possible.
---------------------------------------------------------------------------

    \484\ National Research Council (NRC). 2002. Estimating the 
Public Health Benefits of Proposed Air Pollution Regulations. The 
National Academies Press: Washington, DC.
    \485\ U.S. Environmental Protection Agency. October 2006. Final 
Regulatory Impact Analysis (RIA) for the National Ambient Air 
Quality Standards for Particulate Matter. Prepared by: Office of Air 
and Radiation. Available at http://www.epa.gov/ttn/ecas/ria.html. 
EPA-HQ-OAR-2009-0472-0240.
---------------------------------------------------------------------------

b. PM-Related Monetized Benefits of the Model Year (MY) Analysis
    As described in Section III.G, the final standards will reduce 
emissions of several criteria and toxic pollutants and precursors. In 
the MY analysis, EPA estimates the economic value of the human health 
benefits associated with reducing PM2.5 exposure. Due to 
analytical limitations, this analysis does not estimate benefits 
related to other criteria pollutants (such as ozone, NO2 or 
SO2) or toxics pollutants, nor does it monetize all of the 
potential health and welfare effects associated with PM2.5.
    The MY analysis uses a ``benefit-per-ton'' method to estimate a 
selected suite of PM2.5-related health benefits described 
below. These PM2.5 benefit-per-ton estimates provide the 
total monetized human health benefits (the sum of premature mortality 
and premature morbidity) of reducing one ton of directly emitted 
PM2.5, or its precursors (such as NOX, 
SOX, and VOCs), from a specified source. Ideally, the human 
health benefits associated with the MY analysis would be estimated 
based on changes in ambient PM2.5 as determined by full-
scale air quality modeling. However, this modeling was not possible in 
the timeframe for the final rule.
    The dollar-per-ton estimates used in this analysis are provided in 
Table III.H.7-6. In the summary of costs and benefits, Section III.H.10 
of this preamble, EPA presents the monetized value of PM-related 
improvements associated with the rule.

  Table III.H.7-6--Benefits-per-Ton Values (2007$) Derived Using the ACS Cohort Study for PM-Related Premature
                                         Mortality (Pope et al., 2002) a
----------------------------------------------------------------------------------------------------------------
                                         All sources \d\        Stationary (non-EGU)         Mobile sources
                                   --------------------------          sources         -------------------------
             Year \c\                                        --------------------------
                                        SOX          VOC                      Direct        NOX         Direct
                                                                  NOX         PM2.5                     PM2.5
----------------------------------------------------------------------------------------------------------------
                                  Estimated Using a 3 Percent Discount Rate \b\
----------------------------------------------------------------------------------------------------------------
2015..............................      $28,000       $1,200       $4,700     $220,000       $4,900     $270,000
2020..............................       31,000        1,300        5,100      240,000        5,300      290,000
2030..............................       36,000        1,500        6,100      280,000        6,400      350,000
2040..............................       43,000        1,800        7,200      330,000        7,600      420,000
----------------------------------------------------------------------------------------------------------------
                                  Estimated Using a 7 Percent Discount Rate \b\
----------------------------------------------------------------------------------------------------------------
2015..............................       26,000        1,100        4,200      200,000        4,400      240,000
2020..............................       28,000        1,200        4,600      220,000        4,800      270,000
2030..............................       33,000        1,400        5,500      250,000        5,800      320,000
2040..............................       39,000        1,600        6,600      300,000        6,900      380,000
----------------------------------------------------------------------------------------------------------------
\a\ The benefit-per-ton estimates presented in this table are based on an estimate of premature mortality
  derived from the ACS study (Pope et al., 2002). If the benefit-per-ton estimates were based on the Six-Cities
  study (Laden et al., 2006), the values would be approximately 145% (nearly two-and-a-half times) larger.
\b\ The benefit-per-ton estimates presented in this table assume either a 3 percent or 7 percent discount rate
  in the valuation of premature mortality to account for a twenty-year segmented cessation lag.
\c\ Benefit-per-ton values were estimated for the years 2015, 2020, and 2030. For 2040, EPA and NHTSA
  extrapolated exponentially based on the growth between 2020 and 2030.
\d\ Note that the benefit-per-ton value for SOX is based on the value for Stationary (Non-EGU) sources; no SOX
  value was estimated for mobile sources. The benefit-per-ton value for VOCs was estimated across all sources.

    The benefit per-ton technique has been used in previous analyses, 
including EPA's recent Ozone National Ambient Air Quality Standards 
(NAAQS) RIA,\486\ the proposed Portland Cement National Emissions 
Standards for Hazardous Air Pollutants (NESHAP) RIA,\487\ and the final 
NO2 NAAQS (U.S. EPA, 2009b).\488\ Table III.H.7-7 shows the 
quantified and unquantified PM2.5-related co-benefits 
captured in those benefit-per-ton estimates.
---------------------------------------------------------------------------

    \486\ U.S. Environmental Protection Agency (U.S. EPA). 2008. 
Regulatory Impact Analysis, 2008 National Ambient Air Quality 
Standards for Ground-level Ozone, Chapter 6. Office of Air Quality 
Planning and Standards, Research Triangle Park, NC. March. Available 
at http://www.epa.gov/ttn/ecas/regdata/RIAs/6-ozoneriachapter6.pdf. 
Accessed March 15, 2010. EPA-HQ-OAR-2009-0472-0108.
    \487\ U.S. Environmental Protection Agency (U.S. EPA). 2009. 
Regulatory Impact Analysis: National Emission Standards for 
Hazardous Air Pollutants from the Portland Cement Manufacturing 
Industry. Office of Air Quality Planning and Standards, Research 
Triangle Park, NC. April. Available on the Internet at http://
www.epa.gov/ttn/ecas/regdata/RIAs/portlandcementria_4-20-09.pdf. 
Accessed March 15, 2010. EPA-HQ-OAR-2009-0472-0241.
    \488\ U.S. Environmental Protection Agency (U.S. EPA). 2010. 
Final NO2 NAAQS Regulatory Impact Analysis (RIA). Office of Air 
Quality Planning and Standards, Research Triangle Park, NC. April. 
Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/
RIAs/FinalNO2RIAfulldocument.pdf. Accessed March 15, 2010. EPA-HQ-
OAR-2009-0472-0237.

       Table III.H.7-7--Human Health and Welfare Effects of PM2.5
------------------------------------------------------------------------
                              Quantified and
    Pollutant/effect       monetized in primary    Unquantified effects
                                estimates               changes in
------------------------------------------------------------------------
PM2.5..................  Adult premature          Subchronic bronchitis
                          mortality                cases.
                         Bronchitis: chronic and  Low birth weight.
                          acute
                         Hospital admissions:     Pulmonary function.
                          respiratory and
                          cardiovascular.
                         Emergency room visits    Chronic respiratory
                          for asthma               diseases other than
                                                   chronic bronchitis.
                         Nonfatal heart attacks   Non-asthma respiratory
                          (myocardial              emergency room
                          infarction).             visits.
                         Lower and upper          Visibility.
                          respiratory illness

[[Page 25531]]

                         Minor restricted-        Household soiling.
                          activity days
                         Work loss days
                         Asthma exacerbations
                          (asthmatic population)
                         Infant mortality
------------------------------------------------------------------------

    Consistent with the NO2 NAAQS,\489\ the benefits 
estimates utilize the concentration-response functions as reported in 
the epidemiology literature. To calculate the total monetized impacts 
associated with quantified health impacts, EPA applies values derived 
from a number of sources. For premature mortality, EPA applies a value 
of a statistical life (VSL) derived from the mortality valuation 
literature. For certain health impacts, such as chronic bronchitis and 
a number of respiratory-related ailments, EPA applies willingness-to-
pay estimates derived from the valuation literature. For the remaining 
health impacts, EPA applies values derived from current cost-of-illness 
and/or wage estimates.
---------------------------------------------------------------------------

    \489\ Although we summarize the main issues in this chapter, we 
encourage interested readers to see the benefits chapter of the 
final NO2 NAAQS for a more detailed description of recent 
changes to the PM benefits presentation and preference for the no-
threshold model.
---------------------------------------------------------------------------

    Readers interested in reviewing the complete methodology for 
creating the benefit-per-ton estimates used in this analysis can 
consult the Technical Support Document (TSD) \490\ accompanying the 
recent final ozone NAAQS RIA. Readers can also refer to Fann et al. 
(2009) \491\ for a detailed description of the benefit-per-ton 
methodology.\492\ A more detailed description of the benefit-per-ton 
estimates is also provided in the Joint TSD that accompanies this 
rulemaking.
---------------------------------------------------------------------------

    \490\ U.S. Environmental Protection Agency (U.S. EPA). 2008b. 
Technical Support Document: Calculating Benefit per-Ton estimates, 
Ozone NAAQS Docket EPA-HQ-OAR-2007-0225-0284. Office of Air 
Quality Planning and Standards, Research Triangle Park, NC. March. 
Available on the Internet at http://www.regulations.gov. EPA-HQ-OAR-
2009-0472-0228.
    \491\ Fann, N. et al. (2009). The influence of location, source, 
and emission type in estimates of the human health benefits of 
reducing a ton of air pollution. Air Qual Atmos Health. Published 
online: 09 June, 2009. EPA-HQ-OAR-2009-0472-0229.
    \492\ The values included in this report are different from 
those presented in the article cited above. Benefits methods change 
to reflect new information and evaluation of the science. Since 
publication of the June 2009 article, EPA has made two significant 
changes to its benefits methods: (1) We no longer assume that a 
threshold exists in PM-related models of health impacts; and (2) We 
have revised the Value of a Statistical Life to equal $6.3 million 
(year 2000$), up from an estimate of $5.5 million (year 2000$) used 
in the June 2009 report. Please refer to the following Web site for 
updates to the dollar-per-ton estimates: http://www.epa.gov/air/
benmap/bpt.html. EPA-HQ-OAR-2009-0472-0227.
---------------------------------------------------------------------------

    As described in the documentation for the benefit per-ton estimates 
cited above, national per-ton estimates were developed for selected 
pollutant/source category combinations. The per-ton values calculated 
therefore apply only to tons reduced from those specific pollutant/
source combinations (e.g., NO2 emitted from mobile sources; 
direct PM emitted from stationary sources). Our estimate of 
PM2.5 benefits is therefore based on the total direct 
PM2.5 and PM-related precursor emissions controlled by 
sector and multiplied by each per-ton value.
    The benefit-per-ton estimates are subject to a number of 
assumptions and uncertainties.
     Dollar-per-ton estimates do not reflect local variability 
in population density, meteorology, exposure, baseline health incidence 
rates, or other local factors that might lead to an overestimate or 
underestimate of the actual benefits of controlling fine particulates. 
In Section III.G, we describe the full-scale air quality modeling 
conducted for the 2030 calendar year analysis in an effort to capture 
this variability.
     There are several health benefits categories that EPA was 
unable to quantify in the MY analysis due to limitations associated 
with using benefits-per-ton estimates, several of which could be 
substantial. Because NOX and VOC emissions are also 
precursors to ozone, changes in NOX and VOC would also 
impact ozone formation and the health effects associated with ozone 
exposure. Benefits-per-ton estimates do not exist for ozone, however, 
due to issues associated with the complexity of the atmospheric air 
chemistry and nonlinearities associated with ozone formation. The PM-
related benefits-per-ton estimates also do not include any human 
welfare or ecological benefits. Please refer to Chapter 7 of the RIA 
that accompanies this rule for a description of the quantification and 
monetization of health impacts for the CY analysis and a description of 
the unquantified co-pollutant benefits associated with this rulemaking.
     The benefit-per-ton estimates used in this analysis 
incorporate projections of key variables, including atmospheric 
conditions, source level emissions, population, health baselines and 
incomes, technology. These projections introduce some uncertainties to 
the benefit per ton estimates.
     As described above, using the benefit-per-ton value 
derived from the ACS study (Pope et al., 2002) alone provides an 
incomplete characterization of PM2.5 benefits. When placed 
in the context of the Expert Elicitation results, this estimate falls 
toward the lower end of the distribution. By contrast, the estimated 
PM2.5 benefits using the coefficient reported by Laden in 
that author's reanalysis of the Harvard Six-Cities cohort fall toward 
the upper end of the Expert Elicitation distribution results.
    As mentioned above, emissions changes and benefits-per-ton 
estimates alone are not a good indication of local or regional air 
quality and health impacts, as there may be localized impacts 
associated with this rulemaking. Additionally, the atmospheric 
chemistry related to ambient concentrations of PM2.5, ozone 
and air toxics is very complex. Full-scale photochemical modeling is 
therefore necessary to provide the needed spatial and temporal detail 
to more completely and accurately estimate the changes in ambient 
levels of these pollutants and their associated health and welfare 
impacts. Timing and resource constraints precluded EPA from conducting 
full-scale photochemical air quality modeling for the MY analysis. We 
have, however, conducted national-scale air quality modeling for the CY 
analysis to analyze the impacts of the standards on PM2.5, 
ozone, and selected air toxics.
8. Energy Security Impacts
    This rule to reduce GHG emissions in light-duty vehicles results in 
improved fuel efficiency which, in turn, helps 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. This reduction in

[[Page 25532]]

risk is a measure of improved U.S. energy security. This section 
summarizes our estimate of the monetary value of the energy security 
benefits of the GHG vehicle standards against the reference case by 
estimating the impact of the expanded use of lower-GHG vehicle 
technologies on U.S. oil imports and avoided U.S. oil import 
expenditures. Additional discussion of this issue can be found in 
Chapter 5.1 of EPA's RIA and Section 4.2.8 of the TSD.
a. Implications of Reduced Petroleum Use on U.S. Imports
    In 2008, U.S. petroleum import expenditures represented 21 percent 
of total U.S. imports of all goods and services.\493\ In 2008, the U.S. 
imported 66 percent of the petroleum it consumed, and the 
transportation sector accounted for 70 percent of total U.S. petroleum 
consumption. This compares to approximately 37 percent of petroleum 
from imports and 55 percent of consumption from petroleum in the 
transportation sector in 1975.\494\ It is clear that petroleum imports 
have a significant impact on the U.S. economy. Requiring lower-GHG 
vehicle technology in the U.S. is expected to lower U.S. petroleum 
imports.
---------------------------------------------------------------------------

    \493\ Source: U.S. Bureau of Economic Analysis, U.S. 
International Transactions Accounts Data, as shown on June 24, 2009.
    \494\ Source: U.S. Department of Energy, Annual Energy Review 
2008, Report No. DOE/EIA-0384(2008), Tables 5.1 and 5.13c, June 26, 
2009.
---------------------------------------------------------------------------

b. Energy Security Implications
    In order to understand the energy security implications of reducing 
U.S. petroleum imports, EPA worked with Oak Ridge National Laboratory 
(ORNL), which has developed approaches for evaluating the economic 
costs and energy security implications of oil use. The energy security 
estimates provided below are based upon a methodology developed in a 
peer-reviewed study entitled ``The Energy Security Benefits of Reduced 
Oil Use, 2006-2015,'' completed in March 2008. This study is included 
as part of the docket for this rulemaking.495 496
---------------------------------------------------------------------------

    \495\ Leiby, Paul N. ``Estimating the Energy Security Benefits 
of Reduced U.S. Oil Imports'' Oak Ridge National Laboratory, ORNL/
TM-2007/028, Final Report, 2008. (Docket EPA-HQ-OAR-2009-0472).
    \496\ The ORNL study ``The Energy Security Benefits of Reduced 
Oil Use, 2006-2015,'' completed in March 2008, is an update version 
of the approach used for estimating the energy security benefits of 
U.S. oil import reductions developed in an ORNL 1997 Report by 
Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and Russell Lee, 
entitled ``Oil Imports: An Assessment of Benefits and Costs.'' 
(Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    When conducting this analysis, ORNL considered the economic cost of 
importing petroleum into the U.S. The economic cost of importing 
petroleum into the U.S. is defined to include two components in 
addition to the purchase price of petroleum itself. These are: (1) The 
higher costs for oil imports resulting from the effect of increasing 
U.S. import demand on the world oil price and on OPEC market power 
(i.e., the ``demand'' or ``monopsony'' costs); and (2) the risk of 
reductions in U.S. economic output and disruption of the U.S. economy 
caused by sudden disruptions in the supply of imported petroleum to the 
U.S. (i.e., macroeconomic disruption/adjustment costs). Maintaining a 
U.S. military presence to help secure stable oil supply from 
potentially vulnerable regions of the world was not included in this 
analysis because its attribution to particular missions or activities 
is hard to quantify.
    One commenter on this rule felt that the magnitude of the economic 
disruption portion of the energy security benefit may be too high. This 
commenter cites a recent paper written by Stephen P.A. Brown and 
Hillard G. Huntington, entitled ``Estimating U.S. Oil Security 
Premiums'' (September 2009) as the basis for their comment. The Agency 
reviewed this paper and found that it conducted a somewhat different 
analysis than the one conducted by ORNL in support of this rule. The 
Brown and Huntington paper focuses on policies and the energy security 
implications of increasing U.S. demand for oil (or at least holding 
U.S. oil consumption constant), while the ORNL analysis examines the 
energy security implications of decreasing U.S. oil consumption and oil 
imports. These asymmetrical analyses would be expected to yield 
somewhat different energy security results.
    However, even given the different scenarios considered, the Brown 
and Huntington estimates are roughly similar to the ORNL estimates. For 
example, for an increase in U.S. consumption that leads to an increase 
in U.S. imports of oil, Brown and Huntington estimate a 2015 disruption 
premium of $4.87 per barrel, with an uncertainty range from $1.03 to 
$14.10 per barrel. The corresponding 2015 estimate for ORNL as the 
result of a reduction in U.S. oil imports is $6.70 per barrel, with an 
uncertainty range of $3.11 to $10.67 per barrel. Given that the two 
studies analyze different scenarios, since the Brown and Huntington 
disruption premiums are well within the uncertainty range of the ORNL 
study, and given that the ORNL scenario matches the specific oil market 
impacts anticipated from the rule while the Brown and Huntington paper 
does not, the Agency has concluded that the ORNL disruption security 
premium estimates are more applicable for analyzing this final rule.
    In the energy security literature, the macroeconomic disruption 
component of the energy security premium traditionally has included 
both (1) increased payments for petroleum imports associated with a 
rapid increase in world oil prices, and (2) the GDP losses and 
adjustment costs that result from projected future oil price shocks. 
One commenter suggested that the increased payments associated with 
rapid increases in petroleum prices (i.e., price increases in a 
disrupted market) represent transfers from U.S. oil consumers to 
petroleum suppliers rather than real economic costs, and therefore, 
should not be counted as a benefit.
    This approach would represent a significant departure from how the 
macroeconomic disruption costs associated with oil price shocks have 
been quantified in the broader energy security literature, and the 
Agencies believe it should be analyzed in more detail before being 
applied in a regulatory context. In addition, the Agencies also believe 
that there are compelling reasons to treat higher oil import costs 
during oil supply disruptions differently than simple wealth transfers 
that reflect the exercise of market power by petroleum sellers or 
consumers. According to the OMB definition of a transfer: ``Benefit and 
cost estimates should reflect real resource use. Transfer payments are 
monetary payments from one group to another that do not affect total 
resources available to society. * * * The net reduction in the total 
surplus (consumer plus producer) is a real cost to society, but the 
transfer from buyers to sellers resulting from a higher price is not a 
real cost since the net reduction automatically accounts for the 
transfer from buyers to sellers.'' \497\ In other words, pure transfers 
do not lead to changes in the allocation or consumption of economic 
resources, whereas changes in the resource allocation or use produce 
real economic costs or benefits.
---------------------------------------------------------------------------

    \497\ OMB Circular A-4, September 17, 2003. See http://
www.whitehouse.gov/omb/assets/omb/circulars/a004/a-4.pdf.
---------------------------------------------------------------------------

    While price increases during oil price disruptions can result in 
large transfers of wealth, they also result in a combination of real 
resource shortages, costly short-run shifts in energy supply, 
behavioral and demand adjustments by energy users, and other response 
costs. Unlike pure transfers, the root cause of

[[Page 25533]]

the disruption price increase is a real resource supply reduction due, 
for example, to disaster or war. Regions where supplies are disrupted 
(i.e., the U.S.) suffer very high costs. Businesses' and households' 
emergency responses to supply disruptions and rapid price increases are 
likely to consume some real economic resources, in addition to causing 
financial losses to the U.S. economy that are matched by offsetting 
gains elsewhere in the global economy.
    While households and businesses can reduce their petroleum 
consumption, invest in fuel switching technologies, or use futures 
markets to insulate themselves in advance against the potential costs 
of rapid increases in oil prices, when deciding how extensively to do 
so, they are unlikely to account for the effect of their petroleum 
consumption on the magnitude of costs that supply interruptions and 
accompanying price shocks impose on others. As a consequence, the U.S. 
economy as a whole will not make sufficient use of these mechanisms to 
insulate itself from the real costs of rapid increases in energy prices 
and outlays that usually accompany oil supply interruptions.\498\ 
Therefore, the ORNL estimate of macroeconomic disruption and adjustment 
costs that the Agencies use to value energy security benefits includes 
the increased oil import costs stemming from oil price shocks that are 
unanticipated and not internalized by advance actions of U.S. consumers 
of petroleum products. The Agencies believe that, as the ORNL analysis 
argues, the uninternalized oil import costs that occur during oil 
supply interruptions represents a real cost associated with U.S. 
petroleum consumption and imports, and that reducing its value by 
lowering domestic petroleum consumption and imports thus represents a 
real economic benefit from lower fuel consumption.
---------------------------------------------------------------------------

    \498\ For a more complete discussion of the reasons why the oil 
import cost component of the macroeconomic disruption and adjustment 
costs includes some real costs and does not represent a pure 
transfer, see Paul N. Leiby, Estimating the Energy Security Benefits 
of Reduced U.S. Oil Imports: Final Report, ORNL-TM-2007-028, Oak 
Ridge National Laboratory, March 14, 2008, pp. 21-25.
---------------------------------------------------------------------------

    For this rule, ORNL estimated the energy security premium by 
incorporating the oil price forecast of the Energy Information 
Administration's 2009 Annual Energy Outlook (AEO) to its model. The 
Agency considered, but rejected the option, of further updating this 
analysis using the oil price estimates provided by the AEO 2010. Given 
the broad uncertainty bands around oil price forecasts and the 
relatively modest change in oil price forecasts between the AEO 2009 
and AEO 2010, the Agency felt that updating to AEO 2010 oil prices 
would not significantly change the results of this energy security 
analysis. Finally, the EPA used its OMEGA model in conjunction with 
ORNL's energy security premium estimates to develop the total energy 
security benefits for a number of different years; please refer to 
Table III.H.8-1 for this information for years 2015, 2020, 2030 and 
2040,\499\ as well as a breakdown of the components of the energy 
security premium for each of these years. The components of the energy 
security premium and their values are discussed in detail in the Joint 
TSD Chapter 4.
---------------------------------------------------------------------------

    \499\ AEO 2009 forecasts energy market trends and values only to 
2030. The energy security premium estimates post-2030 were assumed 
to be the 2030 estimate.
---------------------------------------------------------------------------

    Because the price of oil is determined globally, supply and demand 
shocks anywhere in the world will have an adverse impact on the United 
States (and on all other oil consuming countries). The total economic 
costs of those shocks to the U.S. will depend on both U.S. petroleum 
consumption and imports of petroleum and refined products. The analysis 
relied upon to estimate energy security benefits from reducing U.S. 
petroleum consumption estimates the value of energy security using the 
estimated oil import premium, and is thus consistent with how much of 
the energy security literature reports energy security impacts. Since 
this rule is expected to have little impact on the U.S. supply of crude 
petroleum, a reduction in U.S. fuel consumption is expected to be 
reflected predominantly in reduced imports of petroleum and refined 
fuel. The estimated energy security premium associated with a reduction 
in U.S. petroleum consumption that leads to a reduction in imports 
would likely be somewhat larger, due to diminished sensitivity of the 
U.S. economy to oil supply shocks that would accompany the reduction in 
oil consumption.
    In addition, while the estimates of energy security externalities 
used in this analysis depend on a combination of U.S. petroleum 
consumption and imports, they have been expressed as per barrel of 
petroleum imported into the U.S. The Agencies' analyses apply these 
estimates to the reduction in U.S. imports of crude petroleum and 
refined products that is projected to result from the rule in order to 
determine the benefits that are likely to result from fuel savings and 
the consequent reduction in imports. Thus, the estimates of energy 
security externalities have been used in this analysis in a way that is 
completely consistent with how they are defined and measured in the 
ORNL analysis.

              Table III.H.8-1--Energy Security Premium in 2015, 2020, 2030 and 2040 (2007$/Barrel)
----------------------------------------------------------------------------------------------------------------
                                                                     Macroeconomic
             Year (range)                     Monopsony          disruption/adjustment       Total mid-point
                                                                         costs
----------------------------------------------------------------------------------------------------------------
2015.................................  $11.79 ($4.26-$21.37)..  $6.70 ($3.11-$10.67)...  $18.49 ($9.80-$28.08)
2020.................................  $12.31 ($4.46-$22.53)..  $7.62 ($3.77-$12.46)...  $19.94 ($10.58-$30.47)
2030.................................  $10.57 ($3.84-18.94)...  $8.12 ($3.90-$13.04)...  $18.69 ($10.52-$27.89)
2040.................................  $10.57 ($3.84-$18.94)..  $8.12 ($3.90-$13.04)...  $18.69 ($10.52-$27.89)
----------------------------------------------------------------------------------------------------------------

    The literature on the energy security for the last two decades has 
routinely combined the monopsony and the macroeconomic disruption 
components when calculating the total value of the energy security 
premium. However, in the context of using a global value for the Social 
Cost of Carbon (SCC) the question arises: How should the energy 
security premium be used when some benefits from the rule, such as the 
benefits of reducing greenhouse gas emissions, are calculated using a 
global value? Monopsony benefits represent avoided payments by the U.S. 
to oil producers in foreign countries that result from a decrease in 
the world oil price as the U.S. decreases its consumption of imported 
oil. Although there is clearly a benefit to the U.S. when considered 
from the domestic perspective, the decrease in price due to decreased 
demand in the U.S. also represents a loss of income to oil-

[[Page 25534]]

producing countries. Given the redistributive nature of this effect, do 
the negative effects on other countries ``net out'' the positive 
impacts to the U.S.? If this is the case, then the monopsony portion of 
the energy security premium should be excluded from the net benefits 
calculation for the rule. OMB's Circular A-4 gives guidance in this 
regard. Domestic pecuniary benefits (or transfers between buyers and 
sellers) generally should not be included because they do not represent 
real resource costs, though A-4 notes that transfers to the U.S. from 
other countries may be counted as benefits as long as the analysis is 
conducted from a U.S. perspective.
    Energy security is broadly defined as protecting the U.S. economy 
against circumstances that threaten significant short- and long-term 
increases in energy costs. Energy security is inherently a domestic 
benefit. Accordingly, it is possible to argue that the use of the 
domestic monopsony benefit may not necessarily be in conflict with the 
use of the global SCC, because the global SCC represents the benefits 
against which the costs of our (i.e., the U.S.'s) domestic mitigation 
efforts should be judged. In the final analysis, the Agency has 
determined that using only the macroeconomic disruption component of 
the energy security benefit is the appropriate metric for this rule.
    At proposal, the Agency took the position that since a global 
perspective was being taken with the use of the global SCC, that the 
monopsony benefits ``net out'' and were a transfer. Two commenters felt 
that the monopsony effect should be excluded from net benefits 
calculations for the rule since it is a ``pecuniary'' externality or 
does not represent an efficiency gain. One of the commenters suggested 
that EPA instead conduct a distributional analysis of the monopsony 
impacts of the final rule. The Agency disagrees that all pecuniary 
externalities should necessarily be excluded from net benefits 
calculations as a general rule. In this case considered here, the oil 
market is non-competitive, and if the social decision-making unit of 
interest is the U.S., there is an argument for accounting for the 
monopsony premium to assess the excess transfer of wealth caused by the 
exercise of cartel power outside of the U.S.
    However, for the final rule, the Agency continues to take a global 
perspective with respect to climate change by using the global SCC. 
Therefore, the Agency did not count monopsony benefits since they ``net 
out'' with losses to other countries outside the U.S. Since a global 
perspective has been taken, a distributional analysis was not 
undertaken for this final rule, since the losses to the losers (oil 
producers that export oil to the U.S.) would equal the gains to the 
winners (U.S. consumers of imported oil). As a result, the Agency has 
included only the macroeconomic disruption portion of the energy 
security benefits to monetize the total energy security benefits of 
this rule. Hence, the total annual energy security benefits are derived 
from the estimated reductions in U.S. imports of finished petroleum 
products and crude oil using only the macroeconomic disruption/
adjustment portion of the energy security premium. These values are 
shown in Table III.H.8-2.\500\ The reduced oil estimates were derived 
from the OMEGA model, as explained in Section III.F of this preamble. 
EPA used the same assumption that NHTSA used in its Corporate Average 
Fuel Economy and CAFE Reform for MY 2008-2011 Light Trucks rule, which 
assumed that each gallon of fuel saved reduces total U.S. imports of 
crude oil or refined products by 0.95 gallons.\501\
---------------------------------------------------------------------------

    \500\ Estimated reductions in U.S. imports of finished petroleum 
products and crude oil are 95% of 89 million barrels (MMB) in 2015, 
300 MMB in 2020, 590 MMB in 2030, and 778 MMB in 2040.
    \501\ Preliminary Regulatory Impacts Analysis, April 2008. Based 
on a detailed analysis of differences in fuel consumption, petroleum 
imports, and imports of refined petroleum products among the 
Reference Case, High Economic Growth, and Low Economic Growth 
Scenarios presented in the Energy Information Administration's 
Annual Energy Outlook 2007, NHTSA estimated that approximately 50 
percent of the reduction in fuel consumption is likely to be 
reflected in reduced U.S. imports of refined fuel, while the 
remaining 50 percent would be expected to be reflected in reduced 
domestic fuel refining. Of this latter figure, 90 percent is 
anticipated to reduce U.S. imports of crude petroleum for use as a 
refinery feedstock, while the remaining 10 percent is expected to 
reduce U.S. domestic production of crude petroleum. Thus on balance, 
each gallon of fuel saved is anticipated to reduce total U.S. 
imports of crude petroleum or refined fuel by 0.95 gallons.

  Table III.H.8-2--Total Annual Energy Security Benefits Using Only the
  Macroeconomic Disruption/Adjustment Component of the Energy Security
                  Premium in 2015, 2020, 2030 and 2040
                           [Billions of 2007$]
------------------------------------------------------------------------
                          Year                               Benefits
------------------------------------------------------------------------
2015....................................................           $0.57
2020....................................................           $2.17
2030....................................................           $4.55
2040....................................................           $6.00
------------------------------------------------------------------------

9. Other Impacts
    There are other impacts associated with the CO2 
emissions standards and associated reduced fuel consumption that vary 
with miles driven. Lower fuel consumption would, presumably, result in 
fewer trips to the filling station to refuel and, thus, time saved. The 
rebound effect, discussed in detail in Section III.H.4.c, produces 
additional benefits to vehicle owners in the form of consumer surplus 
from the increase in vehicle-miles driven, but may also increase the 
societal costs associated with traffic congestion, motor vehicle 
crashes, and noise. These effects are likely to be relatively small in 
comparison to the value of fuel saved as a result of the standards, but 
they are nevertheless important to include. Table III.H.9-1 summarizes 
the other economic impacts. Please refer to Preamble Section II.F and 
the Joint TSD that accompanies this rule for more information about 
these impacts and how EPA and NHTSA use them in their analyses.
    Note that for the estimated value of less frequent refueling 
events, EPA's estimate is subject to a number of uncertainties which we 
discuss in detail in Chapter 4.1.11 of the Joint TSD, and the actual 
value could be higher or lower than the value presented here. 
Specifically, the analysis makes three assumptions: (a) That 
manufacturers will not adjust fuel tank capacities downward (from the 
current average of 19.3 gallons) when they improve the fuel economy of 
their vehicle models. (b) that the average fuel purchase (55 percent of 
fuel tank capacity) is the typical fuel purchase. (c) that 100 percent 
of all refueling is demand-based; i.e., that every gallon of fuel which 
is saved would reduce the need to return to the refueling station. A 
new research project is being planned by DOT which will include a 
detailed study of refueling events, and which is expected to improve 
upon these assumptions. These assumptions and the new DOT research 
project are discussed in detail in Joint TSD Chapter 4.2.10.

[[Page 25535]]

                Table III.H.9-1--Other Impacts Associated With the Light-Duty Vehicle GHG Program
                                           [Millions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                        2020         2030         2040         2050       NPV, 3%      NPV, 7%
----------------------------------------------------------------------------------------------------------------
Value of Less Frequent Refueling..       $2,400       $4,800       $6,300       $8,000      $87,900      $40,100
Value of Increased Driving \a\....        4,200        8,800       13,000       18,400      171,500       75,500
Accidents, Noise, Congestion......       -2,300       -4,600       -6,100       -7,800      -84,800      -38,600
----------------------------------------------------------------------------------------------------------------
\a\ Calculated using post-tax fuel prices.

10. Summary of Costs and Benefits
    In this section, EPA presents a summary of costs, benefits, and net 
benefits of the rule. Table III.H.10-1 shows the estimated annual 
societal costs of the vehicle program for the indicated calendar years. 
The table also shows the net present values of those costs for the 
calendar years 2012-2050 using both a 3 percent and a 7 percent 
discount rate. In this table, fuel savings are calculated using pre-tax 
fuel prices.
    Consumers are expected to receive the fuel savings presented here. 
The cost estimates for the fuel-saving technology are based on designs 
that will hold all vehicle attributes constant except fuel economy and 
technology cost. This analysis also assumes that consumers will not 
change the vehicles that they purchase. Automakers may redesign 
vehicles as part of their compliance strategies. The redesigns should 
be expected to make the vehicles more attractive to consumers, because 
the ability to hold all other attributes constant means that the only 
reason to change them is to make them more marketable to consumers. In 
addition, consumers may choose to purchase different vehicles than they 
would in the absence of this rule. These changes may affect the net 
benefits that consumers receive from their vehicles. If consumers can 
buy the same vehicle as before, except with increased price and fuel 
economy, then the increase in vehicle price is the maximum loss in 
welfare to the consumer, because compensating the increase in price 
would leave her able to buy her previous vehicle with no change. If she 
decides to purchase a different vehicle, or not to purchase a vehicle, 
she would do so only if she were better off than buying her original 
choice. Because of the unsettled state of the modeling of consumer 
choices (discussed in Section III.H.1 and in RIA Section 8.1.2), this 
analysis does not measure these effects. If the technology costs are 
not sufficient to maintain other vehicle attributes, then it is 
possible that automakers would be required to make less marketable 
vehicles in order to comply with the rule; as a result, there may be an 
additional loss in consumer welfare due to the rule. While EPA received 
comments expressing concern over the possibility of these losses, there 
were no specific losses identified.

                Table III.H.10-1--Estimated Societal Costs of the Light-Duty Vehicle GHG Program
                                           [Millions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
           Social costs                 2020         2030         2040         2050       NPV, 3%      NPV, 7%
----------------------------------------------------------------------------------------------------------------
Vehicle Compliance Costs..........      $15,600      $15,800      $17,400      $19,000     $345,900     $191,900
Fuel Savings \a\..................      -35,700      -79,800     -119,300     -171,200   -1,545,600     -672,600
Quantified Annual Costs...........      -20,100      -64,000     -101,900     -152,200   -1,199,700     -480,700
----------------------------------------------------------------------------------------------------------------
\a\ Calculated using pre-tax fuel prices.

    Table III.H.10-2 presents estimated annual societal benefits for 
the indicated calendar years. The table also shows the net present 
values of those benefits for the calendar years 2012-2050 using both a 
3 percent and a 7 percent discount rate. The table shows the benefits 
of reduced CO2 emissions--and consequently the annual 
quantified benefits (i.e., total benefits)--for each of four SCC values 
considered by EPA. As discussed in the RIA Section 7.5, the IPCC Fourth 
Assessment Report (2007) concluded that that the benefit estimates from 
CO2 reductions are ``very likely'' underestimates. One of 
the primary reasons is that models used to calculate SCC values do not 
include information about impacts that have not been quantified.
    In addition, these monetized GHG benefits exclude the value of 
reductions in non-CO2 GHG emissions (HFC, CH4, 
N2O) expected under this final rule. Although EPA has not 
monetized the benefits of reductions in non-CO2 GHGs, the 
value of these reductions should not be interpreted as zero. Rather, 
the reductions in non-CO2 GHGs will contribute to this 
rule's climate benefits, as explained in Section III.F. The SCC TSD 
notes the difference between the social cost of non-CO2 
emissions and SCC and specifies a goal to develop methods to value non-
CO2 emissions in future analyses.

        Table III.H.10-2--Estimated Societal Benefits Associated With the Light-Duty Vehicle GHG Program
                                           [Millions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
      Benefits category           2020          2030          2040          2050       NPV, 3% \a\   NPV, 7% \a\
----------------------------------------------------------------------------------------------------------------
Reduced CO2 Emissions at
 each assumed SCC value b c
    Avg SCC at 5%...........          $900        $2,700        $4,600        $7,200       $34,500       $34,500
    Avg SCC at 3%...........         3,700         8,900        14,000        21,000       176,700       176,700
    Avg SCC at 2.5%.........         5,800        14,000        21,000        30,000       299,600       299,600
    95th percentile SCC at          11,000        27,000        43,000        62,000       538,500       538,500
     3%.....................
Criteria Pollutant Benefits              B   1,200-1,300   1,200-1,300   1,200-1,300        21,000        14,000
 d e f g....................
Energy Security Impacts              2,200         4,500         6,000         7,600        81,900        36,900
 (price shock)..............

[[Page 25536]]

Reduced Refueling...........         2,400         4,800         6,300         8,000        87,900        40,100
Value of Increased Driving h         4,200         8,800        13,000        18,400       171,500        75,500
Accidents, Noise, Congestion        -2,300        -4,600        -6,100        -7,800       -84,800       -38,600
Quantified Annual Benefits
 at each assumed SCC value b
 c
    Avg SCC at 5%...........         7,400        17,500        25,100        34,700       312,000       162,400
    Avg SCC at 3%...........        10,200        23,700        34,500        48,500       454,200       304,600
    Avg SCC at 2.5%.........        12,300        28,800        41,500        57,500       577,100       427,500
    95th percentile SCC at          17,500        41,800        63,500        89,500       816,000       666,400
     3%.....................
----------------------------------------------------------------------------------------------------------------
\a\ Note that net 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 (SCC at 5, 3, 2.5 percent) is used
  to calculate net present value of SCC for internal consistency. Refer to the SCC TSD for more detail.
\b\ Monetized GHG benefits exclude the value of reductions in non-CO2 GHG emissions (HFC, CH4 and N2O) expected
  under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO2 emissions,
  the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO2 GHGs will
  contribute to this rule's climate benefits, as explained in Section III.F.2. The SCC TSD notes the difference
  between the social cost of non-CO2 emissions and CO2 emissions, and specifies a goal to develop methods to
  value non-CO2 emissions in future analyses.
\c\ Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC
  estimates range as follows: for Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at
  2.5%: $36-$65; and for 95th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.
\d\ Note that ``B'' indicates unquantified criteria pollutant benefits in the year 2020. For the final rule, we
  only modeled the rule's PM2.5- and ozone-related impacts in the calendar year 2030. For the purposes of
  estimating a stream of future-year criteria pollutant benefits, we assume that the benefits out to 2050 are
  equal to, and no less than, those modeled in 2030 as reflected by the stream of estimated future emission
  reductions. The NPV of criteria pollutant-related benefits should therefore be considered a conservative
  estimate of the potential benefits associated with the final rule.
\e\ The benefits presented in this table include an estimate of PM-related premature mortality derived from
  Laden et al., 2006, and the ozone-related premature mortality estimate derived from Bell et al., 2004. If the
  benefit estimates were based on the ACS study of PM-related premature mortality (Pope et al., 2002) and the
  Levy et al., 2005 study of ozone-related premature mortality, the values would be as much as 70% smaller.
\f\ The calendar year benefits presented in this table assume either a 3% discount rate in the valuation of PM-
  related premature mortality ($1,300 million) or a 7% discount rate ($1,200 million) to account for a twenty-
  year segmented cessation lag. Note that the benefits estimated using a 3% discount rate were used to calculate
  the NPV using a 3% discount rate and the benefits estimated using a 7% discount rate were used to calculate
  the NPV using a 7% discount rate. For benefits totals presented at each calendar year, we used the mid-point
  of the criteria pollutant benefits range ($1,250).
\g\ Note that the co-pollutant impacts presented here do not include the full complement of endpoints that, if
  quantified and monetized, would change the total monetized estimate of impacts. The full complement of human
  health and welfare effects associated with PM and ozone remain unquantified because of current limitations in
  methods or available data. We have not quantified a number of known or suspected health effects linked with
  ozone and PM for which appropriate health impact functions are not available or which do not provide easily
  interpretable outcomes (e.g., changes in heart rate variability). Additionally, we are unable to quantify a
  number of known welfare effects, including reduced acid and particulate deposition damage to cultural
  monuments and other materials, and environmental benefits due to reductions of impacts of eutrophication in
  coastal areas.
\h\ Calculated using pre-tax fuel prices.

    Table III.H.10-3 presents estimated annual net benefits for the 
indicated calendar years. The table also shows the net present values 
of those net benefits for the calendar years 2012-2050 using both a 3 
percent and a 7 percent discount rate. The table includes the benefits 
of reduced CO2 emissions (and consequently the annual net 
benefits) for each of four SCC values considered by EPA. As noted 
above, the benefit estimates from CO2 reductions are ``very 
likely,'' according to the IPCC Fourth Assessment Report, 
underestimates because, in part, models used to calculate SCC values do 
not include information about impacts that have not been quantified.

        Table III.H.10-3--Quantified Net Benefits Associated with the Light-Duty Vehicle GHG Program \a\
                                           [Millions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                  2020          2030          2040          2050        NPV, 3% b     NPV, 7% b
----------------------------------------------------------------------------------------------------------------
Quantified Annual Costs.....      -$20,100      -$64,000     -$101,900     -$152,200   -$1,199,700     -$480,700
----------------------------------------------------------------------------------------------------------------
                            Quantified Annual Benefits at each assumed SCC value c d
----------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...............         7,400        17,500        25,100        34,700       312,000       162,400
Avg SCC at 3%...............        10,200        23,700        34,500        48,500       454,200       304,600
Avg SCC at 2.5%.............        12,300        28,800        41,500        57,500       577,100       427,500
95th percentile SCC at 3%...        17,500        41,800        63,500        89,500       816,000       666,400
----------------------------------------------------------------------------------------------------------------
                              Quantified Net Benefits at each assumed SCC value c d
----------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...............        27,500        81,500       127,000       186,900     1,511,700       643,100
Avg SCC at 3%...............        30,300        87,700       136,400       200,700     1,653,900       785,300
Avg SCC at 2.5%.............        32,400        92,800       143,400       209,700     1,776,800       908,200

[[Page 25537]]

95th percentile SCC at 3%...        37,600       105,800       165,400       241,700     2,015,700     1,147,100
----------------------------------------------------------------------------------------------------------------
a Fuel impacts were calculated using pre-tax fuel prices.
b Note that net 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 (SCC at 5, 3, 2.5 percent) is used
  to calculate net present value of SCC for internal consistency. Refer to the SCC TSD for more detail.
c Monetized GHG benefits exclude the value of reductions in non-CO2 GHG emissions (HFC, CH4 and N2O) expected
  under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO2 emissions,
  the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO2 GHGs will
  contribute to this rule's climate benefits, as explained in Section III.F.2. The SCC TSD notes the difference
  between the social cost of non-CO2 emissions and CO2 emissions, and specifies a goal to develop methods to
  value non-CO2 emissions in future analyses.
d Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC
  estimates range as follows: For Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at
  2.5%: $36-$65; and for 95th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

    EPA also conducted a separate analysis of the total benefits over 
the model year lifetimes of the 2012 through 2016 model year vehicles. 
In contrast to the calendar year analysis presented in Table III.H.10-1 
through Table III.H.10-3, the model year lifetime analysis shows the 
lifetime impacts of the program on each of these MY fleets over the 
course of its lifetime. Full details of the inputs to this analysis can 
be found in RIA Chapter 5. The societal benefits of the full life of 
each of the five model years from 2012 through 2016 are shown in Tables 
III.H.10-4 and III.H.10-5 at both a 3 percent and a 7 percent discount 
rate, respectively. The net benefits are shown in Tables III.H.10-6 and 
III.H.10-7 for both a 3 percent and a 7 percent discount rate. Note 
that the quantified annual benefits shown in Table III.H.10-4 and Table 
III.H.10-5 include fuel savings as a positive benefit. As such, the 
quantified annual costs as shown in Table III.H.10-6 and Table 
III.H.10-7 do not include fuel savings since those are included as 
benefits. Also note that each of the Tables III.H.10-4 through Table 
III.H.10-7 include the benefits of reduced CO2 emissions--
and consequently the total benefits--for each of four SCC values 
considered by EPA. As noted above, the benefit estimates from 
CO2 reductions are ``very likely,'' according to the IPCC 
Fourth Assessment Report, underestimates because, in part, models used 
to calculate SCC values do not include information about impacts that 
have not been quantified.

  Table III.H.10-4--Estimated Societal Benefits Associated with the Lifetimes of 2012-2016 Model Year Vehicles
                                  [Millions of 2007 dollars; 3% discount rate]
----------------------------------------------------------------------------------------------------------------
 Monetized values (millions)     2012MY        2013MY        2014MY        2015MY        2016MY          Sum
----------------------------------------------------------------------------------------------------------------
Cost of Noise, Accident,           -$1,100       -$1,600       -$2,100       -$2,900       -$3,900      -$11,600
 Congestion ($).............
Pretax Fuel Savings ($).....        16,100        23,900        32,200        46,000        63,500       181,800
Energy Security (price                 900         1,400         1,800         2,500         3,500        10,100
 shock) ($) a...............
Value of Reduced Refueling           1,100         1,600         2,100         3,000         4,000        11,900
 time ($)...................
Value of Additional Driving          2,400         3,400         4,400         6,000         7,900        24,000
 ($)........................
Value of PM2.5-related                 700           900         1,300         1,800         2,400         7,000
 Health Impacts ($) b c d...
----------------------------------------------------------------------------------------------------------------
                              Reduced CO2 Emissions at each assumed SCC value e f g
----------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...............           400           500           700         1,000         1,300         3,800
Avg SCC at 3%...............         1,700         2,400         3,100         4,400         5,900        17,000
Avg SCC at 2.5%.............         2,700         3,900         5,200         7,200         9,700        29,000
95th percentile SCC at 3%...         5,100         7,300         9,600        13,000        18,000        53,000
----------------------------------------------------------------------------------------------------------------
                                 Total Benefits at each assumed SCC value e f g
----------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...............        20,500        30,100        40,400        57,400        78,700       227,000
Avg SCC at 3%...............        21,800        32,000        42,800        60,800        83,300       240,200
Avg SCC at 2.5%.............        22,800        33,500        44,900        63,600        87,100       252,200
95th percentile SCC at 3%...        25,200        36,900        49,300        69,400        95,400       276,200
----------------------------------------------------------------------------------------------------------------
a Note that, due to a calculation error in the proposal, the energy security impacts for the model year analysis
  were roughly half what they should have been.
b Note that the co-pollutant impacts associated with the standards presented here do not include the full
  complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-
  related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton values that reflect only
  human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental
  benefits would be based on changes in ambient PM2.5 and ozone as determined by full-scale air quality
  modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis associated with the
  vehicle model year lifetimes for the final rule.
c The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table are based on an
  estimate of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit-per-ton
  estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145%
  (nearly two-and-a-half times) larger.

[[Page 25538]]

d The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table assume a 3% discount
  rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If a 7%
  discount rate had been used, the values would be approximately 9% lower.
e Note that net 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 (SCC at 5, 3, 2.5 percent) is used
  to calculate net present value of SCC for internal consistency. Refer to the SCC TSD for more detail.
f Monetized GHG benefits exclude the value of reductions in non-CO2 GHG emissions (HFC, CH4 and N2O) expected
  under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO2 emissions,
  the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO2 GHGs will
  contribute to this rule's climate benefits, as explained in Section III.F.2. The SCC TSD notes the difference
  between the social cost of non-CO2 emissions and CO2 emissions, and specifies a goal to develop methods to
  value non-CO2 emissions in future analyses.
g Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC
  estimates range as follows: For Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at
  2.5%: $36-$65; and for 95th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

  Table III.H.10-5--Estimated Societal Benefits Associated with the Lifetimes of 2012-2016 Model Year Vehicles
                                  [Millions of 2007 dollars; 7% discount rate]
----------------------------------------------------------------------------------------------------------------
 Monetized values (millions)     2012MY        2013MY        2014MY        2015MY        2016MY          Sum
----------------------------------------------------------------------------------------------------------------
Cost of Noise, Accident,             -$900       -$1,200       -$1,600       -$2,300       -$3,100       -$9,200
 Congestion ($).............
Pretax Fuel Savings ($).....        12,500        18,600        25,100        36,000        49,600       141,900
Energy Security (price                 800         1,100         1,400         2,000         2,700         8,000
 shock) ($) a...............
Value of Reduced Refueling             900         1,300         1,700         2,400         3,200         9,400
 time ($)...................
Value of Additional Driving          1,900         2,700         3,500         4,700         6,200        19,000
 ($)........................
Value of PM2.5-related                 500           800         1,000         1,400         1,900         5,600
 Health Impacts ($) b c d...
----------------------------------------------------------------------------------------------------------------
                              Reduced CO2 Emissions at each assumed SCC value e f g
----------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...............           400           500           700         1,000         1,300         3,800
Avg SCC at 3%...............         1,700         2,400         3,100         4,400         5,900        17,000
Avg SCC at 2.5%.............         2,700         3,900         5,200         7,200         9,700        29,000
95th percentile SCC at 3%...         5,100         7,300         9,600        13,000        18,000        53,000
----------------------------------------------------------------------------------------------------------------
                                 Total Benefits at each assumed SCC value e f g
----------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...............        16,100        23,800        31,800        45,200        61,800       178,500
Avg SCC at 3%...............        17,400        25,700        34,200        48,600        66,400       191,700
Avg SCC at 2.5%.............        18,400        27,200        36,300        51,400        70,200       203,700
95th percentile SCC at 3%...        20,800        30,600        40,700        57,200        78,500       227,700
----------------------------------------------------------------------------------------------------------------
a Note that, due to a calculation error in the proposal, the energy security impacts for the model year analysis
  were roughly half what they should have been.
b Note that the co-pollutant impacts associated with the standards presented here do not include the full
  complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-
  related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton values that reflect only
  human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental
  benefits would be based on changes in ambient PM2.5 and ozone as determined by full-scale air quality
  modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis associated with the
  vehicle model year lifetimes for the final rule.
c The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table are based on an
  estimate of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit-per-ton
  estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145%
  (nearly two-and-a-half times) larger.
d The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table assume a 3% discount
  rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If a 7%
  discount rate had been used, the values would be approximately 9% lower.
e Note that net 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 (SCC at 5, 3, 2.5 percent) is used
  to calculate net present value of SCC for internal consistency. Refer to the SCC TSD for more detail.
f Monetized GHG benefits exclude the value of reductions in non-CO2 GHG emissions (HFC, CH4 and N2O) expected
  under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO2 emissions,
  the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO2 GHGs will
  contribute to this rule's climate benefits, as explained in Section III.F.2. The SCC TSD notes the difference
  between the social cost of non-CO2 emissions and CO2 emissions, and specifies a goal to develop methods to
  value non-CO2 emissions in future analyses.
g Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC
  estimates range as follows: For Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at
  2.5%: $36-$65; and for 95th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

    Table III.H.10-6--Quantified Net Benefits Associated with the Lifetimes of 2012-2016 Model Year Vehicles
                                  [Millions of 2007 dollars; 3% discount rate]
----------------------------------------------------------------------------------------------------------------
 Monetized Values (millions)     2012MY        2013MY        2014MY        2015MY        2016MY          Sum
----------------------------------------------------------------------------------------------------------------
Quantified Annual Costs             $4,900        $8,000       $10,300       $12,700       $15,600       $51,500
 (excluding fuel savings) a.
----------------------------------------------------------------------------------------------------------------
                           Quantified Annual Benefits at each assumed SCC value b c d
----------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...............        20,500        30,100        40,400        57,400        78,700       227,000
Avg SCC at 3%...............        21,800        32,000        42,800        60,800        83,300       240,200

[[Page 25539]]

Avg SCC at 2.5%.............        22,800        33,500        44,900        63,600        87,100       252,200
95th percentile SCC at 3%...        25,200        36,900        49,300        69,400        95,400       276,200
----------------------------------------------------------------------------------------------------------------
                             Quantified Net Benefits at each assumed SCC value b c d
----------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...............        15,600        22,100        30,100        44,700        63,100       175,500
Avg SCC at 3%...............        16,900        24,000        32,500        48,100        67,700       188,700
Avg SCC at 2.5%.............        17,900        25,500        34,600        50,900        71,500       200,700
95th percentile SCC at 3%...        20,300        28,900        39,000        56,700        79,800       224,700
----------------------------------------------------------------------------------------------------------------
a Quantified annual costs as shown here are the increased costs for new vehicles in each given model year. Since
  those costs are assumed to occur in the given model year (i.e., not over a several year time span), the
  discount rate does not affect the costs.
b Note that net 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 (SCC at 5, 3, 2.5 percent) is used
  to calculate net present value of SCC for internal consistency. Refer to the SCC TSD for more detail.
c Monetized GHG benefits exclude the value of reductions in non-CO2 GHG emissions (HFC, CH4 and N2O) expected
  under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO2 emissions,
  the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO2 GHGs will
  contribute to this rule's climate benefits, as explained in Section III.F.2. The SCC TSD notes the difference
  between the social cost of non-CO2 emissions and CO2 emissions, and specifies a goal to develop methods to
  value non-CO2 emissions in future analyses.
d Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC
  estimates range as follows: For Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at
  2.5%: $36-$65; and for 95th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

    Table III.H.10-7--Quantified Net Benefits Associated With the Lifetimes of 2012-2016 Model Year Vehicles
                                  [Millions of 2007 dollars; 7% discount rate]
----------------------------------------------------------------------------------------------------------------
 Monetized values (millions)     2012MY        2013MY        2014MY        2015MY        2016MY          Sum
----------------------------------------------------------------------------------------------------------------
Quantified Annual Costs             $4,900        $8,000       $10,300       $12,700       $15,600       $51,500
 (excluding fuel savings)
 \a\........................
----------------------------------------------------------------------------------------------------------------
                           Quantified Annual Benefits at each assumed SCC value b c d
----------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...............        16,100        23,800        31,800        45,200        61,800       178,500
Avg SCC at 3%...............        17,400        25,700        34,200        48,600        66,400       191,700
Avg SCC at 2.5%.............        18,400        27,200        36,300        51,400        70,200       203,700
95th percentile SCC at 3%...        20,800        30,600        40,700        57,200        78,500       227,700
----------------------------------------------------------------------------------------------------------------
                             Quantified Net Benefits at each assumed SCC value b c d
----------------------------------------------------------------------------------------------------------------
Avg SCC at 5%...............        11,200        15,800        21,500        32,500        46,200       127,000
Avg SCC at 3%...............        12,500        17,700        23,900        35,900        50,800       140,200
Avg SCC at 2.5%.............        13,500        19,200        26,000        38,700        54,600       152,200
95th percentile SCC at 3%...        15,900        22,600        30,400        44,500        62,900       176,200
----------------------------------------------------------------------------------------------------------------
a Quantified annual costs as shown here are the increased costs for new vehicles in each given model year. Since
  those costs are assumed to occur in the given model year (i.e., not over a several year time span), the
  discount rate does not affect the costs.
b Note that net 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 (SCC at 5, 3, 2.5 percent) is used
  to calculate net present value of SCC for internal consistency. Refer to the SCC TSD for more detail.
c Monetized GHG benefits exclude the value of reductions in non-CO2 GHG emissions (HFC, CH4 and N2O) expected
  under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO2 emissions,
  the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO2 GHGs will
  contribute to this rule's climate benefits, as explained in Section III.F.2. The SCC TSD notes the difference
  between the social cost of non-CO2 emissions and CO2 emissions, and specifies a goal to develop methods to
  value non-CO2 emissions in future analyses.
d Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC
  estimates range as follows: For Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at
  2.5%: $36-$65; and for 95th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

I. Statutory and Executive Order Reviews

1. Executive Order 12866: Regulatory Planning and Review
    Under section 3(f)(1) of Executive Order (EO) 12866 (58 FR 51735, 
October 4, 1993), this action is an ``economically significant 
regulatory action'' because it is likely to have an annual effect on 
the economy of $100 million or more. Accordingly, EPA submitted this 
action to the Office of Management and Budget (OMB) for review under EO 
12866 and any changes made in response to OMB recommendations have been 
documented in the docket for this action.
    In addition, EPA prepared an analysis of the potential costs and 
benefits associated with this action. This analysis is contained in the 
Final Regulatory Impact Analysis, which is available in the docket for 
this rulemaking and at the docket internet address listed under 
ADDRESSES above.
2. Paperwork Reduction Act
    The information collection requirements in this final rule have 
been

[[Page 25540]]

submitted for approval to the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq., and has been 
assigned OMB control number 0783.57. The information collection 
requirements are not enforceable until OMB approves them.
    The Agency is finalizing requirements for manufacturers to submit 
information to ensure compliance with the provisions in this rule. This 
includes a variety of requirements for vehicle manufacturers. Section 
208(a) of the Clean Air Act requires that vehicle manufacturers provide 
information the Administrator may reasonably require to determine 
compliance with the regulations; submission of the information is 
therefore mandatory. We will consider confidential all information 
meeting the requirements of section 208(c) of the Clean Air Act.
    As shown in Table III.I.2-1, the total annual burden associated 
with this rule is about 39,900 hours and $5 million, based on a 
projection of 33 respondents. The estimated burden for vehicle 
manufacturers is a total estimate for new reporting requirements. 
Burden means the total time, effort, or financial resources expended by 
persons to generate, maintain, retain, or disclose or provide 
information to or for a Federal agency. This includes the time needed 
to review instructions; develop, acquire, install, and utilize 
technology and systems for the purposes of collecting, validating, and 
verifying information, processing and maintaining information, and 
disclosing and providing information; adjust the existing ways to 
comply with any previously applicable instructions and requirements; 
train personnel to be able to respond to a collection of information; 
search data sources; complete and review the collection of information; 
and transmit or otherwise disclose the information.

    Table III.I.2-1--Estimated Burden for Reporting and Recordkeeping
                              Requirements
------------------------------------------------------------------------
                                      Annual burden
       Number of respondents              hours           Annual costs
------------------------------------------------------------------------
33................................             39,940         $5,001,000
------------------------------------------------------------------------

    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations in 40 CFR are listed in 40 CFR part 9. In addition, EPA is 
amending the table in 40 CFR part 9 of currently approved OMB control 
numbers for various regulations to list the regulatory citations for 
the information requirements contained in this final rule.
3. Regulatory Flexibility Act
a. Overview
    The Regulatory Flexibility Act (RFA) generally requires an agency 
to prepare a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities directly subject to the rule. Small entities 
include small businesses, small organizations, and small governmental 
jurisdictions.
    For purposes of assessing the impacts of this rule on small 
entities, small entity is defined as: (1) A small business as defined 
by the Small Business Administration's (SBA) regulations at 13 CFR 
121.201 (see table below); (2) a small governmental jurisdiction that 
is a government of a city, county, town, school district or special 
district with a population of less than 50,000; and (3) a small 
organization that is any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.
    Table III.I.3-1 provides an overview of the primary SBA small 
business categories included in the light-duty vehicle sector:

             Table III.I.3-1--Primary SBA Small Business Categories in the Light-Duty Vehicle Sector
----------------------------------------------------------------------------------------------------------------
                                          Defined as small entity by
             Industry \a\               SBA if less than or equal to:               NAICS codes \b\
----------------------------------------------------------------------------------------------------------------
Light-duty vehicles:
    --Vehicle manufacturers (including  1,000 employees..............  336111
     small volume manufacturers).
    --Independent commercial importers  $7 million annual sales......  811111, 811112, 811198
                                        $23 million annual sales.....  441120
                                        100 employees................  423110, 424990
    --Alternative fuel vehicle          50 employees.................  336312, 336322, 336399
     converters.
                                        750 employees................  335312
                                        1,000 employees..............  454312, 485310, 811198
                                        $7 million annual sales.
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Light-duty vehicle entities that qualify as small businesses would not be subject to this rule. We are
  exempting small vehicle entities, and we intend to address these entities in a future rule.
\b\ North American Industrial Classification System.

b. Summary of Potentially Affected Small Entities
    EPA has not conducted a Regulatory Flexibility Analysis or a SBREFA 
SBAR Panel for the rule because we are certifying that the rule would 
not have a significant economic impact on a substantial number of small 
entities directly subject to the rule. As proposed, EPA is exempting 
manufacturers meeting SBA's business size criteria for small business 
as provided in 13 CFR 121.201, due to the short lead time to develop 
this rule, the extremely small emissions contribution of these 
entities, and the potential need to develop a program that would be 
structured

[[Page 25541]]

differently for them (which would require more time). EPA would instead 
consider appropriate GHG standards for these entities as part of a 
future regulatory action. This includes U.S. and foreign small entities 
in three distinct categories of businesses for light-duty vehicles: 
Small volume manufacturers (SVMs), independent commercial importers 
(ICIs), and alternative fuel vehicle converters. EPA has identified a 
total of about 47 vehicle businesses; about 13 entities (or 28 percent) 
fit the Small Business Administration (SBA) criteria of a small 
business. There are about 2 SVMs, 8 ICIs, and 3 alternative fuel 
vehicle converters in the light-duty vehicle market which are small 
businesses (no major vehicle manufacturers meet the small-entity 
criteria as defined by SBA). EPA estimates that these small entities 
comprise about 0.03 percent of the total light-duty vehicle sales in 
the U.S., and therefore the exemption will have a negligible impact on 
the GHG emissions reductions from the standards.
    To ensure that EPA is aware of which companies would be exempt, EPA 
proposed to require that such entities submit a declaration to EPA 
containing a detailed written description of how that manufacturer 
qualifies as a small entity under the provisions of 13 CFR 121.201. EPA 
has reconsidered the need for this additional submission under the 
regulations and is deleting it as not necessary. We already have 
information on the limited number of small entities that we expect 
would receive the benefits of the exemption, and do not need the 
proposed regulatory requirement to be able to effectively implement 
this exemption for those parties who in fact meet its terms. Small 
entities are currently covered by a number of EPA motor vehicle 
emission regulations, and they routinely submit information and data on 
an annual basis as part of their compliance responsibilities. Based on 
this, EPA is certifying that the rule would not have a significant 
economic impact on a substantial number of small entities.
c. Conclusions
    I therefore certify that this rule will not have a significant 
economic impact on a substantial number of small entities. However, EPA 
recognizes that some small entities continue to be concerned about the 
potential impacts of the statutory imposition of PSD requirements that 
may occur given the various EPA rulemakings currently under 
consideration concerning greenhouse gas emissions. As explained in the 
preamble for the proposed PSD tailoring rule (74 FR 55292, Oct. 27, 
2009), EPA used the discretion afforded to it under section 609(c) of 
the RFA to consult with OMB and SBA, with input from outreach to small 
entities, regarding the potential impacts of PSD regulatory 
requirements that might occur as EPA considers regulations of GHGs. 
Concerns about the potential impacts of statutorily imposed PSD 
requirements on small entities were the subject of deliberations in 
that consultation and outreach. EPA has compiled a summary of that 
consultation and outreach, which is available in the docket for the 
Tailoring Rule (EPA-HQ-OAR-2009-0517).
4. Unfunded Mandates Reform Act
    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 
U.S.C. 1531-1538, requires Federal agencies, unless otherwise 
prohibited by law, to assess the effects of their regulatory actions on 
State, local, and tribal governments and the private sector. Under 
section 202 of the UMRA, EPA generally must prepare a written 
statement, including a cost-benefit analysis, for proposed and final 
rules with ``Federal mandates'' that may result in expenditures to 
State, local, and tribal governments, in the aggregate, or to the 
private sector, of $100 million or more in any one year.
    This rule 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. This rule contains no Federal 
mandates (under the regulatory provisions of Title II of the UMRA) for 
State, local, or tribal governments. The rule imposes no enforceable 
duty on any State, local or tribal governments. EPA has determined that 
this rule contains no regulatory requirements that might significantly 
or uniquely affect small governments. EPA has determined that this rule 
contains a Federal mandate that may result in expenditures of $100 
million or more for the private sector in any one year. EPA believes 
that the action represents the least costly, most cost-effective 
approach to achieve the statutory requirements of the rule. The costs 
and benefits associated with the rule are discussed above and in the 
Final Regulatory Impact Analysis, as required by the UMRA.
5. 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, as 
specified in Executive Order 13132. This rulemaking applies to 
manufacturers of motor vehicles and not to State or local governments. 
Thus, Executive Order 13132 does not apply to this action. Although 
section 6 of Executive Order 13132 does not apply to this action, EPA 
did consult with representatives of State governments in developing 
this action.
    In the spirit of Executive Order 13132, and consistent with EPA 
policy to promote communications between EPA and State and local 
governments, EPA specifically solicited comment on the proposed action 
from State and local officials. Many State and local governments 
submitted public comments on the rule, the majority of which were 
supportive of the EPA's greenhouse gas program. However, these entities 
did not provide comments indicating there would be a substantial direct 
effect on State or local governments resulting from this rule.
6. Executive Order 13175 (Consultation and Coordination With Indian 
Tribal Governments)
    This action does not have tribal implications, as specified in 
Executive Order 13175 (65 FR 67249, November 9, 2000). This rule will 
be implemented at the Federal level and impose compliance costs only on 
vehicle manufacturers. Tribal governments will be affected only to the 
extent they purchase and use regulated vehicles. Thus, Executive Order 
13175 does not apply to this action.
7. Executive Order 13045: ``Protection of Children From Environmental 
Health Risks and Safety Risks''
    This action is subject to EO 13045 (62 FR 19885, April 23, 1997) 
because it is an economically significant regulatory action as defined 
by EO 12866, and EPA believes that the environmental health or safety 
risk addressed by this action may have a disproportionate effect on 
children. A synthesis of the science and research regarding how climate 
change may affect children and other vulnerable subpopulations is 
contained in the Technical Support Document for Endangerment or Cause 
or Contribute Findings for Greenhouse Gases under Section 202(a) of the 
Clean Air Act, which can be found in the public docket for this 
rule.\502\ A summary of the analysis is presented below.
---------------------------------------------------------------------------

    \502\ U.S. EPA. (2009). Technical Support Document for 
Endangerment or Cause or Contribute Findings for Greenhouse Gases 
under Section 202(a) of the Clean Air Act. Washington, DC: U.S. EPA. 
Docket EPA-HQ-OAR-2009-0472-11292.
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    With respect to GHG emissions, the effects of climate change 
observed to

[[Page 25542]]

date and projected to occur in the future include the increased 
likelihood of more frequent and intense heat waves. Specifically, EPA's 
analysis of the scientific assessment literature has determined that 
severe heat waves are projected to intensify in magnitude, frequency, 
and duration over the portions of the U.S. where these events already 
occur, with potential increases in mortality and morbidity, especially 
among the young, elderly, and frail. EPA has estimated reductions in 
projected global mean surface temperatures as a result of reductions in 
GHG emissions associated with the standards finalized in this action 
(Section III.F). Children may receive benefits from reductions in GHG 
emissions because they are included in the segment of the population 
that is most vulnerable to extreme temperatures.
    For non-GHG pollutants, EPA has determined that climate change is 
expected to increase regional ozone pollution, with associated risks in 
respiratory infection, aggravation of asthma, and premature death. The 
directional effect of climate change on ambient PM levels remains 
uncertain. However, disturbances such as wildfires are increasing in 
the U.S. and are likely to intensify in a warmer future with drier 
soils and longer growing seasons. PM emissions from forest fires can 
contribute to acute and chronic illnesses of the respiratory system, 
particularly in children, including pneumonia, upper respiratory 
diseases, asthma and chronic obstructive pulmonary diseases.
8. Executive Order 13211 (Energy Effects)
    This rule is not a ``significant energy action'' as defined in 
Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355 
(May 22, 2001)) because it is not likely to have a significant adverse 
effect on the supply, distribution, or use of energy. In fact, this 
rule has a positive effect on energy supply and use. Because the GHG 
emission standards finalized today result in significant fuel savings, 
this rule encourages more efficient use of fuels. Therefore, we have 
concluded that this rule is not likely to have any adverse energy 
effects. Our energy effects analysis is described above in Section 
III.H.
9. National Technology Transfer Advancement Act
    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note) 
directs EPA to use voluntary consensus standards in its regulatory 
activities unless to do so would be inconsistent with applicable law or 
otherwise impractical. Voluntary consensus standards are technical 
standards (e.g., materials specifications, test methods, sampling 
procedures, and business practices) that are developed or adopted by 
voluntary consensus standards bodies. NTTAA directs EPA to provide 
Congress, through OMB, explanations when the Agency decides not to use 
available and applicable voluntary consensus standards.
    The rulemaking involves technical standards. Therefore, the Agency 
conducted a search to identify potentially applicable voluntary 
consensus standards. For CO2, N2O, and 
CH4 emissions, we identified no such standards, and none 
were brought to our attention in comments. Therefore, EPA is collecting 
data over the same test cycles that are used for the CAFE program 
following standardized test methods and sampling procedures. This will 
minimize the amount of testing done by manufacturers, since 
manufacturers are already required to run these tests. For A/C system 
leakage improvement credits, EPA identified a Society of Automotive 
Engineers (SAE) methodology and EPA's approach is based closely on this 
SAE methodology. For the A/C system efficiency improvement credits, 
including the new idle test, EPA generally uses standardized test 
methods and sampling procedures. However, EPA knows of no consensus 
standard available for an A/C idle test to measure system efficiency 
improvements.
10. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations
    Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes 
Federal executive policy on environmental justice. Its main provision 
directs Federal agencies, to the greatest extent practicable and 
permitted by law, to make 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.
    With respect to GHG emissions, EPA has determined that this final 
rule will not have disproportionately high and adverse human health or 
environmental effects on minority or low-income populations because it 
increases the level of environmental protection for all affected 
populations without having any disproportionately high and adverse 
human health or environmental effects on any population, including any 
minority or low-income population. The reductions in CO2 and 
other GHGs associated with the standards will affect climate change 
projections, and EPA has estimated reductions in projected global mean 
surface temperatures (Section III.F.3). Within communities experiencing 
climate change, certain parts of the population may be especially 
vulnerable; these include the poor, the elderly, those already in poor 
health, the disabled, those living alone, and/or indigenous populations 
dependent on one or a few resources.\503\ In addition, the U.S. Climate 
Change Science Program \504\ stated as one of its conclusions: ``The 
United States is certainly capable of adapting to the collective 
impacts of climate change. However, there will still be certain 
individuals and locations where the adaptive capacity is less and these 
individuals and their communities will be disproportionally impacted by 
climate change.'' Therefore, these specific sub-populations may receive 
benefits from reductions in GHGs.
---------------------------------------------------------------------------

    \503\ U.S. EPA. (2009). Technical Support Document for 
Endangerment or Cause or Contribute Findings for Greenhouse Gases 
under Section 202(a) of the Clean Air Act. Washington, DC: U.S. EPA. 
Docket EPA-HQ-OAR-2009-0472-11292.
    \504\ CCSP (2008) Analyses of the effects of global change on 
human health and welfare and human systems. A Report by the U.S. 
Climate Change Science Program and the Subcommittee on Global Change 
Research. [Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. 
Wilbanks, (Authors)]. U.S. Environmental Protection Agency, 
Washington, DC, USA.
---------------------------------------------------------------------------

    For non-GHG co-pollutants such as ozone, PM2.5, and 
toxics, EPA has concluded that it is not practicable to determine 
whether there would be disproportionately high and adverse human health 
or environmental effects on minority and/or low income populations from 
this final rule.
11. Congressional Review Act
    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. EPA will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to publication of the rule in the Federal Register. A Major rule cannot 
take effect until 60 days after it

[[Page 25543]]

is published in the Federal Register. This action is a ``major rule'' 
as defined by 5 U.S.C. 804(2). This rule will be effective July 6, 
2010, sixty days after date of publication in the Federal Register.

J. Statutory Provisions and Legal Authority

    Statutory authority for the vehicle controls finalized today 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, 7523, 7524, 7525, 7541, 7542, 7543, 
7550, and 7601.

IV. NHTSA Final Rule and Record of Decision for Passenger Car and Light 
Truck CAFE Standards for MYs 2012-2016

A. Executive Overview of NHTSA Final Rule

1. Introduction
    The National Highway Traffic Safety Administration (NHTSA) is 
establishing Corporate Average Fuel Economy (CAFE) standards for 
passenger automobiles (passenger cars) and nonpassenger automobiles 
(light trucks) for model years (MY) 2012-2016. Improving vehicle fuel 
economy has been long and widely recognized as one of the key ways of 
achieving energy independence, energy security, and a low carbon 
economy.\505\ NHTSA's CAFE standards will require passenger cars and 
light trucks to meet an estimated combined average of 34.1 mpg in MY 
2016. This represents an average annual increase of 4.3 percent from 
the 27.6 mpg combined fuel economy level in MY 2011. NHTSA's final rule 
projects total fuel savings of approximately 61 billion gallons over 
the lifetimes of the vehicles sold in model years 2012-2016, with 
corresponding net societal benefits of over $180 billion using a 3 
percent discount rate.\506\
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    \505\ Among the reports and studies noting this point are the 
following:
    John Podesta, Todd Stern and Kim Batten, ``Capturing the Energy 
Opportunity; Creating a Low-Carbon Economy,'' Center for American 
Progress (November 2007), pp. 2, 6, 8, and 24-29, available at: 
http://www.americanprogress.org/issues/2007/11/pdf/energy_
chapter.pdf (last accessed March 1, 2010).
    Sarah Ladislaw, Kathryn Zyla, Jonathan Pershing, Frank 
Verrastro, Jenna Goodward, David Pumphrey, and Britt Staley, ``A 
Roadmap for a Secure, Low-Carbon Energy Economy; Balancing Energy 
Security and Climate Change,'' World Resources Institute and Center 
for Strategic and International Studies (January 2009), pp. 21-22; 
available at: http://pdf.wri.org/secure_low_carbon_energy_
economy_roadmap.pdf (last accessed March 1, 2010).
    Alliance to Save Energy et al., ``Reducing the Cost of 
Addressing Climate Change Through Energy Efficiency (2009), 
available at: http://Aceee.org/energy/climate/leg.htm (last accessed 
March 1, 2010).
    John DeCicco and Freda Fung, ``Global Warming on the Road; The 
Climate Impact of America's Automobiles,'' Environmental Defense 
(2006) pp. iv-vii; available at: http://www.edf.org/documents/5301_
Globalwarmingontheroad.pdf (last accessed March 1, 2010).
    ``Why is Fuel Economy Important?,'' a Web page maintained by the 
Department of Energy and Environmental Protection Agency, available 
at http://www.fueleconomy.gov/feg/why.shtml (last accessed March 1, 
2010); Robert Socolow, Roberta Hotinski, Jeffery B. Greenblatt, and 
Stephen Pacala, ``Solving The Climate Problem: Technologies 
Available to Curb CO2 Emissions,'' Environment, volume 
46, no. 10, 2004. pages 8-19, available at: http://
www.princeton.edu/mae/people/faculty/socolow/
ENVIRONMENTDec2004issue.pdf (last accessed March 1, 2010).
    \506\ This value is based on what NHTSA refers to as ``Reference 
Case'' inputs, which are based on the assumptions that NHTSA has 
employed for its main analysis (as opposed to sensitivity analyses 
to examine the effect of variations in the assumptions on costs and 
benefits). The Reference Case inputs include fuel prices based on 
the AEO 2010 Reference Case, a 3 percent discount rate, a 10 percent 
rebound effect, a value for the social cost of carbon (SCC) of $21/
metric ton CO2 (in 2010, rising to $45/metric ton in 
2050, at a 3 percent discount rate), etc. For a full listing of the 
Reference Case input assumptions, see Section IV.C.3 below.
---------------------------------------------------------------------------

    The significance accorded to improving fuel economy reflects 
several factors. Conserving energy, especially reducing the nation's 
dependence on petroleum, benefits the U.S. in several ways. Improving 
energy efficiency has benefits for economic growth and the environment, 
as well as other benefits, such as reducing pollution and improving 
security of energy supply. More specifically, reducing total petroleum 
use decreases our economy's vulnerability to oil price shocks. Reducing 
dependence on oil imports from regions with uncertain conditions 
enhances our energy security. Additionally, the emission of 
CO2 from the tailpipes of cars and light trucks is one of 
the largest sources of U.S. CO2 emissions.\507\ Using 
vehicle technology to improve fuel economy, thereby reducing tailpipe 
emissions of CO2, is one of the three main measures of 
reducing those tailpipe emissions of CO2.\508\ The two other 
measures for reducing the tailpipe emissions of CO2 are 
switching to vehicle fuels with lower carbon content and changing 
driver behavior, i.e., inducing people to drive less.
---------------------------------------------------------------------------

    \507\ EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 
1990-2006 (April 2008), pp. ES-4, ES-8, and 2-24. Available at 
http://www.epa.gov/climatechange/emissions/usgginv_archive.html 
(last accessed March 1, 2010).
    \508\ Podesta et al., p. 25; Ladislaw et al. p. 21; DeCicco et 
al. p. vii; ``Reduce Climate Change,'' a Web page maintained by the 
Department of Energy and Environmental Protection Agency at http://
www.fueleconomy.gov/feg/climate.shtml (last accessed March 1, 2010).
---------------------------------------------------------------------------

    While NHTSA has been setting fuel economy standards since the 
1970s, today's action represents the first-ever joint final rule by 
NHTSA with another agency, the Environmental Protection Agency. As 
discussed in Section I, NHTSA's final MYs 2012-2016 CAFE standards are 
part of a joint National Program. A large majority of the projected 
benefits are achieved jointly with EPA's GHG rule, described in detail 
above in Section III of this preamble. These final CAFE standards are 
consistent with the President's National Fuel Efficiency Policy 
announcement of May 19, 2009, which called for harmonized rules for all 
automakers, instead of three overlapping and potentially inconsistent 
requirements from DOT, EPA, and the California Air Resources Board. And 
finally, the final CAFE standards and the analysis supporting them also 
respond to President's Obama's January 26 memorandum regarding the 
setting of CAFE standards for model years 2011 and beyond.
2. Role of Fuel Economy Improvements in Promoting Energy Independence, 
Energy Security, and a Low Carbon Economy
    The need to reduce energy consumption is more crucial today than it 
was when EPCA was enacted in the mid-1970s. U.S. energy consumption has 
been outstripping U.S. energy production at an increasing rate. Net 
petroleum imports now account for approximately 57 percent of U.S. 
domestic petroleum consumption, and the share of U.S. oil consumption 
for transportation is approximately 71 percent.\509\ Moreover, world 
crude oil production continues to be highly concentrated, exacerbating 
the risks of supply disruptions and their negative effects on both the 
U.S. and global economies.
---------------------------------------------------------------------------

    \509\ Energy Information Administration, Petroleum Basic 
Statistics, updated July 2009. Available at http://www.eia.doe.gov/
basics/quickoil.html (last accessed March 1, 2010).
---------------------------------------------------------------------------

    Gasoline consumption in the U.S. has historically been relatively 
insensitive to fluctuations in both price and consumer income, and 
people in most parts of the country tend to view gasoline consumption 
as a non-discretionary expense. Thus, when gasoline's share in consumer 
expenditures rises, the public experiences fiscal distress. This fiscal 
distress can, in some cases, have macroeconomic consequences for the

[[Page 25544]]

economy at large. Additionally, since U.S. oil production is only 
affected by fluctuations in prices over a period of years, any changes 
in petroleum consumption (as through increased fuel economy) largely 
flow into changes in the quantity of imports. Since petroleum imports 
account for about 2 percent of GDP, increase in oil imports can create 
a discernable fiscal drag. As a consequence, measures that reduce 
petroleum consumption, such as fuel economy standards, will directly 
benefit the balance-of-payments account, and strengthen the domestic 
economy to some degree. And finally, U.S. foreign policy has been 
affected for decades by rising U.S. and world dependency of crude oil 
as the basis for modern transportation systems, although fuel economy 
standards have only an indirect and general impact on U.S. foreign 
policy.
    The benefits of a low carbon economy are manifold. The U.S. 
transportation sector is a significant contributor to total U.S. and 
global anthropogenic emissions of greenhouse gases. Motor vehicles are 
the second largest greenhouse gas-emitting sector in the U.S., after 
electricity generation, and accounted for 24 percent of total U.S. 
greenhouse gas emissions in 2006. Concentrations of greenhouse gases 
are at unprecedented levels compared to the recent and distant past, 
which means that fuel economy improvements to reduce those emissions 
are a crucial step toward addressing the risks of global climate 
change. These risks are well documented in Section III of this notice.
3. The National Program
    NHTSA and EPA are each announcing final rules that have the effect 
of addressing the urgent and closely intertwined challenges of energy 
independence and security and global warming. These final rules call 
for a strong and coordinated Federal greenhouse gas and fuel economy 
program for passenger cars, light-duty-trucks, and medium-duty 
passenger vehicles (hereafter light-duty vehicles), referred to as the 
National Program. The final rules represent a coordinated program that 
can achieve substantial reductions of greenhouse gas (GHG) emissions 
and improvements in fuel economy from the light-duty vehicle part of 
the transportation sector, based on technology that will be 
commercially available and that can be incorporated at a reasonable 
cost in the rulemaking timeframe. The agencies' final rules will also 
provide regulatory certainty and consistency for the automobile 
industry by setting harmonized national standards. They were developed 
and are designed in ways that recognize and accommodate the relatively 
short amount of lead time for the model years covered by the rulemaking 
and the serious current economic situation faced by this industry.
    These joint standards are consistent with the President's 
announcement on May 19, 2009 of a National Fuel Efficiency Policy that 
will reduce greenhouse gas emissions and improve fuel economy for all 
new cars and light-duty trucks sold in the United States,\510\ and with 
the Notice of Upcoming Joint Rulemaking signed by DOT and EPA on that 
date.\511\ This joint final rule also responds to the President's 
January 26, 2009 memorandum on CAFE standards for model years 2011 and 
beyond, the details of which can be found below.
---------------------------------------------------------------------------

    \510\ President Obama Announces National Fuel Efficiency Policy, 
The White House, May 19, 2009. Available at http://
www.whitehouse.gov/the_press_office/President-Obama-Announces-
National-Fuel-Efficiency-Policy/ (last accessed March 15, 2010).
    \511\ 74 FR 24007 (May 22, 2009).
---------------------------------------------------------------------------

a. Building Blocks of the National Program
    The National Program is both needed and possible because the 
relationship between improving fuel economy and reducing CO2 
tailpipe emissions is a very direct and close one. CO2 is 
the natural by-product of the combustion of fuel in motor vehicle 
engines. The more fuel efficient a vehicle is, the less fuel it burns 
to travel a given distance. The less fuel it burns, the less 
CO2 it emits in traveling that distance.\512\ Since the 
amount of CO2 emissions is essentially constant per gallon 
combusted of a given type of fuel, the amount of fuel consumption per 
mile is directly related to the amount of CO2 emissions per 
mile. In the real world, there is a single pool of technologies for 
reducing fuel consumption and CO2 emissions. Using those 
technologies in the way that minimizes fuel consumption also minimizes 
CO2 emissions. While there are emission control technologies 
that can capture or destroy the pollutants (e.g., carbon monoxide) that 
are produced by imperfect combustion of fuel, there is at present no 
such technology for CO2. In fact, the only way at present to 
reduce tailpipe emissions of CO2 is by reducing fuel 
consumption. The National Program thus has dual benefits: it conserves 
energy by improving fuel economy, as required of NHTSA by EPCA and 
EISA; in the process, it necessarily reduces tailpipe CO2 
emissions consonant with EPA's purposes and responsibilities under the 
Clean Air Act.
---------------------------------------------------------------------------

    \512\ Panel on Policy Implications of Greenhouse Warming, 
National Academy of Sciences, National Academy of Engineering, 
Institute of Medicine, ``Policy Implications of Greenhouse Warming: 
Mitigation, Adaptation, and the Science Base,'' National Academies 
Press, 1992, at 287.
---------------------------------------------------------------------------

i. DOT's CAFE Program
    In 1975, Congress enacted the Energy Policy and Conservation Act 
(EPCA), mandating a regulatory program for motor vehicle fuel economy 
to meet the various facets of the need to conserve energy, including 
ones having energy independence and security, environmental and foreign 
policy implications. EPCA allocates the responsibility for implementing 
the program between NHTSA and EPA as follows:
     NHTSA sets Corporate Average Fuel Economy (CAFE) standards 
for passenger cars and light trucks.
     Because fuel economy performance is measured during 
emissions regulation testing, EPA establishes the procedures for 
testing, tests vehicles, collects and analyzes manufacturers' test 
data, and calculates the average fuel economy of each manufacturer's 
passenger cars and light trucks. EPA determines fuel economy by 
measuring the amount of CO2 emitted from the tailpipe, 
rather than by attempting to measure directly the amount of fuel 
consumed during a vehicle test, a difficult task to accomplish with 
precision. EPA then uses the carbon content of the test fuel \513\ to 
calculate the amount of fuel that had to be consumed per mile in order 
to produce that amount of CO2. Finally, EPA converts that 
fuel consumption figure into a miles-per-gallon figure.
---------------------------------------------------------------------------

    \513\ This is the method that EPA uses to determine compliance 
with NHTSA's CAFE standards.
---------------------------------------------------------------------------

     Based on EPA's calculation, NHTSA enforces the CAFE 
standards.
    The CAFE standards and compliance testing cannot capture all of the 
real world CO2 emissions, because EPCA currently requires 
EPA to use the 1975 passenger car test procedures under which vehicle 
air conditioners are not turned on during fuel economy testing.\514\ 
CAFE standards also do not address the 5-8 percent of GHG emissions 
that are not CO2, i.e., nitrous oxide (N2O), and 
methane (CH4) as well as emissions of hydrofluorocarbons 
(HFCs) related to operation of the air conditioning system.
---------------------------------------------------------------------------

    \514\ See 49 U.S.C. 32904(c).
---------------------------------------------------------------------------

    NHTSA has been setting CAFE standards pursuant to EPCA since the 
enactment of the statute. Fuel economy gains since 1975, due both to 
the standards and to market factors, have resulted in saving billions 
of barrels of oil and avoiding billions of metric tons

[[Page 25545]]

of CO2 emissions. In December 2007, Congress enacted the 
Energy Independence and Securities Act (EISA), amending EPCA to 
require, among other things, attribute-based standards for passenger 
cars and light trucks. The most recent CAFE rulemaking action was the 
issuance of standards governing model years 2011 cars and trucks.
ii. EPA's Greenhouse Gas Program
    On April 2, 2007, the U.S. Supreme Court issued its opinion in 
Massachusetts v. EPA,\515\ a case involving a 2003 order of the 
Environmental Protection Agency (EPA) denying a petition for rulemaking 
to regulate greenhouse gas emissions from motor vehicles under the 
Clean Air Act.\516\ The Court ruled that greenhouse gases are 
``pollutants'' under the CAA and that the Act therefore authorizes EPA 
to regulate greenhouse gas emissions from motor vehicles if that agency 
makes the necessary findings and determinations under section 202 of 
the Act. The Court considered EPCA only briefly, stating that the two 
obligations may overlap, but there is no reason to think the two 
agencies cannot both administer their obligations and yet avoid 
inconsistency.
---------------------------------------------------------------------------

    \515\ 127 S.Ct. 1438 (2007).
    \516\ 68 FR 52922 (Sept. 8, 2003).
---------------------------------------------------------------------------

    EPA has been working on appropriate responses that are consistent 
with the decision of the Supreme Court in Massachusetts v. EPA.\517\ As 
part of those responses, in July 2008, EPA issued an Advance Notice of 
Proposed Rulemaking seeking comments on the impact of greenhouse gases 
on the environment and on ways to reduce greenhouse gas emissions from 
motor vehicles. EPA recently also issued a final rule finding that 
emissions of GHGs from new motor vehicles and motor vehicle engines 
cause or contribute to air pollution that endanger public health and 
welfare.\518\
---------------------------------------------------------------------------

    \517\ 549 U.S. 497 (2007). For further information on 
Massachusetts v. EPA see the July 30, 2008 Advance Notice of 
Proposed Rulemaking, ``Regulating Greenhouse Gas Emissions under the 
Clean Air Act,'' 73 FR 44354 at 44397. There is a comprehensive 
discussion of the litigation's history, the Supreme Court's 
findings, and subsequent actions undertaken by the EPA from 2007-
2008 in response to the Supreme Court remand.
    \518\ 74 FR 66496 (Dec. 15, 2009).
---------------------------------------------------------------------------

iii. California Air Resources Board's Greenhouse Gas Program
    In 2004, the California Air Resources Board approved standards for 
new light-duty vehicles, which regulate the emission of not only 
CO2, but also other GHGs. Since then, thirteen states and 
the District of Columbia, comprising approximately 40 percent of the 
light-duty vehicle market, have adopted California's standards. These 
standards apply to model years 2009 through 2016 and require 
CO2 emissions levels for passenger cars and some light 
trucks of 323 g/mil in 2009, decreasing to 205 g/mi in 2016, and 439 g/
mi for light trucks in 2009, decreasing to 332 g/mi in 2016. In 2008, 
EPA denied a request by California for a waiver of preemption under the 
CAA for its GHG emissions standards. However, consistent with another 
Presidential Memorandum of January 26, 2009, EPA reconsidered the prior 
denial of California's request.\519\ EPA withdrew the prior denial and 
granted California's request for a waiver on June 30, 2009.\520\ The 
granting of the waiver permits California's emission standards to come 
into effect notwithstanding the general preemption of State emission 
standards for new motor vehicles that otherwise applies under the Clean 
Air Act.
---------------------------------------------------------------------------

    \519\ 74 FR 66495 (Dec. 15, 2009). The endangerment finding was 
challenged by industry in a filing submitted December 23, 2009; a 
hearing date does not appear to have been set.
    \520\ 74 FR 32744 (July 8, 2009).
---------------------------------------------------------------------------

b. The President's Announcement of National Fuel Efficiency Policy (May 
2009)
    The issue of three separate regulatory frameworks and overlapping 
requirements for reducing fuel consumption and CO2 emissions 
has been a subject of much controversy and legal disputes. On May 19, 
2009 President Obama announced a National Fuel Efficiency Policy aimed 
at both increasing fuel economy and reducing greenhouse gas pollution 
for all new cars and trucks sold in the United States, while also 
providing a predictable regulatory framework for the automotive 
industry. The policy seeks to set harmonized Federal standards to 
regulate both fuel economy and greenhouse gas emissions while 
preserving the legal authorities of the Department of Transportation, 
the Environmental Protection Agency and the State of California. The 
program covers model year 2012 to model year 2016 and ultimately 
requires the equivalent of an average fuel economy of 35.5 mpg in 2016, 
if all CO2 reduction were achieved through fuel economy 
improvements. Building on the MY 2011 standard that was set in March 
2009, this represents an average of 5 percent increase in average fuel 
economy each year between 2012 and 2016.
    In conjunction with the President's announcement, the Department of 
Transportation and the Environmental Protection Agency issued on May 
19, 2009, a Notice of Upcoming Joint Rulemaking to propose a strong and 
coordinated fuel economy and greenhouse gas National Program for Model 
Year (MY) 2012-2016 light duty vehicles. Consistent, harmonized, and 
streamlined requirements under that program hold out the promise of 
delivering environmental and energy benefits, cost savings, and 
administrative efficiencies on a nationwide basis that might not be 
available under a less coordinated approach. The National Program makes 
it possible for the standards of two different Federal agencies and the 
standards of California and other states to act in a unified fashion in 
providing these benefits. A harmonized approach to regulating light-
duty vehicle greenhouse gas (GHG) emissions and fuel economy is 
critically important given the interdependent goals of addressing 
climate change and ensuring energy independence and security. 
Additionally, a harmonized approach may help to mitigate the cost to 
manufacturers of having to comply with multiple sets of Federal and 
State standards
4. Review of CAFE Standard Setting Methodology per the President's 
January 26, 2009 Memorandum on CAFE Standards for MYs 2011 and Beyond
    On May 2, 2008, NHTSA published a Notice of Proposed Rulemaking 
entitled Average Fuel Economy Standards, Passenger Cars and Light 
Trucks; Model Years 2011-2015, 73 FR 24352. In mid-October, the agency 
completed and released a final environmental impact statement in 
anticipation of issuing standards for those years. Based on its 
consideration of the public comments and other available information, 
including information on the financial condition of the automotive 
industry, the agency adjusted its analysis and the standards and 
prepared a final rule for MYs 2011-2015. On November 14, the Office of 
Information and Regulatory Affairs (OIRA) of the Office of Management 
and Budget concluded review of the rule as consistent with the 
Order.\521\ However, issuance of the final rule was held in abeyance. 
On January 7, 2009, the Department of Transportation announced that the 
final rule would not be issued.
---------------------------------------------------------------------------

    \521\ Record of OIRA's action can be found at http://
www.reginfo.gov/public/do/eoHistReviewSearch (last accessed March 1, 
2010). To find the report on the clearance of the draft final rule, 
select ``Department of Transportation'' under ``Economically 
Significant Reviews Completed'' and select ``2008'' under ``Select 
Calendar Year.''

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

[[Page 25546]]

a. Requests in the President's Memorandum
    In light of the requirement to prescribe standards for MY 2011 by 
March 30, 2009 and in order to provide additional time to consider 
issues concerning the analysis used to determine the appropriate level 
of standards for MYs 2012 and beyond, the President issued a memorandum 
on January 26, 2009, requesting the Secretary of Transportation and 
Administrator of the National Highway Traffic Safety Administration 
NHTSA to divide the rulemaking into two parts: (1) MY 2011 standards, 
and (2) standards for MY 2012 and beyond.
i. CAFE Standards for Model Year 2011
    The request that the final rule establishing CAFE standards for MY 
2011 passenger cars and light trucks be prescribed by March 30, 2009 
was based on several factors. One was the requirement that the final 
rule regarding fuel economy standards for a given model year must be 
adopted at least 18 months before the beginning of that model year (49 
U.S.C. 32902(g)(2)). The other was that the beginning of MY 2011 is 
considered for the purposes of CAFE standard setting to be October 1, 
2010.
ii. CAFE Standards for Model Years 2012 and Beyond
    The President requested that, before promulgating a final rule 
concerning the model years after model year 2011, NHTSA

    [C]onsider the appropriate legal factors under the EISA, the 
comments filed in response to the Notice of Proposed Rulemaking, the 
relevant technological and scientific considerations, and to the 
extent feasible, the forthcoming report by the National Academy of 
Sciences mandated under section 107 of EISA.

    In addition, the President requested that NHTSA consider whether 
any provisions regarding preemption are appropriate under applicable 
law and policy.
b. Implementing the President's Memorandum
    In keeping with the President's remarks on January 26, 2009 for new 
national policies to address the closely intertwined issues of energy 
independence, energy security and climate change, and for the 
initiation of serious and sustained domestic and international action 
to address them, NHTSA has developed CAFE standards for MY 2012 and 
beyond after collecting new information, conducting a careful review of 
technical and economic inputs and assumptions, and standard setting 
methodology, and completing new analyses.
    The goal of the review and re-evaluation was to ensure that the 
approach used for MY 2012 and thereafter would produce standards that 
contribute, to the maximum extent possible under EPCA/EISA, to meeting 
the energy and environmental challenges and goals outlined by the 
President. We have sought to craft our program with the goal of 
creating the maximum incentives for innovation, providing flexibility 
to the regulated parties, and meeting the goal of making substantial 
and continuing reductions in the consumption of fuel. To that end, we 
have made every effort to ensure that the CAFE program for MYs 2012-
2016 is based on the best scientific, technical, and economic 
information available, and that such information was developed in close 
coordination with other Federal agencies and our stakeholders, 
including the states and the vehicle manufacturers.
    We have also re-examined EPCA, as amended by EISA, to consider 
whether additional opportunities exist to improve the effectiveness of 
the CAFE program. For example, EPCA authorizes increasing the amount of 
civil penalties for violating the CAFE standards.\522\ Further, if the 
test procedures used for light trucks were revised to provide for the 
operation of air conditioning during fuel economy testing, vehicle 
manufacturers would have a regulatory incentive to increase the 
efficiency of air conditioning systems, thereby reducing both fuel 
consumption and tailpipe emissions of CO2.\523\
---------------------------------------------------------------------------

    \522\ Under 49 U.S.C. 32912(c), roughly, NHTSA may raise the 
penalty amount if the agency decides that doing so will increase 
energy conservation substantially without having a substantial 
deleterious impact on the economy, employment, or competition among 
automobile manufacturers.
    \523\ Under 49 U.S.C. 32904(c), EPA must use the same procedures 
for passenger automobiles that the Administrator used for model year 
1975 (weighted 55 percent urban cycle and 45 percent highway cycle), 
or procedures that give comparable results.
---------------------------------------------------------------------------

    With respect to the President's request that NHTSA consider the 
issue of preemption, NHTSA is deferring further consideration of the 
preemption issue. The agency believes that it is unnecessary to address 
the issue further at this time because of the consistent and 
coordinated Federal standards that apply nationally under the National 
Program.
    As requested in the President's memorandum, NHTSA reviewed comments 
received on the MY 2011 rulemaking and revisited its assumptions and 
methodologies for purposes of developing the proposed MY 2012-2016 
standards. For more information on how the proposed CAFE standards were 
developed with those comments in mind, see the NPRM and the supporting 
documents.
5. Summary of the Final MY 2012-2016 CAFE Standards
    NHTSA is issuing CAFE standards that are, like the standards NHTSA 
promulgated in March 2009 for MY 2011, expressed as mathematical 
functions depending on vehicle footprint. Footprint is one measure of 
vehicle size, and is determined by multiplying the vehicle's wheelbase 
by the vehicle's average track width.\524\ Under the final CAFE 
standards, each light vehicle model produced for sale in the United 
States has a fuel economy target. The CAFE levels that must be met by 
the fleet of each manufacturer will be determined by computing the 
sales-weighted harmonic average of the targets applicable to each of 
the manufacturer's passenger cars and light trucks. These targets, the 
mathematical form and coefficients of which are presented later in 
today's notice, appear as follows when the values of the targets are 
plotted versus vehicle footprint:
---------------------------------------------------------------------------

    \524\ See 49 CFR 523.2 for the exact definition of 
``footprint.''
---------------------------------------------------------------------------

BILLING CODE 6560-50-P

[[Page 25547]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.021

[[Page 25548]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.022

BILLING CODE 6560-50-C
    Under these final footprint-based CAFE standards, the CAFE levels 
required of individual manufacturers depend, as noted above, on the mix 
of vehicles sold. It is important to note that NHTSA's CAFE standards 
and EPA's GHG standards will both be in effect, and each will lead to 
increases in average fuel economy and CO2 emissions 
reductions. The two agencies' standards together comprise the National 
Program, and this discussion of costs and benefits of NHTSA's CAFE 
standards does not change the fact that both the CAFE and GHG 
standards, jointly, are the source of the benefits and costs of the 
National Program.
    Based on the forecast developed for this final rule of the MYs 
2012-2016 vehicle fleet, NHTSA estimates that the targets shown above 
will result in the following estimated average required CAFE levels:

               Table IV.A.5-1--Estimated Average Required Fuel Economy (mpg) Under Final Standards
----------------------------------------------------------------------------------------------------------------
                                                     2012         2013         2014         2015         2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.................................         33.3         34.2         34.9         36.2         37.8
Light Trucks...................................         25.4         26.0         26.6         27.5         28.8
                                                ----------------------------------------------------------------
    Combined Cars & Trucks.....................         29.7         30.5         31.3         32.6         34.1
----------------------------------------------------------------------------------------------------------------

For the reader's reference, these miles per gallon values would be 
equivalent to the following gallons per 100 miles values for passenger 
cars and light trucks:

[[Page 25549]]

----------------------------------------------------------------------------------------------------------------
                                                     2012         2013         2014         2015         2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.................................         3.00         2.93         2.86         2.76         2.65
Light Trucks...................................         3.94         3.85         3.76         3.63         3.48
                                                ----------------------------------------------------------------
    Combined Cars & Trucks.....................         3.36         3.28         3.19         3.07         2.93
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that average achieved fuel economy levels will 
correspondingly increase through MY 2016, but that manufacturers will, 
on average, undercomply \525\ in some model years and overcomply \526\ 
in others, reaching a combined average fuel economy of 33.7 mpg in MY 
2016.\527\ Table IV.A.5-1 is the estimated required fuel economy for 
the final CAFE standards while Table IV.A.5-2 includes the effects of 
some manufacturers' payment of CAFE fines and use of FFV credits. In 
addition, Section IV.G.4 below contains an analysis of the achieved 
levels (and projected fuel savings, costs, and benefits) when the use 
of FFV credits is assumed.
---------------------------------------------------------------------------

    \525\ In NHTSA's analysis, ``undercompliance'' is mitigated 
either through use of FFV credits, use of existing or ``banked'' 
credits, or through fine payment. Because NHTSA cannot consider 
availability of credits in setting standards, the estimated achieved 
CAFE levels presented here do not account for their use. In 
contrast, because NHTSA is not prohibited from considering fine 
payment, the estimated achieved CAFE levels presented here include 
the assumption that BMW, Daimler (i.e., Mercedes), Porsche, and, 
Tata (i.e., Jaguar and Rover) will only apply technology up to the 
point that it would be less expensive to pay civil penalties.
    \526\ In NHTSA's analysis, ``overcompliance'' occurs through 
multi-year planning: manufacturers apply some ``extra'' technology 
in early model years (e.g., MY 2014) in order to carry that 
technology forward and thereby facilitate compliance in later model 
years (e.g., MY 2016).
    \527\ Consistent with EPCA, NHTSA has not accounted for 
manufacturers' ability to earn CAFE credits for selling FFVs, carry 
credits forward and back between model years, and transfer credits 
between the passenger car and light truck fleets.

               Table IV.A.5-2--Estimated Average Achieved Fuel Economy (mpg) Under Final Standards
----------------------------------------------------------------------------------------------------------------
                                                     2012         2013         2014         2015         2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.................................         32.8         34.4         35.3         36.3         37.2
Light Trucks...................................         25.1         26.0         27.0         27.6         28.5
                                                ----------------------------------------------------------------
    Combined Cars & Trucks.....................         29.3         30.6         31.7         32.6         33.7
----------------------------------------------------------------------------------------------------------------

    For the reader's reference, these miles per gallon values would be 
equivalent to the following gallons per 100 miles values for passenger 
cars and light trucks:

----------------------------------------------------------------------------------------------------------------
                                                     2012         2013         2014         2015         2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.................................         3.05         2.91         2.83         2.76         2.69
Light Trucks...................................         3.99         3.84         3.71         3.62         3.50
                                                ----------------------------------------------------------------
    Combined Cars & Trucks.....................         3.42         3.27         3.15         3.06         2.97
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that these fuel economy increases will lead to fuel 
savings totaling 61 billion gallons during the lifetimes of vehicles 
sold in MYs 2012-2016 (all following tables assume Reference Case 
economic inputs):

                       Table IV.A.5-3--Fuel Saved (Billion Gallons) Under Final Standards
----------------------------------------------------------------------------------------------------------------
                                        2012         2013         2014         2015         2016        Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars....................          2.4          5.2          7.2          9.4         11.4         35.7
Light Trucks......................          1.8          3.7          5.3          6.5          8.1         25.4
                                   -----------------------------------------------------------------------------
    Combined......................          4.2          8.9         12.5         16.0         19.5         61.0
----------------------------------------------------------------------------------------------------------------

    The agency also estimates that these new CAFE standards will lead 
to corresponding reductions of CO2 emissions totaling 655 
million metric tons (mmt) during the useful lives of vehicles sold in 
MYs 2012-2016:

                  Table IV.A.5-4--Avoided Carbon Dioxide Emissions (mmt) Under Final Standards
----------------------------------------------------------------------------------------------------------------
                                        2012         2013         2014         2015         2016        Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars....................           25           54           77          101          123          380
Light Trucks......................           19           40           57           71           88          275
                                   -----------------------------------------------------------------------------

[[Page 25550]]

    Combined......................           44           94          134          172          210          655
----------------------------------------------------------------------------------------------------------------

    The agency estimates that these fuel economy increases would 
produce other benefits (e.g., reduced time spent refueling), as well as 
some disbenefits (e.g., increased traffic congestion) caused by 
drivers' tendency to increase travel when the cost of driving declines 
(as it does when fuel economy increases). The agency has estimated the 
total monetary value to society of these benefits and disbenefits, and 
estimates that the final standards will produce significant benefits to 
society. NHTSA estimates that, in present value terms, these benefits 
would total over $180 billion over the useful lives of vehicles sold 
during MYs 2012-2016:

                 Table IV.A.5-5--Present Value of Benefits ($billion) Under Final CAFE Standards
----------------------------------------------------------------------------------------------------------------
                                        2012         2013         2014         2015         2016        Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars....................          6.8         15.2         21.6         28.7         35.2        107.5
Light Trucks......................          5.1         10.7         15.5         19.4         24.3         75.0
                                   -----------------------------------------------------------------------------
    Combined......................         11.9         25.8         37.1           48         59.5        182.5
----------------------------------------------------------------------------------------------------------------

    NHTSA attributes most of these benefits--about $143 billion, as 
noted above--to reductions in fuel consumption, valuing fuel (for 
societal purposes) at future pretax prices in the Energy Information 
Administration's (EIA's) reference case forecast from Annual Energy 
Outlook (AEO) 2010. The Final Regulatory Impact Analysis (FRIA) 
accompanying today's final rule presents a detailed analysis of 
specific benefits of the final rule.

----------------------------------------------------------------------------------------------------------------
                                                                         Monetized value (discounted)
                                             Amount         ----------------------------------------------------
                                                                3% Discount rate           7% Discount rate
----------------------------------------------------------------------------------------------------------------
Fuel savings.......................  61.0 billion gallons..  $143.0 billion........  $112.0 billion.
CO2 emissions reductions \528\.....  655 mmt...............  $14.5 billion.........  $14.5 billion.
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that the necessary increases in technology 
application will involve considerable monetary outlays, totaling $52 
billion in incremental outlays (i.e., beyond those attributable to the 
MY 2011 standards) by new vehicle purchasers during MYs 2012-2016:
---------------------------------------------------------------------------

    \528\ We note that the net present value of reduced 
CO2 emissions is calculated differently than other 
benefits. The same discount rate used to discount the value of 
damages from future emissions (SCC at 5 percent, 3 percent, and 2.5 
percent) is used to calculate the net present value of the SCC for 
internal consistency. Additionally, we note that the SCC increases 
over time. See Social Cost of Carbon for Regulatory Impact Analysis 
Under Executive Order 12866, Interagency Working Group on Social 
Cost of Carbon, United States Government, February 2010 (available 
in Docket No. NHTSA-2009-0059 for more information.

                 Table IV.A.5-6--Incremental Technology Outlays ($b) Under Final CAFE Standards
----------------------------------------------------------------------------------------------------------------
                                        2012         2013         2014         2015         2016        Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars....................          4.1          5.4          6.9          8.2          9.5         34.2
Light Trucks......................          1.8          2.5          3.7          4.3          5.4         17.6
                                   -----------------------------------------------------------------------------
    Combined......................          5.9          7.9         10.5         12.5         14.9         51.7
----------------------------------------------------------------------------------------------------------------

    Corresponding to these outlays and, to a much lesser extent, civil 
penalties that some companies are expected to pay for noncompliance, 
the agency estimates that the final standards would lead to increases 
in average new vehicle prices, ranging from $322 per vehicle in MY 2012 
to $961 per vehicle in MY 2016:

       Table IV.A.5-7--Incremental Increases in Average New Vehicle Prices ($) Under Final CAFE Standards
----------------------------------------------------------------------------------------------------------------
                                                     2012         2013         2014         2015         2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.................................          505          573          690          799          907
Light Trucks...................................          322          416          621          752          961
                                                ----------------------------------------------------------------
    Combined...................................          434          513          665          782          926
----------------------------------------------------------------------------------------------------------------

[[Page 25551]]

    Tables IV.A.5-8 and IV.A.5-9 below present itemized costs and 
benefits for a 3 percent and a 7 percent discount rate, respectively, 
for the combined fleet (passenger cars and light trucks) in each model 
year and for all model years combined, again assuming Reference Case 
inputs (except for the variation in discount rate). Numbers in 
parentheses represent negative values.
---------------------------------------------------------------------------

    \529\ See supra note 528.

                          Table IV.A.5-8--Itemized Cost and Benefit Estimates for the Combined Vehicle Fleet, 3% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              MY 2012         MY 2013         MY 2014         MY 2015         MY 2016          Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs:
    Technology Costs....................................           5,903           7,890          10,512          12,539          14,904          51,748
Benefits:
    Savings in Lifetime Fuel Expenditures...............           9,265          20,178          29,083          37,700          46,823         143,048
    Consumer Surplus from Additional Driving............             696           1,504           2,150           2,754           3,387          10,491
    Value of Savings in Refueling Time..................             706           1,383           1,939           2,464           2,950           9,443
    Reduction in Petroleum Market Externalities.........             545           1,154           1,630           2,080           2,543           7,952
    Reduction in Climate-Related Damages from Lower CO2              921           2,025           2,940           3,840           4,804          14,528
     Emissions \529\....................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Reduction in Health Damage Costs From Lower Emissions of Criteria Air Pollutants
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO......................................................               0               0               0               0               0               0
VOC.....................................................              42              76             102             125             149             494
NOX.....................................................              70             104             126             146             166             612
PM......................................................             205             434             612             776             946           2,974
SOX.....................................................             158             332             469             598             731           2,288
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Dis-Benefits From Increased Driving
--------------------------------------------------------------------------------------------------------------------------------------------------------
Congestion Costs........................................           (447)           (902)         (1,282)         (1,633)         (2,000)         (6,264)
Noise Costs.............................................             (9)            (18)            (25)            (32)            (39)           (122)
Crash Costs.............................................           (217)           (430)           (614)           (778)           (950)         (2,989)
                                                         -----------------------------------------------------------------------------------------------
    Total Benefits......................................          11,936          25,840          37,132          48,040          59,509         182,457
                                                         ===============================================================================================
        Net Benefits....................................           6,033          17,950          26,619          35,501          44,606         130,709
--------------------------------------------------------------------------------------------------------------------------------------------------------

                          Table IV.A.5-9--Itemized Cost and Benefit Estimates for the Combined Vehicle Fleet, 7% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              MY 2012         MY 2013         MY 2014         MY 2015         MY 2016          Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs:
    Technology Costs....................................           5,903           7,890          10,512          12,539          14,904          51,748
Benefits:
    Savings in Lifetime Fuel Expenditures...............           7,197          15,781          22,757          29,542          36,727         112,004
    Consumer Surplus from Additional Driving............             542           1,179           1,686           2,163           2,663           8,233
    Value of Savings in Refueling Time..................             567           1,114           1,562           1,986           2,379           7,608
    Reduction in Petroleum Market Externalities.........             432             917           1,296           1,654           2,023           6,322
    Reduction in Climate-Related Damages From Lower CO2              921           2,025           2,940           3,840           4,804          14,530
     Emissions \530\....................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Reduction in Health Damage Costs From Lower Emissions of Criteria Air Pollutants
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO......................................................               0               0               0               0               0               0
VOC.....................................................              32              60              80              99             119             390
NOx.....................................................              53              80              98             114             131             476
PM......................................................             154             336             480             611             748           2,329
SOx.....................................................             125             265             373             475             581           1,819
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Dis-Benefits From Increased Driving
--------------------------------------------------------------------------------------------------------------------------------------------------------
Congestion Costs........................................           (355)           (719)         (1,021)         (1,302)         (1,595)         (4,992)
Noise Costs.............................................             (7)            (14)            (20)            (26)            (31)            (98)
Crash Costs.............................................           (173)           (342)           (488)           (619)           (756)         (2,378)
                                                         -----------------------------------------------------------------------------------------------

[[Page 25552]]

    Total Benefits......................................           9,488          20,682          29,743          38,537          47,793         146,243
                                                         ===============================================================================================
        Net Benefits....................................           3,586          12,792          19,231          25,998          32,890          94,497
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Neither EPCA nor EISA requires that NHTSA conduct a cost-benefit 
analysis in determining average fuel economy standards, but too, 
neither precludes its use.\531\ EPCA does require that NHTSA consider 
economic practicability among other factors, and NHTSA has concluded, 
as discussed elsewhere herein, that the standards it promulgates today 
are economically practicable. Further validating and supporting its 
conclusion that the standards it promulgates today are reasonable, a 
comparison of the standards' costs and benefits shows that the 
standards' estimated benefits far outweigh its estimated costs. Based 
on the figures reported above, NHTSA estimates that the total benefits 
of today's final standards would be more than three times the magnitude 
of the corresponding costs, such that the final standards would produce 
net benefits of over $130 billion over the useful lives of vehicles 
sold during MYs 2012-2016.
---------------------------------------------------------------------------

    \530\ See supra note 529.
    \531\ Center for Biological Diversity v. NHTSA, 508 F.3d 508 
(9th Cir. 2007) (rejecting argument that EPCA precludes the use of a 
marginal cost-benefit analysis that attempted to weigh all of the 
social benefits (i.e., externalities as well as sdirect benefits to 
consumers) of improved fuel savings in determining the stringency of 
the CAFE standards). See also Entergy Corp. v. Riverkeeper, Inc., 
129 S.Ct. 1498, 1508 (2009) (``[U]nder Chevron, that an agency is 
not required to [conduct a cost-benefit analysis] does not mean that 
an agency is not permitted to do so.'')
---------------------------------------------------------------------------

B. Background

1. Chronology of Events Since the National Academy of Sciences Called 
for Reforming and Increasing CAFE Standards
a. National Academy of Sciences Issues Report on Future of CAFE Program 
(February 2002)
i. Significantly Increasing CAFE Standards Without Making Them 
Attribute-Based Would Adversely Affect Safety
    In the 2002 congressionally-mandated report entitled 
``Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) 
Standards,'' \532\ a majority of the committee of the National Academy 
of Sciences (NAS) (``2002 NAS Report'') concluded that the then-
existing form of passenger car and light truck CAFE standards permitted 
vehicle manufacturers to comply in part by downweighting and even 
downsizing their vehicles and that these actions had led to additional 
fatalities. The committee explained that this safety problem arose 
because, at that time, the CAFE standards were not attribute-based and 
thus subjected all passenger cars to the same fuel economy target and 
all light trucks to the same target, regardless of their weight, size, 
or load-carrying capacity.\533\ The committee said that this experience 
suggests that consideration should be given to developing a new system 
of fuel economy targets that reflects differences in such vehicle 
attributes. Without a thoughtful restructuring of the program, there 
would be trade-offs that must be made if CAFE standards were increased 
by any significant amount.\534\
---------------------------------------------------------------------------

    \532\ National Research Council, ``Effectiveness and Impact of 
Corporate Average Fuel Economy (CAFE) Standards,'' National Academy 
Press, Washington, DC (2002). Available at http://www.nap.edu/
openbook.php?isbn=0309076013 (last accessed March 1, 2010). The 
conference committee report for the Department of Transportation and 
Related Agencies Appropriations Act for FY 2001 (Pub. L. 106-346) 
directed NHTSA to fund a study by NAS to evaluate the effectiveness 
and impacts of CAFE standards (H. Rep. No. 106-940, p. 117-118). In 
response to the direction from Congress, NAS published this lengthy 
report.
    \533\ NHTSA formerly used this approach for CAFE standards. EISA 
prohibits its use after MY 2010.
    \534\ NAS, p. 9. As discussed at length in prior CAFE rules, two 
members of the NAS Committee dissented from the majority opinion 
that there would be safety impacts to downweighting under a flat-
standard system.
---------------------------------------------------------------------------

    In response to these conclusions, NHTSA considered various 
attributes and ultimately issued footprint-based CAFE standards for 
light trucks and sought legislative authority to issue attribute-based 
CAFE standards for passenger cars before undertaking to raise the car 
standards. Congress went a step further in enacting EISA, not only 
authorizing the issuance of attribute-based standards, but also 
mandating them.
ii. Climate Change and Other Externalities Justify Increasing the CAFE 
Standards
    The NAS committee said that there are two compelling concerns that 
justify increasing the fuel economy standards, both relating to 
externalities. The first and most important concern, it argued, is the 
accumulation in the atmosphere of greenhouse gases, principally carbon 
dioxide.\535\
---------------------------------------------------------------------------

    \535\ NAS, pp. 2, 13, and 83.
---------------------------------------------------------------------------

    A second concern is that petroleum imports have been steadily 
rising because of the nation's increasing demand for gasoline without a 
corresponding increase in domestic supply. The high cost of oil imports 
poses two risks: downward pressure on the strength of the dollar (which 
drives up the cost of goods that Americans import) and an increase in 
U.S. vulnerability to macroeconomic shocks that cost the economy 
considerable real output.
    To determine how much the fuel economy standards should be 
increased, the committee urged that all social benefits of such 
increases be considered. That is, it urged not only that the dollar 
value of the saved fuel be considered, but also that the dollar value 
to society of the resulting reductions in greenhouse gas emissions and 
in dependence on imported oil should be calculated and considered.
iii. Reforming the CAFE Program Could Address Inequity Arising From the 
CAFE Structure
    The 2002 NAS report expressed concerns about increasing the 
standards under the CAFE program as it was then structured. While 
raising CAFE standards under the then-existing structure would reduce 
fuel consumption, doing so under alternative structures ``could 
accomplish the same end at lower cost, provide more flexibility to 
manufacturers, or address inequities arising from the present'' 
structure.\536\
---------------------------------------------------------------------------

    \536\ NAS, pp. 4-5 (Finding 10).
---------------------------------------------------------------------------

    To address those structural problems, the report suggested various 
possible reforms. The report found that the ``CAFE program might be 
improved significantly by converting it to a system in which fuel 
targets depend on vehicle attributes.'' \537\ The report noted further 
that under an attribute-based approach, the required CAFE levels could 
vary among the manufacturers based on the distribution of their product 
mix. NAS

[[Page 25553]]

stated that targets could vary among passenger cars and among trucks, 
based on some attribute of these vehicles such as weight, size, or 
load-carrying capacity. The report explained that a particular 
manufacturer's average target for passenger cars or for trucks would 
depend upon the fractions of vehicles it sold with particular levels of 
these attributes.\538\
---------------------------------------------------------------------------

    \537\ NAS, p. 5 (Finding 12).
    \538\ NAS, p. 87.
---------------------------------------------------------------------------

b. NHTSA Issues Final Rule Establishing Attribute-Based CAFE Standards 
for MY 2008-2011 Light Trucks (March 2006)
    The 2006 final rule reformed the structure of the CAFE program for 
light trucks by introducing an attribute-based approach and using that 
approach to establish higher CAFE standards for MY 2008-2011 light 
trucks.\539\ Reforming the CAFE program enabled it to achieve larger 
fuel savings, while enhancing safety and preventing adverse economic 
consequences.
---------------------------------------------------------------------------

    \539\ 71 FR 17566 (Apr. 6, 2006).
---------------------------------------------------------------------------

    As noted above, fuel economy standards were restructured so that 
they were based on a vehicle attribute, a measure of vehicle size 
called ``footprint.'' It is the product of multiplying a vehicle's 
wheelbase by its track width. A target level of fuel economy was 
established for each increment in footprint (0.1 ft\2\). Trucks with 
smaller footprints have higher fuel economy targets; conversely, larger 
ones have lower targets. A particular manufacturer's compliance 
obligation for a model year is calculated as the harmonic average of 
the fuel economy targets for the manufacturer's vehicles, weighted by 
the distribution of the manufacturer's production volumes among the 
footprint increments. Thus, each manufacturer is required to comply 
with a single overall average fuel economy level for each model year of 
production.
    Compared to non-attribute-based CAFE, attribute-based CAFE enhances 
overall fuel savings while providing vehicle manufacturers with the 
flexibility they need to respond to changing market conditions. 
Attribute-based CAFE also provides a more equitable regulatory 
framework by creating a level playing field for manufacturers, 
regardless of whether they are full-line or limited-line manufacturers. 
We were particularly encouraged that attribute-based CAFE will confer 
no compliance advantage if vehicle makers choose to downsize some of 
their fleet as a CAFE compliance strategy, thereby reducing the adverse 
safety risks associated with the non-attribute-based CAFE program.
c. Ninth Circuit Issues Decision re Final Rule for MY 2008-2011 Light 
Trucks (November 2007)
    On November 15, 2007, the United States Court of Appeals for the 
Ninth Circuit issued its decision in Center for Biological Diversity v. 
NHTSA,\540\ the challenge to the MY 2008-11 light truck CAFE rule. The 
court held that EPCA permits, but does not require, the use of a 
marginal cost-benefit analysis. The court specifically emphasized 
NHTSA's discretion to decide how to balance the statutory factors--as 
long as that balancing does not undermine the fundamental statutory 
purpose of energy conservation. Although the Court found that NHTSA had 
been arbitrary and capricious in several respects, the Court did not 
vacate the standards, but instead said it would remand the rule to 
NHTSA to promulgate new standards consistent with its opinion ``as 
expeditiously as possible and for the earliest model year 
practicable.'' Under the decision, the standards established by the 
April 2006 final rule would remain in effect unless and until amended 
by NHTSA. In addition, it directed the agency to prepare an 
Environmental Impact Statement.
---------------------------------------------------------------------------

    \540\ 508 F.3d 508.
---------------------------------------------------------------------------

d. Congress Enacts Energy Security and Independence Act of 2007 
(December 2007)
    As noted above in Section I.B., EISA significantly changed the 
provisions of EPCA governing the establishment of future CAFE 
standards. These changes made it necessary for NHTSA to pause in its 
efforts so that it could assess the implications of the amendments made 
by EISA and then, as required, revise some aspects of the proposals it 
had been developing (e.g., the model years covered and credit issues).
e. NHTSA Proposes CAFE Standards for MYs 2011-2015 (April 2008)
    The agency could not set out the exact level of CAFE that each 
manufacturer would have been required to meet for each model year under 
the passenger car or light truck standards since the levels would 
depend on information that would not be available until the end of each 
of the model years, i.e., the final actual production figures for each 
of those years. The agency could, however, project what the industry-
wide level of average fuel economy would have been for passenger cars 
and for light trucks if each manufacturer produced its expected mix of 
automobiles and just met its obligations under the proposed 
``optimized'' standards for each model year.

------------------------------------------------------------------------
                                                 Passenger      Light
                                                  cars mpg    trucks mpg
------------------------------------------------------------------------
MY 2011.......................................         31.2         25.0
MY 2012.......................................         32.8         26.4
MY 2013.......................................         34.0         27.8
MY 2014.......................................         34.8         28.2
MY 2015.......................................         35.7         28.6
------------------------------------------------------------------------

    The combined industry-wide average fuel economy (in miles per 
gallon, or mpg) levels for both cars and light trucks, if each 
manufacturer just met its obligations under the proposed ``optimized'' 
standards for each model year, would have been as follows:

------------------------------------------------------------------------
                                                               Combined
                                                                 mpg
------------------------------------------------------------------------
MY 2011....................................................         27.8
MY 2012....................................................         29.2
MY 2013....................................................         30.5
MY 2014....................................................         31.0
MY 2015....................................................         31.6
------------------------------------------------------------------------

    The annual average increase during this five year period would have 
been approximately 4.5 percent. Due to the uneven distribution of new 
model introductions during this period and to the fact that significant 
technological changes could be most readily made in conjunction with 
those introductions, the annual percentage increases were greater in 
the early years in this period.
f. Ninth Circuit Revises Its Decision re Final Rule for MY 2008-2011 
Light Trucks (August 2008)
    In response to the Government petition for rehearing, the Ninth 
Circuit modified its decision by replacing its direction to prepare an 
EIS with a direction to prepare either a new EA or, if necessary, an 
EIS.\541\
---------------------------------------------------------------------------

    \541\ See CBD v. NHTSA, 538 F.3d 1172 (9th Cir. 2008).
---------------------------------------------------------------------------

g. NHTSA Releases Final Environmental Impact Statement (October 2008)
    On October 17, 2008, EPA published a notice announcing the 
availability of NHTSA's final environmental impact statement (FEIS) for 
the MYs 2011-2015 rulemaking.\542\ Throughout the FEIS, NHTSA relied 
extensively on findings of the United Nations Intergovernmental Panel 
on Climate Change (IPCC) and the U.S. Climate Change Science Program 
(USCCSP). In particular, the agency relied heavily on the most recent, 
thoroughly peer-reviewed, and credible assessments of global climate 
change and its impact on the United States: The

[[Page 25554]]

IPCC Fourth Assessment Report Working Group I4 and II5 Reports, and 
reports by the USCCSP that include Scientific Assessments of the 
Effects of Global Climate Change on the United States and Synthesis and 
Assessment Products.
---------------------------------------------------------------------------

    \542\ 73 FR 61859 (Oct. 18, 2008).
---------------------------------------------------------------------------

    In the FEIS, NHTSA compared the environmental impacts of its 
preferred alternative and those of reasonable alternatives. It 
considered direct, indirect, and cumulative impacts and describes these 
impacts to inform the decision maker and the public of the 
environmental impacts of the various alternatives.
    Among other potential impacts, NHTSA analyzed the direct and 
indirect impacts related to fuel and energy use, emissions, including 
carbon dioxide and its effects on temperature and climate change, air 
quality, natural resources, and the human environment. Specifically, 
the FEIS used a climate model to estimate and report on four direct and 
indirect effects of climate change, driven by alternative scenarios of 
GHG emissions, including:
    1. Changes in CO2 concentrations;
    2. Changes in global mean surface temperature;
    3. Changes in regional temperature and precipitation; and
    4. Changes in sea level.
    NHTSA also considered the cumulative impacts of the proposed 
standards for MY 2011-2015 passenger cars and light trucks, together 
with estimated impacts of NHTSA's implementation of the CAFE program 
through MY 2010 and NHTSA's future CAFE rulemaking for MYs 2016-2020.
h. Department of Transportation Decides Not To Issue MY 2011-2015 Final 
Rule (January 2009)
    On January 7, 2009, the Department of Transportation announced that 
the Bush Administration would not issue the final rule, notwithstanding 
the Office of Information and Regulatory Affairs' completion of review 
of the rule under Executive Order 12866, Regulatory Planning and 
Review, on November 14, 2008.\543\
---------------------------------------------------------------------------

    \543\ The statement can be found at http://www.dot.gov/affairs/
dot0109.htm (last accessed March 1, 2010).
---------------------------------------------------------------------------

i. The President Requests NHTSA To Issue Final Rule for MY 2011 Only 
(January 2009)
    As explained above, in his memorandum of January 26, 2009, the 
President requested the agency to issue a final rule adopting CAFE 
standards for MY 2011 only. Further, the President requested NHTSA to 
establish standards for MY 2012 and later after considering the 
appropriate legal factors, the comments filed in response to the May 
2008 proposal, the relevant technological and scientific 
considerations, and, to the extent feasible, a forthcoming report by 
the National Academy of Sciences assessing automotive technologies that 
can practicably be used to improve fuel economy.
j. NHTSA Issues Final Rule for MY 2011 (March 2009)
i. Standards
    The final rule established footprint-based fuel economy standards 
for MY 2011 passenger cars and light trucks. Each vehicle 
manufacturer's required level of CAFE was based on target levels of 
average fuel economy set for vehicles of different sizes and on the 
distribution of that manufacturer's vehicles among those sizes. The 
curves defining the performance target at each footprint reflect the 
technological and economic capabilities of the industry. The target for 
each footprint is the same for all manufacturers, regardless of 
differences in their overall fleet mix. Compliance would be determined 
by comparing a manufacturer's harmonically averaged fleet fuel economy 
levels in a model year with a required fuel economy level calculated 
using the manufacturer's actual production levels and the targets for 
each footprint of the vehicles that it produces.
    The agency analyzed seven regulatory alternatives, one of which 
maximizes net benefits within the limits of available information and 
was known at the time as the ``optimized standards.'' The optimized 
standards were set at levels, such that, considering all of the 
manufacturers together, no other alternative is estimated to produce 
greater net benefits to society. Upon a considered analysis of all 
information available, including all information submitted to NHTSA in 
comments, the agency adopted the ``optimized standard'' alternative as 
the final standards for MY 2011.\544\ By limiting the standards to 
levels that can be achieved using technologies each of which are 
estimated to provide benefits that at least equal its costs, the net 
benefit maximization approach helped, at the time, to assure the 
marketability of the manufacturers' vehicles and thus economic 
practicability of the standards, for the reasons discussed extensively 
in that final rule.
---------------------------------------------------------------------------

    \544\ The agency notes, for NEPA purposes, that the ``optimized 
standard'' alternative adopted as the final standards corresponds to 
the ``Optimized Mid-2'' scenario described in Section 2.2.2 of the 
FEIS.
---------------------------------------------------------------------------

    The following levels were projected for what the industry-wide 
level of average fuel economy will be for passenger cars and for light 
trucks if each manufacturer produced its expected mix of automobiles 
and just met its obligations under the ``optimized'' standards.

------------------------------------------------------------------------
                                                 Passenger      Light
                                                  cars mpg    trucks mpg
------------------------------------------------------------------------
MY 2011.......................................         30.2         24.1
------------------------------------------------------------------------

    The combined industry-wide average fuel economy (in miles per 
gallon, or mpg) levels for both cars and light trucks, if each 
manufacturer just met its obligations under the ``optimized'' 
standards, were projected as follows:

------------------------------------------------------------------------
                                                                 mpg
                                                  Combined     increase
                                                    mpg       over prior
                                                                 year
------------------------------------------------------------------------
MY 2011.......................................         27.3          2.0
------------------------------------------------------------------------

    In addition, per EISA, each manufacturer's domestic passenger fleet 
is required in MY 2011 to achieve 27.5 mpg or 92 percent of the CAFE of 
the industry-wide combined fleet of domestic and non-domestic passenger 
cars \545\ for that model year, whichever is higher. This requirement 
resulted in the following projected alternative minimum standard (not 
attribute-based) for domestic passenger cars:
---------------------------------------------------------------------------

    \545\ Those numbers set out several paragraphs above.

------------------------------------------------------------------------
                                                               Domestic
                                                              passenger
                                                               cars mpg
------------------------------------------------------------------------
MY 2011....................................................         27.8
------------------------------------------------------------------------

ii. Credits
    NHTSA also adopted a new part 536 on use of ``credits'' earned for 
exceeding applicable CAFE standards. Part 536 implements the provisions 
in EISA authorizing NHTSA to establish by regulation a credit trading 
program and directing it to establish by regulation a credit transfer 
program.\546\ Since its enactment, EPCA has permitted manufacturers to 
earn credits for exceeding the standards and to apply those credits to 
compliance obligations

[[Page 25555]]

in years other than the model year in which it was earned. EISA 
extended the ``carry-forward'' period to five model years, and left the 
``carry-back'' period at three model years. Under part 536, credit 
holders (including, but not limited to, manufacturers) will have credit 
accounts with NHTSA, and will be able to hold credits, apply them to 
compliance with CAFE standards, transfer them to another ``compliance 
category'' for application to compliance there, or trade them. A credit 
may also be cancelled before its expiry date, if the credit holder so 
chooses. Traded and transferred credits will be subject to an 
``adjustment factor'' to ensure total oil savings are preserved, as 
required by EISA. EISA also prohibits credits earned before MY 2011 
from being transferred, so NHTSA has developed several regulatory 
restrictions on trading and transferring to facilitate Congress' intent 
in this regard.
---------------------------------------------------------------------------

    \546\ Congress required that DOT establish a credit 
``transferring'' regulation, to allow individual manufacturers to 
move credits from one of their fleets to another (e.g., using a 
credit earned for exceeding the light truck standard for compliance 
with the domestic passenger car standard). Congress allowed DOT to 
establish a credit ``trading'' regulation, so that credits may be 
bought and sold between manufacturers and other parties.
---------------------------------------------------------------------------

2. Energy Policy and Conservation Act, as Amended by the Energy 
Independence and Security Act
    NHTSA establishes CAFE standards for passenger cars and light 
trucks for each model year under EPCA, as amended by EISA. EPCA 
mandates a motor vehicle fuel economy regulatory program to meet the 
various facets of the need to conserve energy, including ones having 
environmental and foreign policy implications. EPCA allocates the 
responsibility for implementing the program between NHTSA and EPA as 
follows: NHTSA sets CAFE standards for passenger cars and light trucks; 
EPA establishes the procedures for testing, tests vehicles, collects 
and analyzes manufacturers' data, and calculates the average fuel 
economy of each manufacturer's passenger cars and light trucks; and 
NHTSA enforces the standards based on EPA's calculations.
a. Standard Setting
    We have summarized below the most important aspects of standard 
setting under EPCA, as amended by EISA.
    For each future model year, EPCA requires that NHTSA establish 
standards at ``the maximum feasible average fuel economy level that it 
decides the manufacturers can achieve in that model year,'' based on 
the agency's consideration of four statutory factors: Technological 
feasibility, economic practicability, the effect of other standards of 
the Government on fuel economy, and the need of the nation to conserve 
energy. EPCA does not define these terms or specify what weight to give 
each concern in balancing them; thus, NHTSA defines them and determines 
the appropriate weighting based on the circumstances in each CAFE 
standard rulemaking.\547\
---------------------------------------------------------------------------

    \547\ See Center for Biological Diversity v. NHTSA, 538 F.3d. 
1172, 1195 (9th Cir. 2008) (``The EPCA clearly requires the agency 
to consider these four factors, but it gives NHTSA discretion to 
decide how to balance the statutory factors--as long as NHTSA's 
balancing does not undermine the fundamental purpose of the EPCA: 
energy conservation.'')
---------------------------------------------------------------------------

    For MYs 2011-2020, EPCA further requires that separate standards 
for passenger cars and for light trucks be set at levels high enough to 
ensure that the CAFE of the industry-wide combined fleet of new 
passenger cars and light trucks reaches at least 35 mpg not later than 
MY 2020.
i. Factors That Must Be Considered in Deciding the Appropriate 
Stringency of CAFE Standards
(1) Technological Feasibility
    ``Technological feasibility'' refers to whether a particular method 
of improving fuel economy can be available for commercial application 
in the model year for which a standard is being established. Thus, the 
agency is not limited in determining the level of new standards to 
technology that is already being commercially applied at the time of 
the rulemaking. NHTSA has historically considered all types of 
technologies that improve real-world fuel economy, except those whose 
effects are not reflected in fuel economy testing. Principal among them 
are technologies that improve air conditioner efficiency because the 
air conditioners are not turned on during testing under existing test 
procedures.
(2) Economic Practicability
    ``Economic practicability'' refers to whether a standard is one 
``within the financial capability of the industry, but not so stringent 
as to'' lead to ``adverse economic consequences, such as a significant 
loss of jobs or the unreasonable elimination of consumer choice.'' 
\548\ This factor is especially important in the context of current 
events, where the automobile industry is facing significantly adverse 
economic conditions, as well as significant loss of jobs. In an attempt 
to ensure the economic practicability of attribute-based standards, 
NHTSA considers a variety of factors, including the annual rate at 
which manufacturers can increase the percentage of their fleets that 
employ a particular type of fuel-saving technology, and cost to 
consumers. Consumer acceptability is also an element of economic 
practicability, one which is particularly difficult to gauge during 
times of frequently-changing fuel prices. NHTSA believes this approach 
is reasonable for the MY 2012-2016 standards in view of the facts 
before it at this time.
---------------------------------------------------------------------------

    \548\ 67 FR 77015, 77021 (Dec. 16, 2002).
---------------------------------------------------------------------------

    At the same time, the law does not preclude a CAFE standard that 
poses considerable challenges to any individual manufacturer. The 
Conference Report for EPCA, as enacted in 1975, makes clear, and the 
case law affirms, ``a determination of maximum feasible average fuel 
economy should not be keyed to the single manufacturer which might have 
the most difficulty achieving a given level of average fuel economy.'' 
\549\ Instead, NHTSA is compelled ``to weigh the benefits to the nation 
of a higher fuel economy standard against the difficulties of 
individual automobile manufacturers.'' Id. The law permits CAFE 
standards exceeding the projected capability of any particular 
manufacturer as long as the standard is economically practicable for 
the industry as a whole. Thus, while a particular CAFE standard may 
pose difficulties for one manufacturer, it may also present 
opportunities for another. The CAFE program is not necessarily intended 
to maintain the competitive positioning of each particular company. 
Rather, it is intended to enhance fuel economy of the vehicle fleet on 
American roads, while protecting motor vehicle safety and being mindful 
of the risk of harm to the overall United States economy.
---------------------------------------------------------------------------

    \549\ CEI-I, 793 F.2d 1322, 1352 (DC Cir. 1986).
---------------------------------------------------------------------------

(3) The Effect of Other Motor Vehicle Standards of the Government on 
Fuel Economy
    ``The effect of other motor vehicle standards of the Government on 
fuel economy,'' involves an analysis of the effects of compliance with 
emission,\550\ safety, noise, or damageability standards on fuel 
economy capability and thus on average fuel economy. In previous CAFE 
rulemakings, the agency has said that pursuant to this provision, it 
considers the adverse effects of other motor vehicle standards on fuel 
economy. It said so because, from the CAFE program's earliest years 
\551\ until present, the effects of such compliance on fuel economy 
capability over the history of the CAFE program have been negative 
ones. For example, safety standards that have the effect of increasing 
vehicle weight lower vehicle

[[Page 25556]]

fuel economy capability and thus decrease the level of average fuel 
economy that the agency can determine to be feasible.
---------------------------------------------------------------------------

    \550\ In the case of emission standards, this includes standards 
adopted by the Federal government and can include standards adopted 
by the States as well, since in certain circumstances the Clean Air 
Act allows States to adopt and enforce State standards different 
from the Federal ones.
    \551\ 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 
33537 (Jun. 30, 1977).
---------------------------------------------------------------------------

    NHTSA also recognizes that in some cases the effect of other motor 
vehicle standards of the Government on fuel economy may be neutral or 
positive. For example, to the extent the GHG standards set by EPA and 
California result in increases in fuel economy, they would do so almost 
exclusively as a result of inducing manufacturers to install the same 
types of technologies used by manufacturers in complying with the CAFE 
standards. The primary exception would involve lower-GHG-producing air 
conditioners. The agency considered EPA's standards and the 
harmonization benefits of the National Program in developing its own 
standards.
(4) The Need of the United States To Conserve Energy
    ``The need of the United States to conserve energy'' means ``the 
consumer cost, national balance of payments, environmental, and foreign 
policy implications of our need for large quantities of petroleum, 
especially imported petroleum.'' \552\ Environmental implications 
principally include reductions in emissions of criteria pollutants and 
carbon dioxide. Prime examples of foreign policy implications are 
energy independence and security concerns.
---------------------------------------------------------------------------

    \552\ 42 FR 63184, 63188 (1977).
---------------------------------------------------------------------------

(a) Fuel Prices and the Value of Saving Fuel
    Projected future fuel prices are a critical input into the 
preliminary economic analysis of alternative CAFE standards, because 
they determine the value of fuel savings both to new vehicle buyers and 
to society. In this rule, NHTSA relies on fuel price projections from 
the U.S. Energy Information Administration's (EIA) Annual Energy 
Outlook (AEO) for this analysis. Federal government agencies generally 
use EIA's projections in their assessments of future energy-related 
policies.
(b) Petroleum Consumption and Import Externalities
    U.S. consumption and imports of petroleum products impose costs on 
the domestic economy that are not reflected in the market price for 
crude petroleum, or in the prices paid by consumers of petroleum 
products such as gasoline. These costs include (1) higher prices for 
petroleum products resulting from the effect of U.S. oil import demand 
on the world oil price; (2) the risk of disruptions to the U.S. economy 
caused by sudden reductions in the supply of imported oil to the U.S.; 
and (3) expenses for maintaining a U.S. military presence to secure 
imported oil supplies from unstable regions, and for maintaining the 
strategic petroleum reserve (SPR) to provide a response option should a 
disruption in commercial oil supplies threaten the U.S. economy, to 
allow the United States to meet part of its International Energy Agency 
obligation to maintain emergency oil stocks, and to provide a national 
defense fuel reserve. Higher U.S. imports of crude oil or refined 
petroleum products increase the magnitude of these external economic 
costs, thus increasing the true economic cost of supplying 
transportation fuels above the resource costs of producing them. 
Conversely, reducing U.S. imports of crude petroleum or refined fuels 
or reducing fuel consumption can reduce these external costs.
(c) Air Pollutant Emissions
    While reductions in domestic fuel refining and distribution that 
result from lower fuel consumption will reduce U.S. emissions of 
various pollutants, additional vehicle use associated with the rebound 
effect \553\ from higher fuel economy will increase emissions of these 
pollutants. Thus, the net effect of stricter CAFE standards on 
emissions of each pollutant depends on the relative magnitudes of its 
reduced emissions in fuel refining and distribution, and increases in 
its emissions from vehicle use.
---------------------------------------------------------------------------

    \553\ The ``rebound effect'' refers to the tendency of drivers 
to drive their vehicles more as the cost of doing so goes down, as 
when fuel economy improves.
---------------------------------------------------------------------------

    Fuel savings from stricter CAFE standards also result in lower 
emissions of CO2, the main greenhouse gas emitted as a 
result of refining, distribution, and use of transportation fuels. 
Lower fuel consumption reduces carbon dioxide emissions directly, 
because the primary source of transportation-related CO2 
emissions is fuel combustion in internal combustion engines.
    NHTSA has considered environmental issues, both within the context 
of EPCA and the National Environmental Policy Act, in making decisions 
about the setting of standards from the earliest days of the CAFE 
program. As courts of appeal have noted in three decisions stretching 
over the last 20 years,\554\ NHTSA defined the ``need of the Nation to 
conserve energy'' in the late 1970s as including ``the consumer cost, 
national balance of payments, environmental, and foreign policy 
implications of our need for large quantities of petroleum, especially 
imported petroleum.'' \555\ Pursuant to that view, NHTSA declined in 
the past to include diesel engines in determining the appropriate level 
of standards for passenger cars and for light trucks because 
particulate emissions from diesels were then both a source of concern 
and unregulated.\556\ In 1988, NHTSA included climate change concepts 
in its CAFE notices and prepared its first environmental assessment 
addressing that subject.\557\ It cited concerns about climate change as 
one of its reasons for limiting the extent of its reduction of the CAFE 
standard for MY 1989 passenger cars.\558\ Since then, NHTSA has 
considered the benefits of reducing tailpipe carbon dioxide emissions 
in its fuel economy rulemakings pursuant to the statutory requirement 
to consider the nation's need to conserve energy by reducing fuel 
consumption.
---------------------------------------------------------------------------

    \554\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1325 n. 12 
(DC Cir. 1986); Public Citizen v. NHTSA, 848 F.2d 256, 262-3 n. 27 
(DC Cir. 1988) (noting that ``NHTSA itself has interpreted the 
factors it must consider in setting CAFE standards as including 
environmental effects''); and Center for Biological Diversity v. 
NHTSA, 538 F.3d 1172 (9th Cir. 2007).
    \555\ 42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added).
    \556\ For example, the final rules establishing CAFE standards 
for MY 1981-84 passenger cars, 42 FR 33533, 33540-1 and 33551 (Jun. 
30, 1977), and for MY 1983-85 light trucks, 45 FR 81593, 81597 (Dec. 
11, 1980).
    \557\ 53 FR 33080, 33096 (Aug. 29, 1988).
    \558\ 53 FR 39275, 39302 (Oct. 6, 1988).
---------------------------------------------------------------------------

ii. Other Factors Considered by NHTSA
    NHTSA considers the potential for adverse safety consequences when 
in establishing CAFE standards. This practice is recognized approvingly 
in case law.\559\ Under the universal or ``flat'' CAFE standards that 
NHTSA was previously authorized to establish, manufacturers were 
encouraged to respond to higher standards by building smaller, less 
safe vehicles in order to ``balance out'' the larger, safer vehicles 
that the public generally preferred to

[[Page 25557]]

buy, which resulted in a higher mass differential between the smallest 
and the largest vehicles, with a correspondingly greater risk to 
safety. Under the attribute-based standards being proposed today, that 
risk is reduced because building smaller vehicles would tend to raise a 
manufacturer's overall CAFE obligation, rather than only raising its 
fleet average CAFE, and because all vehicles are required to continue 
improving their fuel economy.
---------------------------------------------------------------------------

    \559\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F. 
2d 1322 (DC Cir. 1986) (Administrator's consideration of market 
demand as component of economic practicability found to be 
reasonable); Public Citizen 848 F.2d 256 (Congress established broad 
guidelines in the fuel economy statute; agency's decision to set 
lower standard was a reasonable accommodation of conflicting 
policies). As the United States Court of Appeals pointed out in 
upholding NHTSA's exercise of judgment in setting the 1987-1989 
passenger car standards, ``NHTSA has always examined the safety 
consequences of the CAFE standards in its overall consideration of 
relevant factors since its earliest rulemaking under the CAFE 
program.'' Competitive Enterprise Institute v. NHTSA (CEI I), 901 
F.2d 107, 120 at n.11 (DC Cir. 1990).
---------------------------------------------------------------------------

    In addition, the agency considers consumer demand in establishing 
new standards and in assessing whether already established standards 
remained feasible. In the 1980s, the agency relied in part on the 
unexpected drop in fuel prices and the resulting unexpected failure of 
consumer demand for small cars to develop in explaining the need to 
reduce CAFE standards for a several year period in order to give 
manufacturers time to develop alternative technology-based strategies 
for improving fuel economy.
iii. Factors That NHTSA Is Statutorily Prohibited From Considering in 
Setting Standards
    EPCA provides that in determining the level at which it should set 
CAFE standards for a particular model year, NHTSA may not consider the 
ability of manufacturers to take advantage of several EPCA provisions 
that facilitate compliance with the CAFE standards and thereby reduce 
the costs of compliance.\560\ As noted below, manufacturers can earn 
compliance credits by exceeding the CAFE standards and then use those 
credits to achieve compliance in years in which their measured average 
fuel economy falls below the standards. Manufacturers can also increase 
their CAFE levels through MY 2019 by producing alternative fuel 
vehicles. EPCA provides an incentive for producing these vehicles by 
specifying that their fuel economy is to be determined using a special 
calculation procedure that results in those vehicles being assigned a 
high fuel economy level.
---------------------------------------------------------------------------

    \560\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

iv. Weighing and Balancing of Factors
    NHTSA has broad discretion in balancing the above factors in 
determining the average fuel economy level that the manufacturers can 
achieve. Congress ``specifically delegated the process of setting * * * 
fuel economy standards with broad guidelines concerning the factors 
that the agency must consider. The breadth of those guidelines, the 
absence of any statutorily prescribed formula for balancing the 
factors, the fact that the relative weight to be given to the various 
factors may change from rulemaking to rulemaking as the underlying 
facts change, and the fact that the factors may often be conflicting 
with respect to whether they militate toward higher or lower standards 
give NHTSA discretion to decide what weight to give each of the 
competing policies and concerns and then determine how to balance them 
as long as NHTSA's balancing does not undermine the fundamental purpose 
of the EPCA: Energy conservation, and as long as that balancing 
reasonably accommodates `conflicting policies that were committed to 
the agency's care by the statute.' ''
    Thus, EPCA does not mandate that any particular number be adopted 
when NHTSA determines the level of CAFE standards. Rather, any number 
within a zone of reasonableness may be, in NHTSA's assessment, the 
level of stringency that manufacturers can achieve. See, e.g., Hercules 
Inc. v. EPA, 598 F. 2d 91, 106 (DC 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'').
v. Other Requirements Related to Standard Setting
    The standards for passenger cars and those for light trucks must 
increase ratably each year. This statutory requirement is interpreted, 
in combination with the requirement to set the standards for each model 
year at the level determined to be the maximum feasible level that 
manufacturers can achieve for that model year, to mean that the annual 
increases should not be disproportionately large or small in relation 
to each other.
    The standards for passenger cars and light trucks must be based on 
one or more vehicle attributes, like size or weight, that correlate 
with fuel economy and must be expressed in terms of a mathematical 
function. Fuel economy targets are set for individual vehicles and 
increase as the attribute decreases and vice versa. For example, size-
based (i.e., size-indexed) standards assign higher fuel economy targets 
to smaller (and generally, but not necessarily, lighter) vehicles and 
lower ones to larger (and generally, but not necessarily, heavier) 
vehicles. The fleet-wide average fuel economy that a particular 
manufacturer is required to achieve depends on the size mix of its 
fleet, i.e., the proportion of the fleet that is small-, medium- or 
large-sized.
    This approach can be used to require virtually all manufacturers to 
increase significantly the fuel economy of a broad range of both 
passenger cars and light trucks, i.e., the manufacturer must improve 
the fuel economy of all the vehicles in its fleet. Further, this 
approach can do so without creating an incentive for manufacturers to 
make small vehicles smaller or large vehicles larger, with attendant 
implications for safety.
b. Test Procedures for Measuring Fuel Economy
    EPCA provides EPA with the responsibility for establishing CAFE 
test procedures. Current test procedures measure the effects of many 
fuel saving technologies. The principal exception is improvements in 
air conditioning efficiency. By statutory law in the case of passenger 
cars and by administrative regulation in the case of light trucks, air 
conditioners are not turned on during fuel economy testing.
    The fuel economy test procedures for light trucks could be amended 
through rulemaking to provide for air conditioner operation during 
testing and to take other steps for improving the accuracy and 
representativeness of fuel economy measurements. NHTSA sought comment 
in the NPRM regarding implementing such amendments beginning in MY 2017 
and also on the more immediate interim alternative step of providing 
CAFE program credits under the authority of 49 U.S.C. 32904(c) for 
light trucks equipped with relatively efficient air conditioners for 
MYs 2012-2016, but decided against finalizing either option for 
purposes of this final rule, choosing to defer the matter for now. 
Modernizing the passenger car test procedures, or even providing 
similar credits, would not be possible under EPCA as currently written.
c. Enforcement and Compliance Flexibility
    EPA is responsible for measuring automobile manufacturers' CAFE so 
that NHTSA can determine compliance with the CAFE standards. When NHTSA 
finds that a manufacturer is not in compliance, it notifies the 
manufacturer. Surplus credits generated from the five previous years 
can be used to make up the deficit. The amount of credit earned is 
determined by multiplying the number of tenths of a mpg by which a 
manufacturer exceeds a standard for a particular category of 
automobiles by the total volume of automobiles of that category 
manufactured by the manufacturer for a given model year. If there are 
no (or not

[[Page 25558]]

enough) credits available, then the manufacturer can either pay the 
fine, or submit a carry back plan to NHTSA. A carry back plan describes 
what the manufacturer plans to do in the following three model years to 
earn enough credits to make up for the deficit. NHTSA must examine and 
determine whether to approve the plan.
    In the event that a manufacturer does not comply with a CAFE 
standard, even after the consideration of credits, EPCA provides for 
the assessing of civil penalties, unless, as provided below, the 
manufacturer has earned credits for exceeding a standard in an earlier 
year or expects to earn credits in a later year.\561\ The Act specifies 
a precise formula for determining the amount of civil penalties for 
such a noncompliance. The penalty, as adjusted for inflation by law, is 
$5.50 for each tenth of a mpg that a manufacturer's average fuel 
economy falls short of the standard for a given model year multiplied 
by the total volume of those vehicles in the affected fleet (i.e., 
import or domestic passenger car, or light truck), manufactured for 
that model year. The amount of the penalty may not be reduced except 
under the unusual or extreme circumstances specified in the statute.
---------------------------------------------------------------------------

    \561\ EPCA does not provide authority for seeking to enjoin 
violations of the CAFE standards.
---------------------------------------------------------------------------

    Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does 
not provide for recall and remedy in the event of a noncompliance. The 
presence of recall and remedy provisions \562\ in the Safety Act and 
their absence in EPCA is believed to arise from the difference in the 
application of the safety standards and CAFE standards. A safety 
standard applies to individual vehicles; that is, each vehicle must 
possess the requisite equipment or feature that must provide the 
requisite type and level of performance. If a vehicle does not, it is 
noncompliant. Typically, a vehicle does not entirely lack an item or 
equipment or feature. Instead, the equipment or features fails to 
perform adequately. Recalling the vehicle to repair or replace the 
noncompliant equipment or feature can usually be readily accomplished.
---------------------------------------------------------------------------

    \562\ 49 U.S.C. 30120, Remedies for defects and noncompliance.
---------------------------------------------------------------------------

    In contrast, a CAFE standard applies to a manufacturer's entire 
fleet for a model year. It does not require that a particular 
individual vehicle be equipped with any particular equipment or feature 
or meet a particular level of fuel economy. It does require that the 
manufacturer's fleet, as a whole, comply. Further, although under the 
attribute-based approach to setting CAFE standards fuel economy targets 
are established for individual vehicles based on their footprints, the 
vehicles are not required to comply with those targets. However, as a 
practical matter, if a manufacturer chooses to design some vehicles 
that fall below their target levels of fuel economy, it will need to 
design other vehicles that exceed their targets if the manufacturer's 
overall fleet average is to meet the applicable standard.
    Thus, under EPCA, there is no such thing as a noncompliant vehicle, 
only a noncompliant fleet. No particular vehicle in a noncompliant 
fleet is any more, or less, noncompliant than any other vehicle in the 
fleet.

C. Development and Feasibility of the Final Standards

1. How was the baseline and reference vehicle fleet developed?
a. Why do the agencies establish a baseline and reference vehicle 
fleet?
    As also discussed in Section II.B above, in order to determine what 
levels of stringency are feasible in future model years, the agencies 
must project what vehicles will exist in those model years, and then 
evaluate what technologies can feasibly be applied to those vehicles in 
order to raise their fuel economy and lower their CO2 
emissions. The agencies therefore established a baseline vehicle fleet 
representing those vehicles, based on the best available transparent 
information. Each agency then developed a separate reference fleet, 
accounting (via their respective analytical models) for the effect that 
the MY 2011 CAFE standards have on the baseline fleet. This reference 
fleet is then used for comparisons of technologies' incremental cost 
and effectiveness, as well as for other relevant comparisons in the 
rule.
    Because NHTSA and EPA have different established practices, the 
agencies' rulemaking documents (the Federal Register notice, Joint 
Technical Support Document, agency-specific Regulatory Impact Analyses, 
and NHTSA Environmental Impact Analysis) have some differences in 
terminology. In connection with its first-ever GHG emissions rule under 
the CAA, EPA has used the term ``baseline fleet'' to refer to the MY 
2008 fleet (i.e., from EPA certification and fuel economy data for MY 
2008) prior to adjustment to reflect projected shifts in market 
composition. NHTSA, as in recent CAFE rulemakings, refers to the 
resultant market forecast, as specified in CAFE model input files (and 
corresponding input files for EPA's OMEGA model), as the ``baseline'' 
fleet. EPA refers to this fleet as the ``reference fleet.'' NHTSA 
refers to the ``no action'' standards identified in the EIS (that is, 
the MY 2011 standards carried forward through MY 2016) as defining the 
``baseline'' scenario, and refers to the fleet to which technologies 
have been added in response to these standards as the ``adjusted 
baseline'' fleet.\563\ EPA refers to this as the ``final reference 
fleet.'' These differences in terminology are summarized in the 
following table:
---------------------------------------------------------------------------

    \563\ Some manufacturers' baseline fleets (as reflected in the 
agencies' market forecast) do not, without applying additional 
technology and/or CAFE credits, show compliance with the baseline 
standards.

------------------------------------------------------------------------
        Fleet description           EPA terminology    NHTSA terminology
------------------------------------------------------------------------
MY 2008 Fleet with MY 2008        Baseline..........  MY 2008 Fleet
 Production Volumes.
MY 2008 Fleet Adjusted to         Reference Fleet...  Baseline [Market
 Reflect Projected Market Shifts.                      Forecast]
MY 2008 Fleet Adjusted to         [Final] Reference   Adjusted Baseline
 Reflected Projected Market        Fleet.
 Shifts and Response to MY 2011
 CAFE Standards.
------------------------------------------------------------------------

    The agencies have retained this mixed terminology in order to 
facilitate comparison to past rulemakings. In general, EPA's RIA and 
the Joint TSD apply EPA's nomenclature, NHTSA's RIA and EIS apply 
NHTSA's nomenclature, and the joint Federal Register notice uses EPA's 
nomenclature when focusing on GHG emissions standards, and NHTSA's 
nomenclature when focusing on CAFE standards.
b. What data did the agencies use to construct the baseline, and how 
did they do so?
    As explained in the Technical Support Document (TSD) prepared

[[Page 25559]]

jointly by NHTSA and EPA, both agencies used a baseline vehicle fleet 
constructed beginning with EPA fuel economy certification data for the 
2008 model year, the most recent model year for which final data is 
currently available from manufacturers. These data were used as the 
source for MY 2008 production volumes and some vehicle engineering 
characteristics, such as fuel economy ratings, engine sizes, numbers of 
cylinders, and transmission types.
    Some information important for analyzing new CAFE standards is not 
contained in the EPA fuel economy certification data. EPA staff 
estimated vehicle wheelbase and track widths using data from 
Motortrend.com and Edmunds.com. This information is necessary for 
estimating vehicle footprint, which is required for the analysis of 
footprint-based standards. Considerable additional information 
regarding vehicle engineering characteristics is also important for 
estimating the potential to add new technologies in response to new 
CAFE standards. In general, such information helps to avoid ``adding'' 
technologies to vehicles that already have the same or a more advanced 
technology. Examples include valvetrain configuration (e.g., OHV, SOHC, 
DOHC), presence of cylinder deactivation, and fuel delivery (e.g., 
MPFI, SIDI). To the extent that such engineering characteristics were 
not available in certification data, EPA staff relied on data published 
by Ward's Automotive, supplementing this with information from Internet 
sites such as Motortrend.com and Edmunds.com. NHTSA staff also added 
some more detailed engineering characteristics (e.g., type of variable 
valve timing) using data available from ALLDATA[supreg] Online. 
Combined with the certification data, all of this information yielded 
the MY 2008 baseline vehicle fleet.
    After the baseline was created the next step was to project the 
sales volumes for 2011-2016 model years. EPA used projected car and 
truck volumes for this period from Energy Information Administration's 
(EIA's) 2009 Annual Energy Outlook (AEO).\564\ However, AEO projects 
sales only at the car and truck level, not at the manufacturer and 
model-specific level, which are needed in order to estimate the effects 
new standards will have on individual manufacturers. Therefore, EPA 
purchased data from CSM-Worldwide and used their projections of the 
number of vehicles of each type predicted to be sold by manufacturers 
in 2011-2015.\565\ This provided the year-by-year percentages of cars 
and trucks sold by each manufacturer as well as the percentages of each 
vehicle segment. The changes between company market share and industry 
market segments were most significant from 2011-2014, while for 2014-
2015 the changes were relatively small. Noting this, and lacking a 
credible forecast of company and segment shares after 2015, the 
agencies assumed 2016 market share and market segments to be the same 
as for 2015. Using these percentages normalized to the AEO projected 
volumes then provided the manufacturer-specific market share and model-
specific sales for model years 2011-2016.
---------------------------------------------------------------------------

    \564\ Available at http://www.eia.doe.gov/oiaf/aeo/index.html 
(last accessed March 15, 2010). Specifically, while the total volume 
of both cars and trucks was obtained from AEO 2010, the car-truck 
split was obtained from AEO 2009. The agencies have also used fuel 
price forecasts from AEO 2010. Both agencies regard AEO a credible 
source not only of such forecasts, but also of many underlying 
forecasts, including forecasts of the size of the future light 
vehicle market.
    \565\ EPA also considered other sources of similar information, 
such as J.D. Powers, and concluded that CSM was more appropriate for 
purposes of this rulemaking analysis.
---------------------------------------------------------------------------

    The processes for constructing the MY 2008 baseline vehicle fleet 
and subsequently adjusting sales volumes to construct the MY 2011-2016 
baseline vehicle fleet are presented in detail in Chapter 1 of the 
Joint Technical Support Document accompanying today's final rule.
c. How is this different from NHTSA's historical approach and why is 
this approach preferable?
    As discussed above in Section II.B.4, NHTSA has historically based 
its analysis of potential new CAFE standards on detailed product plans 
the agency has requested from manufacturers planning to produce light-
duty vehicles for sale in the United States. In contrast, the current 
market forecast is based primarily on information sources which are all 
either in the public domain or available commercially. There are 
advantages to this approach, namely transparency and the potential to 
reduce some errors due to manufacturers' misunderstanding of NHTSA's 
request for information. There are also disadvantages, namely that the 
current market forecast does not represent certain changes likely to 
occur in the future vehicle fleet as opposed to the MY 2008 vehicle 
fleet, such as vehicles being discontinued and newly introduced. On 
balance, however, the agencies have carefully considered these 
advantages and disadvantages of using a market forecast derived from 
public and commercial sources rather than from manufacturers' product 
plans, and conclude that the advantages outweigh the disadvantages.
    Although manufacturers did not comment on the agency's proposal to 
rely on public and commercial information rather than manufacturers' 
confidential product plans when developing a market forecast, those 
organizations that did comment on this issue supported this change. The 
California Air Resources Board (CARB) and Center for Biological 
Diversity (CBD) both commended the resultant increase in transparency. 
CARB further indicated that the use of public and commercial 
information should produce a better forecast. On the other hand, as 
discussed above in Section I, CBD and the Northeast States for 
Coordinated Air Use Management (NESCAUM) both raised concerns regarding 
the resultant omission of some new vehicle models, and the inclusion of 
some vehicles to be discontinued, while CARB suggested that the impact 
of these inaccuracies should be minor.
    As discussed above in Section II.B.4, while a baseline developed 
using publicly and commercially available sources has both advantages 
and disadvantages relative to a baseline developed using manufacturers' 
product plans, NHTSA has concluded for today's rule that the advantages 
outweigh the disadvantages. Today's approach is much more transparent 
than the agency's past approach of relying on product plans, and as 
discussed in Section II.B.4, any inaccuracies related to new or 
discontinued vehicle models should have only a minor impact on the 
agency's analysis.
    For subsequent rulemakings, NHTSA remains hopeful that 
manufacturers will agree to make public their plans for model years 
that are very near, so that this information could be incorporated into 
analysis available for public review and comment. In any event, because 
NHTSA is releasing market inputs used in the agency's analysis of this 
final rule, all interested parties can review these inputs fully, as 
intended in adopting the transparent approach. More information on the 
advantages and disadvantages of the current approach and the agencies' 
decision to follow it is available in Section II.B.4.
d. How is this baseline different quantitatively from the baseline that 
NHTSA used for the MY 2011 (March 2009) final rule?
    As discussed above, the current baseline was developed from 
adjusted MY 2008 compliance data and covers MYs 2011-2016, while the 
baseline that NHTSA used for the MY 2011 CAFE rule was developed from 
confidential

[[Page 25560]]

manufacturer product plans for MY 2011. This section describes, for the 
reader's comparison, some of the differences between the current 
baseline and the MY 2011 CAFE rule baseline. This comparison provides a 
basis for understanding general characteristics and measures of the 
difference, in this case, between using publicly (and commercially) 
available sources and using manufacturers' confidential product plans. 
The current baseline, while developed using the same methods as the 
baseline used for MYs 2012-2016 NPRM, reflects updates to the 
underlying commercially-available forecast of manufacturer and market 
segment shares of the future light vehicle market. These changes are 
discussed above in Section II.B.
    Estimated vehicle sales:
    The sales forecasts, based on the Energy Information 
Administration's (EIA's) Annual Energy Outlook 2010 (AEO 2010), used in 
the current baseline indicate that the total number of light vehicles 
expected to be sold during MYs 2011-2015 is 77 million, or about 15.4 
million vehicles annually.\566\ NHTSA's MY 2011 final rule forecast, 
based on AEO 2008, of the total number of light vehicles likely to be 
sold during MY 2011 through MY 2015 was 83 million, or about 16.6 
million vehicles annually. Light trucks are expected to make up 41 
percent of the MY 2011 baseline market forecast in the current 
baseline, compared to 42 percent of the baseline market forecast in the 
MY 2011 final rule. These changes in both the overall size of the light 
vehicle market and the relative market shares of passenger cars and 
light trucks reflect changes in the economic forecast underlying AEO, 
and changes in AEO's forecast of future fuel prices.
---------------------------------------------------------------------------

    \566\ Please see Section II.B above and Chapter 1 of the Joint 
TSD for more discussion on the agencies' use of AEO 2010 to 
determine the sales forecasts for light vehicles during the model 
years covered by the rulemaking, as well as the memo available at 
Docket No. NHTSA-2009-059-0222.
---------------------------------------------------------------------------

    The figures below attempt to demonstrate graphically the difference 
between the variation of fuel economy with footprint for passenger cars 
under the current baseline and MY 2011 final rule, and for light trucks 
under the current baseline and MY 2011 final rule, respectively. 
Figures IV.C.1-1 and 1-2 show the variation of fuel economy with 
footprint for passenger car models in the current baseline and in the 
MY 2011 final rule, while Figures IV.C.1-3 and 1-4 show the variation 
of fuel economy with footprint for light truck models in the current 
baseline and in the MY 2011 final rule. However, it is difficult to 
draw meaningful conclusions by comparing figures from the current 
baseline with those of the MY 2011 final rule. In the current baseline 
the number of make/models, and their associated fuel economy and 
footprint, are fixed and do not vary over time--this is why the number 
of data points in the current baseline figures appears smaller as 
compared to the number of data points in the MY 2011 final rule 
baseline. In contrast, the baseline fleet used in the MY 2011 final 
rule varies over time as vehicles (with different fuel economy and 
footprint characteristics) are added to and dropped from the product 
mix.
BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TR07MY10.023

[[Page 25561]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.024

[[Page 25562]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.025

[[Page 25563]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.026

BILLING CODE 6560-50-C
    Estimated manufacturer market shares:
    NHTSA's expectations regarding manufacturers' market shares (the 
basis for which is discussed below) have also changed since the MY 2011 
final rule, given that the agency is relying on different sources of 
material for these assumptions as discussed in Section II.B above and 
Chapter 1 of the Joint TSD. These changes are reflected below in Table 
IV.C.1-1, which shows the agency's sales forecasts for passenger cars 
and light trucks under the current baseline and the MY 2011 final 
rule.\567\
---------------------------------------------------------------------------

    \567\ As explained below, although NHTSA normalized each 
manufacturer's overall market share to produce a realistically-sized 
fleet, the product mix for each manufacturer that submitted product 
plans was preserved. The agency has reviewed manufacturers' product 
plans in detail, and understands that manufacturers do not sell the 
same mix of vehicles in every model year.

                                         Table IV.C.1-1--Sales Forecasts
                              [Production for U.S. sale in MY 2011, thousand units]
----------------------------------------------------------------------------------------------------------------
                                                         Current baseline               MY 2011 Final rule
                  Manufacturer                   ---------------------------------------------------------------
                                                     Passenger     Nonpassenger      Passenger     Nonpassenger
----------------------------------------------------------------------------------------------------------------
Chrysler........................................             326             737             707           1,216
Ford............................................           1,344             792           1,615           1,144
General Motors..................................           1,249           1,347           1,700           1,844
Honda...........................................             851             585           1,250             470
Hyundai.........................................             382              46             655             221
Kia.............................................             306              88  ..............  ..............
Nissan..........................................             612             331             789             479
Toyota..........................................           1,356             888           1,405           1,094
Other Asian.....................................             664             246             441             191
European........................................             833             396             724             190
                                                 ---------------------------------------------------------------
    Total.......................................           7,923           5,458           9,286           6,849
----------------------------------------------------------------------------------------------------------------

[[Page 25564]]

    Dual-fueled vehicles:
    Manufacturers have also, during and since MY 2008, indicated to the 
agency that they intend to sell more dual-fueled or flexible-fuel 
vehicles (FFVs) in MY 2011 than indicated in the current baseline of 
adjusted MY 2008 compliance data. FFVs create a potential market for 
alternatives to petroleum-based gasoline and diesel fuel. For purposes 
of determining compliance with CAFE standards, the fuel economy of a 
FFV is, subject to limitations, adjusted upward to account for this 
potential.\568\ However, NHTSA is precluded from ``taking credit'' for 
the compliance flexibility by accounting for manufacturers' ability to 
earn and use credits in setting the level of the standards.'' \569\ 
Some manufacturers plan to produce a considerably greater share of FFVs 
than can earn full credit under EPCA. The projected average FFV share 
of the market in MY 2011 is 7 percent for the current baseline, versus 
17 percent for the MY 2011 final rule. NHTSA notes that in MY 2008 (the 
model year providing the vehicle models upon which today's market 
forecast is based), the three U.S.-based OEMs produced most of the FFVs 
offered for sale in the U.S., yet these OEMs account are projected to 
account for a smaller share of the future market in the forecast the 
agency has used to develop and analyze today's rule than in the 
forecast the agency used to develop and analyze the MY 2011 standards.
---------------------------------------------------------------------------

    \568\ See 49 U.S.C. 32905 and 32906.
    \569\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    Estimated achieved fuel economy levels:
    Because manufacturers' product plans also reflect simultaneous 
changes in fleet mix and other vehicle characteristics, the 
relationship between increased technology utilization and increased 
fuel economy cannot be isolated with any certainty. To do so would 
require an apples-to-apples ``counterfactual'' fleet of vehicles that 
are, except for technology and fuel economy, identical--for example, in 
terms of fleet mix and vehicle performance and utility. The current 
baseline market forecast shows industry-wide average fuel economy 
levels somewhat lower in MY 2011 than shown in the MY 2011 final rule 
and the MYs 2012-2016 NPRM. Under the current baseline, average fuel 
economy for MY 2011 is 26.4 mpg, versus 26.5 mpg under the baseline in 
the MY 2011 final rule, and 26.7 mpg under the baseline in the MYs 
2012-2016 NPRM. The 0.3 mpg change relative to the MYs 2012-2016 
baseline is the result of changes in manufacturer and market segment 
shares of the MY 2011 market.
    These differences are shown in greater detail below in Table 
IV.C.1-2, which shows manufacturer-specific CAFE levels (not counting 
FFV credits that some manufacturers expect to earn) from the current 
baseline versus the MY 2011 final rule baseline (from manufacturers' 
2008 product plans) for passenger cars and light trucks. Table IV.C.1-3 
shows the combined averages of these planned CAFE levels in the 
respective baseline fleets. These tables demonstrate that, while the 
difference at the industry level is not so large, there are significant 
differences in CAFE at the manufacturer level between the current 
baseline and the MY 2011 final rule baseline. For example, while 
Volkswagen is essentially the same under both, Toyota and Nissan show 
increased combined CAFE levels under the current baseline (by 1.9 and 
0.7 mpg respectively), while Chrysler, Ford, and GM show decreased 
combined CAFE levels under the current baseline (by 1.4, 1.1, and 0.8 
mpg, respectively) relative to the MY 2011 final rule baseline.
---------------------------------------------------------------------------

    \570\ Again, Kia is not listed in the table for the MY 2011 
final rule because it was considered as part of Hyundai for purposes 
of that analysis (i.e., Hyundai-Kia).
    \571\ Mazda is not listed in the table for the MY 2011 final 
rule because it was considered as part of Ford for purposes of that 
analysis.
    \572\ EPA did not include Ferrari in the current baseline based 
on the conclusion that including them would not impact the results, 
and therefore Ferrari is not listed in the table for the current 
baseline.
    \573\ EPA did not include Maserati in the current baseline based 
on the conclusion that including them would not impact the results, 
and therefore Maserati is not listed in the table for the current 
baseline.

  Table IV.C.1-2--Current Baseline Planned CAFE Levels in MY 2011 versus MY 2011 Final Rule Planned CAFE Levels
                                          [Passenger and nonpassenger]
----------------------------------------------------------------------------------------------------------------
                                                              Current baseline CAFE       MY 2011 planned CAFE
                                                                      levels                     levels
                       Manufacturer                        -----------------------------------------------------
                                                             Passenger   Nonpassenger   Passenger   Nonpassenger
----------------------------------------------------------------------------------------------------------------
BMW.......................................................         27.2          23.0         27.0          23.0
Chrysler..................................................         27.8          21.8         28.2          23.1
Ford......................................................         28.0          21.0         29.3          22.5
Subaru....................................................         29.2          26.1         28.6          28.6
General Motors............................................         28.2          21.2         30.3          21.4
Honda.....................................................         33.5          25.0         32.3          25.2
Hyundai...................................................         32.5          24.3         31.7          26.0
Tata......................................................         24.6          19.6         24.7          23.9
Kia \570\.................................................         31.7          23.7  ...........  ............
Mazda \571\...............................................         30.6          26.0  ...........  ............
Daimler...................................................         26.4          21.0         25.2          20.6
Mitsubishi................................................         29.4          23.6         29.3          26.7
Nissan....................................................         31.7          21.7         31.3          21.4
Porsche...................................................         26.2          20.0         27.2          20.0
Ferrari \572\.............................................  ...........  ............         16.2  ............
Maserati \573\............................................  ...........  ............         18.2  ............
Suzuki....................................................         30.9          23.3         28.7          24.0
Toyota....................................................         35.1          23.7         33.2          22.7
Volkswagen................................................         29.1          20.2         28.5          20.1
                                                           -----------------------------------------------------
    Total/Average.........................................         30.3          22.2         30.4          22.6
----------------------------------------------------------------------------------------------------------------

[[Page 25565]]

 Table IV.C.1-3--Current Baseline Planned CAFE Levels in MY 2011 Versus
            MY 2011 Final Rule Planned CAFE Levels (Combined)
------------------------------------------------------------------------
                                                               MY 2011
                 Manufacturer                     Current     Final Rule
                                                  baseline     baseline
------------------------------------------------------------------------
BMW...........................................         25.0         26.0
Chrysler......................................         23.3         24.7
Ford..........................................         24.9         26.0
Subaru........................................         27.9         28.6
General Motors................................         24.1         24.9
Honda.........................................         29.5         30.0
Hyundai.......................................         31.3         30.0
Tata..........................................         21.4         24.4
Kia...........................................         29.5  ...........
Mazda.........................................         29.8  ...........
Daimler.......................................         24.4         23.6
Mitsubishi....................................         27.4         29.1
Nissan........................................         27.3         26.6
Porsche.......................................         23.7         22.0
Ferrari.......................................  ...........         16.2
Maserati......................................  ...........         18.2
Suzuki........................................         29.7         27.8
Toyota........................................         29.5         27.6
Volkswagen....................................         27.0         27.1
                                               -------------------------
    Total/Average.............................         26.4         26.5
------------------------------------------------------------------------

    Tables IV.C.1-4 through 1-6 summarize other differences between the 
current baseline and manufacturers' product plans submitted to NHTSA in 
2008 for the MY 2011 final rule. These tables present average vehicle 
footprint, curb weight, and power-to-weight ratios for each 
manufacturer represented in the current baseline and of the seven 
largest manufacturers represented in the product plan data used in that 
rulemaking, and for the overall industry. The tables containing product 
plan data do not identify manufacturers by name, and do not present 
them in the same sequence.
    Tables IV.C.1-4a and 1-4b show that the current baseline reflects a 
slight decrease in overall average passenger vehicle size relative to 
the manufacturers' plans. This is a reflection of the market segment 
shifts underlying the sales forecasts of the current baseline.

   Table IV.C.1-4a--Current Baseline Average MY 2011 Vehicle Footprint
                              [Square feet]
------------------------------------------------------------------------
           Manufacturer                 PC           LT          Avg.
------------------------------------------------------------------------
BMW..............................         45.4         49.9         47.5
Chrysler.........................         46.8         52.8         50.9
Daimler..........................         47.1         53.3         49.0
Ford.............................         46.3         56.1         49.9
General Motors...................         46.4         58.2         52.5
Honda............................         44.3         49.1         46.3
Hyundai..........................         44.4         48.7         44.8
Kia..............................         45.2         51.0         46.5
Mazda............................         44.4         47.3         44.9
Mitsubishi.......................         43.8         46.5         44.6
Nissan...........................         45.3         53.9         48.3
Porsche..........................         38.6         51.0         42.8
Subaru...........................         43.1         46.2         44.3
Suzuki...........................         40.8         47.2         41.6
Tata.............................         50.3         47.8         48.8
Toyota...........................         44.0         53.0         47.6
Volkswagen.......................         43.5         52.6         45.1
                                  --------------------------------------
    Industry Average.............         45.2         53.5         48.6
------------------------------------------------------------------------

   Table IV.C.1-4b--MY 2011 Final Rule Average Planned MY 2011 Vehicle
                                Footprint
                              [Square feet]
------------------------------------------------------------------------
                                        PC           LT          Avg.
------------------------------------------------------------------------
Manufacturer 1...................         46.7         58.5         52.8
Manufacturer 2...................         46.0         50.4         47.1
Manufacturer 3...................         44.9         52.8         48.4
Manufacturer 4...................         45.4         55.8         49.3
Manufacturer 5...................         45.2         57.5         50.3
Manufacturer 6...................         48.5         54.7         52.4
Manufacturer 7...................         45.1         49.9         46.4
                                  --------------------------------------
    Industry Average.............         45.6         55.1         49.7
------------------------------------------------------------------------

    Tables IV.C.1-5a and 1-5b show that the current baseline reflects a 
decrease in overall average vehicle weight relative to the 
manufacturers' plans. As above, this is most likely a reflection of the 
market segment shifts underlying the sales forecasts of the current 
baseline.

[[Page 25566]]

  Table IV.C.1-5a--Current Baseline Average MY 2011 Vehicle Curb Weight
                                [Pounds]
------------------------------------------------------------------------
           Manufacturer                 PC           LT          Avg.
------------------------------------------------------------------------
BMW..............................        3,535        4,648        4,055
Chrysler.........................        3,572        4,469        4,194
Daimler..........................        3,583        5,127        4,063
Ford.............................        3,526        4,472        3,877
General Motors...................        3,528        4,978        4,281
Honda............................        3,040        4,054        3,453
Hyundai..........................        3,014        4,078        3,129
Kia..............................        3,035        4,007        3,252
Mazda............................        3,258        3,803        3,348
Mitsubishi.......................        3,298        3,860        3,468
Nissan...........................        3,251        4,499        3,689
Porsche..........................        3,159        4,906        3,760
Subaru...........................        3,176        3,470        3,391
Suzuki...........................        2,842        3,843        2,965
Tata.............................        3,906        5,171        4,627
Toyota...........................        3,109        4,321        3,589
Volkswagen.......................        3,445        5,672        3,839
                                  --------------------------------------
    Industry Average.............        3,313        4,499        3,797
------------------------------------------------------------------------

Table IV.C.1-5b--MY 2011 Final Rule Average Planned MY 2011 Vehicle Curb
                                 Weight
                                [Pounds]
------------------------------------------------------------------------
                                        PC           LT          Avg.
------------------------------------------------------------------------
Manufacturer 1...................        3,197        4,329        3,692
Manufacturer 2...................        3,691        4,754        4,363
Manufacturer 3...................        3,293        4,038        3,481
Manufacturer 4...................        3,254        4,191        3,510
Manufacturer 5...................        3,547        5,188        4,401
Manufacturer 6...................        3,314        4,641        3,815
Manufacturer 7...................        3,345        4,599        3,865
                                  --------------------------------------
    Industry Average.............        3,380        4,687        3,935
------------------------------------------------------------------------

    Tables IV.C.1-6a and IV.C.1-6b show that the current baseline 
reflects a decrease in average performance relative to that of the 
manufacturers' product plans. This decreased performance is most likely 
a reflection of the market segment shifts underlying the sales 
forecasts of the current baseline, that is, an assumed shift away from 
higher performance vehicles.

   Table IV.C.1-6a--Current Baseline Average MY 2011 Vehicle Power-to-
                              Weight Ratio
                                 [hp/lb]
------------------------------------------------------------------------
           Manufacturer                 PC           LT          Avg.
------------------------------------------------------------------------
BMW..............................        0.072        0.061        0.067
Chrysler.........................        0.055        0.052        0.053
Daimler..........................        0.068        0.056        0.064
Ford.............................        0.058        0.054        0.056
General Motors...................        0.057        0.056        0.056
Honda............................        0.056        0.054        0.056
Hyundai..........................        0.052        0.055        0.052
Kia..............................        0.050        0.056        0.051
Mazda............................        0.052        0.055        0.052
Mitsubishi.......................        0.053        0.056        0.054
Nissan...........................        0.059        0.057        0.058
Porsche..........................        0.105        0.073        0.094
Subaru...........................        0.060        0.056        0.058
Suzuki...........................        0.049        0.062        0.051
Tata.............................        0.077        0.057        0.065
Toyota...........................        0.053        0.062        0.056
Volkswagen.......................        0.057        0.052        0.056
                                  --------------------------------------
    Industry Average.............        0.057        0.056        0.056
------------------------------------------------------------------------

[[Page 25567]]

   Table IV.C.1-6b--MY 2011 Final Rule Average Planned MY 2011 Vehicle
                          Power-to-Weight Ratio
                                 [hp/lb]
------------------------------------------------------------------------
                                        PC           LT          Avg.
------------------------------------------------------------------------
Manufacturer 1...................        0.065        0.058        0.060
Manufacturer 2...................        0.061        0.065        0.062
Manufacturer 3...................        0.053        0.059        0.056
Manufacturer 4...................        0.060        0.058        0.059
Manufacturer 5...................        0.060        0.057        0.059
Manufacturer 6...................        0.063        0.065        0.065
Manufacturer 7...................        0.053        0.055        0.053
                                  --------------------------------------
    Industry Average.............        0.060        0.059        0.060
------------------------------------------------------------------------

    As discussed above, the agencies' market forecast for MY 2012-2016 
holds the performance and other characteristics of individual vehicle 
models constant, adjusting the size and composition of the fleet from 
one model year to the next.
    Refresh and redesign schedules (for application in NHTSA's 
modeling):
    Expected model years in which each vehicle model will be redesigned 
or freshened constitute another important aspect of NHTSA's market 
forecast. As discussed in Section IV.C.2.c below, NHTSA's analysis 
supporting the current rulemaking times the addition of nearly all 
technologies to coincide with either a vehicle redesign or a vehicle 
freshening. Product plans submitted to NHTSA preceding the MY 2011 
final rule contained manufacturers' estimates of vehicle redesign and 
freshening schedules and NHTSA's estimates of the timing of the five-
year redesign cycle and the two- to three-year refresh cycle were made 
with reference to those plans. In the current baseline, in contrast, 
estimates of the timing of the refresh and redesign cycles were based 
on historical dates--i.e., counting forward from known redesigns 
occurring in or prior to MY 2008 for each vehicle in the fleet and 
assigning refresh and redesign years accordingly. After applying these 
estimates, the shares of manufacturers' passenger car and light truck 
estimated to be redesigned in MY 2011 were as summarized below for the 
current baseline and the MY 2011 final rule. Table IV.C.1-7 below shows 
the percentages of each manufacturer's fleets expected to be redesigned 
in MY 2011 for the current baseline. Table IV.C.1-8 presents 
corresponding estimates from the market forecast used by NHTSA in the 
analysis supporting the MY 2011 final rule (again, to protect 
confidential information, manufacturers are not identified by name).

 Table IV.C.1-7--Current Baseline, Share of Fleet Redesigned in MY 2011
------------------------------------------------------------------------
                                        PC           LT          Avg.
           Manufacturer             (percent)    (percent)    (percent)
------------------------------------------------------------------------
BMW..............................           32           37           34
Chrysler.........................            0           13            9
Daimler..........................            0            0            0
Ford.............................           12            8           11
General Motors...................           17            3            9
Honda............................           29           26           28
Hyundai..........................           26            0           23
Kia..............................           38           83           48
Mazda............................            0            0            0
Mitsubishi.......................            0           59           18
Nissan...........................            5           25           12
Porsche..........................            0          100           34
Subaru...........................            0           42           16
Suzuki...........................            4           21            6
Tata.............................           28          100           69
Toyota...........................            5           15            9
Volkswagen.......................           16            0           13
                                  --------------------------------------
    Industry Average.............           13           15           14
------------------------------------------------------------------------

[[Page 25568]]

Table IV.C.1-8--MY 2011 Final Rule, Share of Fleet Redesigned in MY 2011
------------------------------------------------------------------------
                                        PC           LT          Avg.
                                    (percent)    (percent)    (percent)
------------------------------------------------------------------------
Manufacturer 1...................           19            0           11
Manufacturer 2...................           34           27           29
Manufacturer 3...................            5            0            3
Manufacturer 4...................            7            0            5
Manufacturer 5...................           19            0           11
Manufacturer 6...................           34           28           33
Manufacturer 7...................           27           28           28
                                  --------------------------------------
    Overall......................           20            9           15
------------------------------------------------------------------------

    We continue, therefore, to estimate that manufacturers' redesigns 
will not be uniformly distributed across model years. This is in 
keeping with standard industry practices, and reflects what 
manufacturers actually do--NHTSA has observed that manufacturers in 
fact do redesign more vehicles in some years than in others. NHTSA 
staff have closely examined manufacturers' planned redesign schedules, 
contacting some manufacturers for clarification of some plans, and 
confirmed that these plans remain unevenly distributed over time. For 
example, although Table IV.C.1-8 shows that NHTSA expects Company 2 to 
redesign 34 percent of its passenger car models in MY 2011, current 
information indicates that this company will then redesign only (a 
different) 10 percent of its passenger cars in MY 2012. Similarly, 
although Table IV.C.1-8 shows that NHTSA expects four of the largest 
seven light truck manufacturers to redesign virtually no light truck 
models in MY 2011, current information also indicates that these four 
manufacturers will redesign 21-49 percent of their light trucks in MY 
2012.
e. How does manufacturer product plan data factor into the baseline 
used in this rule?
    As discussed in Section II.B.5 above, while the agencies received 
updated product plans in Spring and Fall 2009 in response to NHTSA's 
requests, the baseline data used in this final rule is not informed by 
these product plans, except with respect to specific engineering 
characteristics (e.g., GVWR) of some MY 2008 vehicle models, because 
these product plans contain confidential business information that the 
agencies are legally required to protect from disclosure, and because 
the agencies have concluded that, for purposes of this final rule, a 
transparent baseline is preferable.
    For the NPRM, NHTSA conducted a separate analysis that did make use 
of these product plans. NHTSA performed this separate analysis for 
purposes of comparison only. For today's final rule NHTSA used the 
publicly available baseline for all analysis related to the development 
and evaluation of the new CAFE standards. As discussed above in Section 
II.B.4, while a baseline developed using publicly and commercially 
available sources has both advantages and disadvantages relative to a 
baseline developed using manufacturers' product plans, NHTSA has 
concluded for today's rule that the advantages outweigh the 
disadvantages. NHTSA plans to consider these advantages and 
disadvantages further in connection with future rulemakings, taking 
into account changes in the market, changes in the scope and quality of 
publicly and commercially available data, and any changes in 
manufacturers' willingness to make some product planning information 
publicly available.
2. How were the technology inputs developed?
    As discussed above in Section II.E, for developing the technology 
inputs for the MY 2012-2016 CAFE and GHG standards, the agencies 
primarily began with the technology inputs used in the MY 2011 CAFE 
final rule and in the July 2008 EPA ANPRM, and then reviewed, as 
requested by President Obama in his January 26 memorandum, the 
technology assumptions that NHTSA used in setting the MY 2011 standards 
and the comments that NHTSA received in response to its May 2008 Notice 
of Proposed Rulemaking, as well as the comments received to the NPRM 
for this rule. In addition, the agencies supplemented their review with 
updated information from the FEV tear-down studies contracted by EPA, 
more current literature, new product plans and from EPA certification 
testing. More detail is available regarding how the agencies developed 
the technology inputs for this final rule above in Section II.E, in 
Chapter 3 of the Joint TSD, and in Section V of NHTSA's FRIA.
a. What technologies does NHTSA consider?
    Section II.E.1 above describes the fuel-saving technologies 
considered by the agencies that manufacturers could use to improve the 
fuel economy of their vehicles during MYs 2012-2016. The majority of 
the technologies described in this section are readily available, well 
known, and could be incorporated into vehicles once production 
decisions are made. As discussed, the technologies considered fall into 
five broad categories: engine technologies, transmission technologies, 
vehicle technologies, electrification/accessory technologies, and 
hybrid technologies. Table IV.C.2-1 below lists all the technologies 
considered and provides the abbreviations used for them in the Volpe 
model,\574\ as well as their year of availability, which for purposes 
of NHTSA's analysis means the first model year in the rulemaking period 
that the Volpe model is allowed to apply a technology to a 
manufacturer's fleet.\575\ Year of availability recognizes that 
technologies must achieve a level of technical viability before they 
can be implemented in the Volpe model, and are thus a means of 
constraining technology use until such time as it is considered to be 
technologically feasible. For a more detailed description of each 
technology and their costs and effectiveness, we refer the reader to 
Chapter 3 of the Joint TSD and Section V of NHTSA's FRIA.
---------------------------------------------------------------------------

    \574\ The abbreviations are used in this section both for 
brevity and for the reader's reference if they wish to refer to the 
expanded decision trees and the model input and output sheets, which 
are available in Docket No. NHTSA-2009-0059-0156 and on NHTSA's Web 
site.
    \575\ A date of 2011 means the technology can be applied in all 
model years, while a date of 2014 means the technology can only be 
applied in model years 2014 through 2016.

[[Page 25569]]

        Table IV.C.2-1--List of Technologies in NHTSA's Analysis
------------------------------------------------------------------------
            Technology               Model abbreviation   Year available
------------------------------------------------------------------------
Low Friction Lubricants...........  LUB.................            2011
Engine Friction Reduction.........  EFR.................            2011
VVT--Coupled Cam Phasing (CCP) on   CCPS................            2011
 SOHC.
Discrete Variable Valve Lift        DVVLS...............            2011
 (DVVL) on SOHC.
Cylinder Deactivation on SOHC.....  DEACS...............            2011
VVT--Intake Cam Phasing (ICP).....  ICP.................            2011
VVT--Dual Cam Phasing (DCP).......  DCP.................            2011
Discrete Variable Valve Lift        DVVLD...............            2011
 (DVVL) on DOHC.
Continuously Variable Valve Lift    CVVL................            2011
 (CVVL).
Cylinder Deactivation on DOHC.....  DEACD...............            2011
Cylinder Deactivation on OHV......  DEACO...............            2011
VVT--Coupled Cam Phasing (CCP) on   CCPO................            2011
 OHV.
Discrete Variable Valve Lift        DVVLO...............            2011
 (DVVL) on OHV.
Conversion to DOHC with DCP.......  CDOHC...............            2011
Stoichiometric Gasoline Direct      SGDI................            2011
 Injection (GDI).
Combustion Restart................  CBRST...............            2014
Turbocharging and Downsizing......  TRBDS...............            2011
Exhaust Gas Recirculation (EGR)     EGRB................            2013
 Boost.
Conversion to Diesel following      DSLC................            2011
 CBRST.
Conversion to Diesel following      DSLT................            2011
 TRBDS.
6-Speed Manual/Improved Internals.  6MAN................            2011
Improved Auto. Trans. Controls/     IATC................            2011
 Externals.
Continuously Variable Transmission  CVT.................            2011
6/7/8-Speed Auto. Trans with        NAUTO...............            2011
 Improved Internals.
Dual Clutch or Automated Manual     DCTAM...............            2011
 Transmission.
Electric Power Steering...........  EPS.................            2011
Improved Accessories..............  IACC................            2011
12V Micro-Hybrid..................  MHEV................            2011
Belt Integrated Starter Generator.  BISG................            2011
Crank Integrated Starter Generator  CISG................            2011
Power Split Hybrid................  PSHEV...............            2011
2-Mode Hybrid.....................  2MHEV...............            2011
Plug-in Hybrid....................  PHEV................            2011
Mass Reduction 1 (1.5%)...........  MS1.................            2011
Mass Reduction 2 (3.5%-8.5%)......  MS2.................            2014
Low Rolling Resistance Tires......  ROLL................            2011
Low Drag Brakes...................  LDB.................            2011
Secondary Axle Disconnect 4WD.....  SAX.................            2011
Aero Drag Reduction...............  AERO................            2011
------------------------------------------------------------------------

    For purposes of this final rule and as discussed in greater detail 
in the Joint TSD, NHTSA and EPA carefully reviewed the list of 
technologies used in the agency's analysis for the MY 2011 final rule. 
NHTSA and EPA concluded that the considerable majority of technologies 
were correctly defined and continued to be appropriate for use in the 
analysis supporting the final standards. However, some refinements were 
made as discussed in the NPRM.\576\ Additionally, the following 
refinements were made for purposes of the final rule.
---------------------------------------------------------------------------

    \576\ 74 FR at 49655-56 (Sept. 28, 2009).
---------------------------------------------------------------------------

    Specific to its modeling, NHTSA has revised two technologies used 
in the final rule analysis from those considered in the NPRM. These 
revisions were based on comments received in response to the NPRM and 
the identification of area to improve accuracy. In the NPRM, a diesel 
engine option (DSLT or DSLC) was not available for small vehicles 
because it did not appear to be a cost-effective option. However, based 
on comments received in response to the NPRM, the agency added a diesel 
engine option for small vehicles. Additionally, in the NPRM, the mass 
reduction/material substitution technology, MS1, assumed engine 
downsizing. However, for purposes of the final rule, engine downsizing 
is no longer assumed for MS1, thus slightly lowering the effectiveness 
estimate to better reflect how manufacturers might implement small 
amounts of mass reduction/material substitution. Chapter 3 of the Joint 
TSD and Section V of NHTSA's FRIA provide a more detailed explanation 
of these revisions.
b. How did NHTSA determine the costs and effectiveness of each of these 
technologies for use in its modeling analysis?
    Building on NHTSA's estimates developed for the MY 2011 CAFE final 
rule and EPA's Advanced Notice of Proposed Rulemaking, which relied on 
EPA's 2008 Staff Technical Report,\577\ the agencies took a fresh look 
at technology cost and effectiveness values and incorporated additional 
FEV tear-down study results for purposes of this final rule. This joint 
work is reflected in Chapter 3 of the Joint TSD and in Section II of 
this preamble, as summarized below. For more detailed information on 
the effectiveness and cost of fuel-saving technologies, please refer to 
Chapter 3 of the Joint TSD and Section V of NHTSA's FRIA. NHTSA and EPA 
are confident that the thorough review conducted for purposes of this 
final rule led to the best available conclusions regarding technology 
costs and effectiveness estimates for the current rulemaking and 
resulted in excellent consistency between the agencies' respective 
analyses for

[[Page 25570]]

developing the CAFE and CO2 standards.
---------------------------------------------------------------------------

    \577\ EPA Staff Technical Report: Cost and Effectiveness 
Estimates of Technologies Used to Reduce Light-Duty Vehicle Carbon 
Dioxide Emissions. EPA420-R-08-008, March 2008. Available at Docket 
No. NHTSA-2009-0059-0027.
---------------------------------------------------------------------------

    Generally speaking, while NHTSA and EPA found that much of the cost 
information used in NHTSA's MY 2011 final rule and EPA's 2008 Staff 
Report was consistent to a great extent, the agencies, in reconsidering 
information from many sources revised several component costs of 
several major technologies for purposes of the NRPM: mild and strong 
hybrids, diesels, SGDI, and Valve Train Lift Technologies. In addition, 
based on FEV tear-down studies, the costs for turbocharging/downsizing, 
6-, 7-, 8-speed automatic transmissions, and dual clutch transmissions 
were revised for this final rule. These revisions are discussed at 
length in the Joint TSD and in NHTSA's FRIA.
    Most effectiveness estimates used in both the MY 2011 final rule 
and the 2008 EPA Staff Report were determined to be accurate and were 
carried forward without significant change into this rulemaking. When 
NHTSA and EPA's estimates for effectiveness diverged slightly due to 
differences in how the agencies apply technologies to vehicles in their 
respective models, we report the ranges for the effectiveness values 
used in each model. For purposes of the final rule analysis, NHTSA made 
only a couple of changes to the effectiveness estimates. Specifically, 
in reviewing the NPRM effectiveness estimates for this final rule NHTSA 
discovered that the DCTAM effectiveness value for Subcompact and 
Compact subclasses was incorrect; the (lower) wet clutch effectiveness 
estimate had been used instead of the intended (higher) dry clutch 
estimate for these vehicle classes.\578\ Thus, NHTSA corrected these 
effectiveness estimates. Additionally, as discussed above, the 
effectiveness estimate for MS1 was revised (lowered) to better 
represent the impact of reducing mass at a refresh. For much more 
information on the costs and effectiveness of individual technologies, 
we refer the reader to Chapter 3 of the Joint TSD and Section V of 
NHTSA's FRIA.
---------------------------------------------------------------------------

    \578\ ``Dry clutch'' DCTAMs and ``wet clutch'' DCTAMs have 
different characteristics and different uses. A dry clutch DCTAM is 
more efficient and less expensive than a wet clutch DCTAM, which 
requires a wet-clutch-type hydraulic system to cool the clutches. 
However, without a cooling system, a dry clutch DCTAM has a lower 
torque capacity. Dry clutch DCTAMs are thus ideal for smaller 
vehicles with lower torque ratings, like those in the Subcompact and 
Compact classes, while wet clutch DCTAMs would be more appropriate 
for, e.g., larger trucks. Thus, it is appropriate to distinguish 
accordingly in DCTAM effectiveness between subclasses.
---------------------------------------------------------------------------

    As a general matter, NHTSA received relatively few comments related 
to technology cost and effectiveness estimates as compared to the 
number received on these issues in previous CAFE rulemakings. The 
California Air Resources Board (CARB) generally agreed with cost 
estimates used in the NPRM analysis. NHTSA also received comments from 
the Aluminum Association, General Motors, Honeywell, International 
Council on Clean Transportation (ICCT), Manufacturers of Emission 
Controls Association (MECA), Motor and Equipment Manufacturers 
Association (MEMA) and the New Jersey Department of Environmental 
Protection related to cost and effectiveness estimates for specific 
technologies, including but not limited to hybrids, diesels, 
turbocharging and downsizing, and mass reduction/material substitution. 
A detailed description of these comments and NHTSA's responses can be 
found in Section V of NHTSA's FRIA.
    NHTSA notes that, in developing technology cost and effectiveness 
estimates, the agencies have made every effort to hold constant aspects 
of vehicle performance and utility typically valued by consumers, such 
as horsepower, carrying capacity, and towing and hauling capacity. For 
example, NHTSA includes in its analysis technology cost and 
effectiveness estimates that are specific to performance passenger cars 
(i.e., sports cars), as compared to non-performance passenger cars. 
NHTSA sought comment on the extent to which commenters believed that 
the agencies have been successful in holding constant these elements of 
vehicle performance and utility in developing the technology cost and 
effectiveness estimates, but received relatively little in response. 
NHTSA thus concludes that commenters had no significant issues with its 
approach for purposes of this rulemaking, but the agency will continue 
to analyze this issue going forward.
    Additionally, NHTSA notes that the technology costs included in 
this final rule take into account only those associated with the 
initial build of the vehicle. The agencies sought comment on the 
additional lifetime costs, if any, associated with the implementation 
of advanced technologies, including warranty, maintenance and 
replacement costs, such as the replacement costs for low rolling 
resistance tires, low friction lubricants, and hybrid batteries, and 
maintenance costs for diesel aftertreatment components, but received no 
responses. The agency will continue to examine this issue closely for 
subsequent rulemakings, particularly as manufacturers turn increasingly 
to even more advanced technologies in the future that may have more 
significant lifetime costs.
    The tables below provide examples of the incremental cost and 
effectiveness estimates employed by the agency in developing this final 
rule, according to the decision trees used in the Volpe modeling 
analysis. Thus, the effectiveness and cost estimates are not absolute 
to a single reference vehicle, but are incremental to the technology or 
technologies that precede it.

                                             Table IV.C.2-2--Technology Effectiveness Estimates Employed in the Volpe Model for Certain Technologies
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Perform.   Perform.   Perform.
                                                               Subcomp.   Compact    Midsize   Large car   subcomp.   compact    midsize    Perform.   Minivan    Small LT   Midsize    Large LT
                                                                 car        car        car                   car        car        car     large car      LT                    LT
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 VEHICLE TECHNOLOGY INCREMENTAL FUEL CONSUMPTION REDUCTION (-%)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Low Friction Lubricants.....................................        0.5        0.5        0.5        0.5        0.5        0.5        0.5        0.5        0.5        0.5        0.5        0.5
VVT--Dual Cam Phasing (DCP).................................    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0
Discrete Variable Valve Lift (DVVL) on DOHC.................    1.0-3.0    1.0-3.0    1.0-3.0    1.0-3.0    1.0-3.0    1.0-3.0    1.0-3.0    1.0-3.0    1.0-3.0    1.0-3.0    1.0-3.0    1.0-3.0
Cylinder Deactivation on OHV................................       n.a.       n.a.       n.a.    3.9-5.5       n.a.    3.9-5.5    3.9-5.5    3.9-5.5    3.9-5.5       n.a.    3.9-5.5    3.9-5.5

[[Page 25571]]

Stoichiometric Gasoline Direct Injection (GDI)..............    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0
Turbocharging and Downsizing................................    4.2-4.8    4.2-4.8    4.2-4.8    1.8-1.9    4.2-4.8    1.8-1.9    1.8-1.9    1.8-1.9    1.8-1.9    4.2-4.8    1.8-1.9    1.8-1.9
6/7/8-Speed Auto. Trans with Improved Internals.............    1.4-3.4    1.4-3.4    1.4-3.4    1.4-3.4    1.4-3.4    1.4-3.4    1.4-3.4    1.4-3.4    1.4-3.4    1.4-3.4    1.4-3.4    1.4-3.4
Electric Power Steering.....................................    1.0-2.0    1.0-2.0    1.0-2.0    1.0-2.0    1.0-2.0    1.0-2.0    1.0-2.0    1.0-2.0    1.0-2.0    1.0-2.0    1.0-2.0    1.0-2.0
12V Micro-Hybrid............................................    2.0-3.0    2.0-3.0    2.0-3.0    2.5-3.5    2.0-3.0    2.5-3.5    2.5-3.5    3.0-4.0    2.5-3.5    2.0-3.0    2.5-3.5       n.a.
Crank mounted Integrated Starter Generator..................    8.6-8.9    8.6-8.9    8.6-8.9    8.7-8.9    8.6-8.9    8.7-8.9    8.7-8.9    8.7-8.9    8.7-8.9    8.6-8.9    8.7-8.9  14.1-16.3
Power Split Hybrid..........................................   6.3-12.4   6.3-12.4   6.3-12.4   6.3-12.4   6.3-12.4   6.3-12.4   6.3-12.4   6.3-12.4   6.3-12.4   6.3-12.4   6.3-12.4       n.a.
Aero Drag Reduction.........................................    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0    2.0-3.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                                 Table IV.C.2-3--Technology Cost Estimates Employed in the Volpe Model for Certain Technologies
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Perform.   Perform.   Perform.
                                                               Subcomp.   Compact    Midsize   Large car   subcomp.   compact    midsize    Perform.   Minivan    Small LT   Midsize    Large LT
                                                                 car        car        car                   car        car        car     large car      LT                    LT
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          VEHICLE TECHNOLOGY ICM COSTS PER VEHICLE ($)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Nominal baseline engine (for cost purpose)..................        (*)        (*)        (*)         V6        (*)         V6         V6         V8         V6        (*)         V6         V8
Low Friction Lubricants.....................................          3          3          3          3          3          3          3          3          3          3          3          3
VVT--Dual Cam Phasing (DCP).................................         38         38         38         82         38         82         82         82         82         38         82         82
Discrete Variable Valve Lift (DVVL) on DOHC.................        142        142        142        206        142        206        206        294        206        142        206        294
Cylinder Deactivation on OHV................................       n.a.       n.a.       n.a.        168       n.a.        168        168        192        168       n.a.        168        192
Stoichiometric Gasoline Direct Injection (GDI)..............        236        236        236        342        236        342        342        392        342        236        342        392
Turbocharging and Downsizing................................        445        445        445        325        445        325        325        919        325        445        325        919
6/7/8-Speed Auto. Trans with Improved Internals.............        112        112        112        112    112-214    112-214    112-214    112-214    112-214        112    112-214    112-214
Electric Power Steering.....................................        106        106        106        106        106        106        106        106        106        106        106        106
12V Micro-Hybrid............................................        288        311        342        367        314        337        372        410        337        325        376       n.a.
Crank mounted Integrated Starter Generator..................      2,791      3,107      3,319      3,547      2,839      3,149      3,335      3,571      3,149      3,141      3,611      5,124
Power Split Hybrid..........................................      1,600      2,133      2,742      3,261      3,661      4,018      5,287      6,723      4,018      2,337      3,462       n.a.
Aero Drag Reduction.........................................         48         48         48         48         48         48         48         48         48         48         48         48
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Inline 4.

[[Page 25572]]

c. How does NHTSA use these assumptions in its modeling analysis?
    NHTSA relies on several inputs and data files to conduct the 
compliance analysis using the Volpe model, as discussed further below 
and in Section V of the FRIA. For the purposes of applying 
technologies, the Volpe model primarily uses two data files, one that 
contains data on the vehicles expected to be manufactured in the model 
years covered by the rulemaking and identifies the appropriate stage 
within the vehicle's life-cycle for the technology to be applied, and 
one that contains data/parameters regarding the available technologies 
the model can apply. These inputs are discussed below.
    As discussed above, the Volpe model begins with an initial state of 
the domestic vehicle market, which in this case is the market for 
passenger cars and light trucks to be sold during the period covered by 
the final standards. The vehicle market is defined on a model-by-model, 
engine-by-engine, and transmission-by-transmission basis, such that 
each defined vehicle model refers to a separately defined engine and a 
separately defined transmission.
    For the current standards, which cover MYs 2012-2016, the light-
duty vehicle (passenger car and light truck) market forecast was 
developed jointly by NHTSA and EPA staff using MY 2008 CAFE compliance 
data. The MY 2008 compliance data includes about 1,100 vehicle models, 
about 400 specific engines, and about 200 specific transmissions, which 
is a somewhat lower level of detail in the representation of the 
vehicle market than that used by NHTSA in recent CAFE analyses--
previous analyses would count a vehicle as ``new'' in any year when 
significant technology differences are made, such as at a 
redesign.\579\ However, within the limitations of information that can 
be made available to the public, it provides the foundation for a 
realistic analysis of manufacturer-specific costs and the analysis of 
attribute-based CAFE standards, and is much greater than the level of 
detail used by many other models and analyses relevant to light-duty 
vehicle fuel economy.\580\
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    \579\ The market file for the MY 2011 final rule, which included 
data for MYs 2011-2015, had 5500 vehicles, about 5 times what we are 
using in this analysis of the MY 2008 certification data.
    \580\ Because CAFE standards apply to the average performance of 
each manufacturer's fleet of cars and light trucks, the impact of 
potential standards on individual manufacturers cannot be credibly 
estimated without analysis of the fleets that manufacturers can be 
expected to produce in the future. Furthermore, because required 
CAFE levels under an attribute-based CAFE standard depend on 
manufacturers' fleet composition, the stringency of an attribute-
based standard cannot be predicted without performing analysis at 
this level of detail.
---------------------------------------------------------------------------

    In addition to containing data about each vehicle, engine, and 
transmission, this file contains information for each technology under 
consideration as it pertains to the specific vehicle (whether the 
vehicle is equipped with it or not), the estimated model year the 
vehicle is undergoing redesign, and information about the vehicle's 
subclass for purposes of technology application. In essence, the model 
considers whether it is appropriate to apply a technology to a vehicle.

Is a vehicle already equipped, or can it not be equipped, with a 
particular technology?

    The market forecast file provides NHTSA the ability to identify, on 
a technology by technology basis, which technologies may already be 
present (manufactured) on a particular vehicle, engine, or 
transmission, or which technologies are not applicable (due to 
technical considerations) to a particular vehicle, engine, or 
transmission. These identifications are made on a model-by-model, 
engine-by-engine, and transmission-by-transmission basis. For example, 
if the market forecast file indicates that Manufacturer X's Vehicle Y 
is manufactured with Technology Z, then for this vehicle Technology Z 
will be shown as used. Additionally, NHTSA has determined that some 
technologies are only suitable or unsuitable when certain vehicle, 
engine, or transmission conditions exist. For example, secondary axle 
disconnect is only suitable for 4WD vehicles, and cylinder deactivation 
is unsuitable for any engine with fewer than 6 cylinders, while CVTs 
can only be applied to unibody vehicles. Similarly, comments received 
to the 2008 NPRM indicated that cylinder deactivation could not likely 
be applied to vehicles equipped with manual transmissions during the 
rulemaking timeframe, due primarily to the cylinder deactivation system 
not being able to anticipate gear shifts. The Volpe model employs 
``engineering constraints'' to address issues like these, which are a 
programmatic method of controlling technology application that is 
independent of other constraints. Thus, the market forecast file would 
indicate that the technology in question should not be applied to the 
particular vehicle/engine/transmission (i.e., is unavailable). Since 
multiple vehicle models may be equipped with an engine or transmission, 
this may affect multiple models. In using this aspect of the market 
forecast file, NHTSA ensures the Volpe model only applies technologies 
in an appropriate manner, since before any application of a technology 
can occur, the model checks the market forecast to see if it is either 
already present or unavailable.
    In response to the NPRM, NHTSA received comments from GM that 
included a description of technical considerations, concerns, 
limitations and risks that need to be considered when implementing 
turbocharging and downsizing technologies on full size trucks. These 
include concerns related to engine knock, drivability, control of boost 
pressure, packaging complexity, enhanced cooling for vehicles that are 
designed for towing or hauling, and noise, vibration and harshness. 
NHTSA judges that the expressed technical considerations, concerns, 
limitations and risks are well recognized within the industry and it is 
standard industry practice to address each during the design and 
development phases of applying turbocharging and downsizing 
technologies. Cost and effectiveness estimates used in the final rule 
are based on analysis that assumes each of these factors is addressed 
prior to production implementation of the technologies. In comments 
related to full size trucks, GM commented that potential to address 
knock limit concerns through various alternatives, which include use of 
higher octane premium fuel and/or the addition of a supplemental 
ethanol injection system. For this rulemaking, NHTSA has not assumed 
that either of these approaches is implemented to address knock limit 
concerns, and these technologies are not included in assessment of 
turbocharging and downsizing feasibility, cost or effectiveness.\581\ 
In addition, NHTSA has received confidential business information from 
a manufacturer that supports that turbocharging and downsizing is 
feasible on a full size truck product during the rulemaking period.

    \581\ Note that for one of the teardown analysis cost studies of 
turbocharging and downsizing conducted by FEV, in which a 2.4L I4 
DOHC naturally aspirated engine was replaced by a 1.6L I4 DOHC SGDI 
turbocharged engine, the particular 1.6L turbocharged engine chosen 
for the study was a premium octane fuel engine. For this rulemaking, 
NHTSA intends that a turbocharged and downsized engine achieve 
comparable performance to a baseline engine without requiring 
premium octane fuel. For the FEV study of the 1.6L turbocharged 
engine, this could be achieved through the specification of an 
engine with a displacement of slightly greater than 1.6L. NHTSA 
judges that a slightly larger engine would have small effect on the 
overall cost analysis used in this rulemaking. For all other 
teardown studies conducted by FEV, both the naturally aspirated 
engine and the replacement turbocharged and downsized engine were 
specified to use regular octane fuel.

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

[[Page 25573]]

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Is a vehicle being redesigned or refreshed?

    Manufacturers typically plan vehicle changes to coincide with 
certain stages of a vehicle's life cycle that are appropriate for the 
change, or in this case the technology being applied. In the automobile 
industry there are two terms that describe when technology changes to 
vehicles occur: Redesign and refresh (i.e., freshening). Vehicle 
redesign usually refers to significant changes to a vehicle's 
appearance, shape, dimensions, and powertrain. Redesign is 
traditionally associated with the introduction of ``new'' vehicles into 
the market, often characterized as the ``next generation'' of a 
vehicle, or a new platform. Vehicle refresh usually refers to less 
extensive vehicle modifications, such as minor changes to a vehicle's 
appearance, a moderate upgrade to a powertrain system, or small changes 
to the vehicle's feature or safety equipment content. Refresh is 
traditionally associated with mid-cycle cosmetic changes to a vehicle, 
within its current generation, to make it appear ``fresh.'' Vehicle 
refresh generally occurs no earlier than two years after a vehicle 
redesign, or at least two years before a scheduled redesign. For the 
majority of technologies discussed today, manufacturers will only be 
able to apply them at a refresh or redesign, because their application 
would be significant enough to involve some level of engineering, 
testing, and calibration work.\582\
---------------------------------------------------------------------------

    \582\ For example, applying material substitution through weight 
reduction, or even something as simple as low rolling-resistance 
tires, to a vehicle will likely require some level of validation and 
testing to ensure that the vehicle may continue to be certified as 
compliant with NHTSA's Federal Motor Vehicle Safety Standards 
(FMVSS). Weight reduction might affect a vehicle's crashworthiness; 
low rolling-resistance tires might change a vehicle's braking 
characteristics or how it performs in crash avoidance tests.
---------------------------------------------------------------------------

    Some technologies (e.g., those that require significant revision) 
are nearly always applied only when the vehicle is expected to be 
redesigned, like turbocharging and engine downsizing, or conversion to 
diesel or hybridization. Other technologies, like cylinder 
deactivation, electric power steering, and aerodynamic drag reduction 
can be applied either when the vehicle is expected to be refreshed or 
when it is expected to be redesigned, while a few others, like low 
friction lubricants, can be applied at any time, regardless of whether 
a refresh or redesign event is conducted. Accordingly, the model will 
only apply a technology at the particular point deemed suitable. These 
constraints are intended to produce results consistent with 
manufacturers' technology application practices. For each technology 
under consideration, NHTSA stipulates whether it can be applied any 
time, at refresh/redesign, or only at redesign. The data forms another 
input to the Volpe model. NHTSA develops redesign and refresh schedules 
for each of a manufacturer's vehicles included in the analysis, 
essentially based on the last known redesign year for each vehicle and 
projected forward in a 5-year redesign and a 2-3 year refresh cycle, 
and this data is also stored in the market forecast file. We note that 
this approach is different than NHTSA has employed previously for 
determining redesign and refresh schedules, where NHTSA included the 
redesign and refresh dates in the market forecast file as provided by 
manufacturers in confidential product plans. The new approach is 
necessary given the nature of the new baseline which as a single year 
of data does not contain its own refresh and redesign cycle cues for 
future model years, and to ensure the complete transparency of the 
agency's analysis. Vehicle redesign/refresh assumptions are discussed 
in more detail in Section V of the FRIA and in Chapter 3 of the TSD.
    NHTSA received comments from the Center for Biological Diversity 
(CBD) and Ferrari regarding redesign cycles. CBD stated that 
manufacturers do not necessarily adhere to the agencies' assumed five-
year redesign cycle, and may add significant technologies by 
redesigning vehicles at more frequent intervals, albeit at higher 
costs. CBD argued that NHTSA should analyze the costs and benefits of 
manufacturers choosing to redesign vehicles more frequently than a 5-
year average. Conversely, Ferrari agreed with the agencies that major 
technology changes are introduced at vehicle redesigns, rather than at 
vehicle freshenings, stating further that as compared to full-line 
manufacturers, small-volume manufacturers in fact may have 7 to 8-year 
redesign cycles. In response, NHTSA recognizes that not all 
manufacturers follow a precise five-year redesign cycle for every 
vehicle they produce,\583\ but continues to believe that the five-year 
redesign cycle assumption is a reasonable estimate of how often 
manufacturers can make major technological changes for purposes of its 
modeling analysis.\584\ NHTSA has considered attempting to quantify the 
increased cost impacts of setting standards that rise in stringency so 
rapidly that manufacturers are forced to apply ``usual redesign'' 
technologies at non-redesign intervals, but such an analysis would be 
exceedingly complex and is beyond the scope of this rulemaking given 
the timeframe and the current condition of the industry. NHTSA 
emphatically disagrees that the redesign cycle is a barrier to 
increasing penetration of technologies as CBD suggests, but we also 
believe that standards so stringent that they would require 
manufacturers to abandon redesign cycles entirely would be beyond the 
realm of economic practicability and technological feasibility, 
particularly in this rulemaking timeframe given lead time and capital 
constraints. Manufacturers can and will accomplish much improvement in 
fuel economy and GHG reductions while applying technology consistent 
with their redesign schedules.
---------------------------------------------------------------------------

    \583\ In prior NHTSA rulemakings, the agency was able to account 
for shorter redesign cycles on some models (e.g., some sedans), and 
longer redesign cycles on others (e.g., cargo vans), but has 
standardized the redesign cycle in this analysis using the 
transparent baseline.
    \584\ In the MY 2011 final rule, NHTSA noted that the CAR report 
submitted by the Alliance, prepared by the Center for Automotive 
Research and EDF, stated that ``For a given vehicle line, the time 
from conception to first production may span two and one-half to 
five years,'' but that ``The time from first production 
(``Job1'') to the last vehicle off the line (``Balance 
Out'') may span from four to five years to eight to ten years or 
more, depending on the dynamics of the market segment,'' The CAR 
report then stated that ``At the point of final production of the 
current vehicle line, a new model with the same badge and similar 
characteristics may be ready to take its place, continuing the 
cycle, or the old model may be dropped in favor of a different 
product.'' See NHTSA-2008-0089-0170.1, Attachment 16, at 8 (393 of 
pdf). NHTSA explained that this description, which states that a 
vehicle model will be redesigned or dropped after 4-10 years, was 
consistent with other characterizations of the redesign and 
freshening process, and supported the 5-year redesign and 2-3 year 
refresh cycle assumptions used in the MY 2011 final rule. See id., 
at 9 (394 of pdf). Given that the situation faced by the auto 
industry today is not so wholly different from that in March 2009, 
when the MY 2011 final rule was published, and given that the 
commenters did not present information to suggest that these 
assumptions are unreasonable (but rather simply that different 
manufacturers may redesign their vehicles more or less frequently, 
as the range of cycles above indicates), NHTSA believes that the 
assumptions remain reasonable for purposes of this final rule 
analysis. See also ``Car Wars 2009-2012, The U.S. automotive product 
pipeline,'' John Murphy, Research Analyst, Merrill Lynch research 
paper, May 14, 2008 and ``Car Wars 2010-2013, The U.S. automotive 
product pipeline,'' John Murphy, Research Analyst, Bank of America/
Merrill Lynch research paper, July 15, 2009. Available at http://
www.autonews.com/assets/PDF/CA66116716.PDF (last accessed March 15, 
2010).
---------------------------------------------------------------------------

    Once the model indicates that a technology should be applied to a 
vehicle, the model must evaluate which technology should be applied. 
This will depend on the vehicle subclass to which the vehicle is 
assigned; what

[[Page 25574]]

technologies have already been applied to the vehicle (i.e., where in 
the ``decision tree'' the vehicle is); when the technology is first 
available (i.e., year of availability); whether the technology is still 
available (i.e., ``phase-in caps''); and the costs and effectiveness of 
the technologies being considered. Technology costs may be reduced, in 
turn, by learning effects, while technology effectiveness may be 
increased or reduced by synergistic effects between technologies. In 
the technology input file, NHTSA has developed a separate set of 
technology data variables for each of the twelve vehicle subclasses. 
Each set of variables is referred to as an ``input sheet,'' so for 
example, the subcompact input sheet holds the technology data that is 
appropriate for the subcompact subclass. Each input sheet contains a 
list of technologies available for members of the particular vehicle 
subclass. The following items are provided for each technology: The 
name of the technology, its abbreviation, the decision tree with which 
it is associated, the (first) year in which it is available, the upper 
and lower cost and effectiveness (fuel consumption reduction) 
estimates, the learning type and rate, the cost basis, its 
---------------------------------------------------------------------------
applicability, and the phase-in values.

To which vehicle subclass is the vehicle assigned?

    As part of its consideration of technological feasibility, the 
agency evaluates whether each technology could be implemented on all 
types and sizes of vehicles, and whether some differentiation is 
necessary in applying certain technologies to certain types and sizes 
of vehicles, and with respect to the cost incurred and fuel consumption 
and CO2 emissions reduction achieved when doing so. The 2002 
NAS Report differentiated technology application using ten vehicle 
``classes'' (4 car classes and 6 truck classes),\585\ but did not 
determine how cost and effectiveness values differ from class to class. 
NAS's purpose in separating vehicles into these classes was to create 
groups of ``like'' vehicles, i.e., vehicles similar in size, powertrain 
configuration, weight, and consumer use, and for which similar 
technologies are applicable. NHTSA similarly differentiates vehicles by 
``subclass'' for the purpose of applying technologies to ``like'' 
vehicles and assessing their incremental costs and effectiveness. NHTSA 
assigns each vehicle manufactured in the rulemaking period to one of 12 
subclasses: For passenger cars, Subcompact, Subcompact Performance, 
Compact, Compact Performance, Midsize, Midsize Performance, Large, and 
Large Performance; and for light trucks, Small SUV/Pickup/Van, Midsize 
SUV/Pickup/Van, Large SUV/Pickup/Van, and Minivan.
---------------------------------------------------------------------------

    \585\ The NAS classes included subcompact cars, compact cars, 
midsize cars, large cars, small SUVs, midsize SUVs, large SUVs, 
small pickups, large pickups, and minivans.
---------------------------------------------------------------------------

    For this final rule as for the NPRM, NHTSA divides the vehicle 
fleet into subclasses based on model inputs, and applies subclass-
specific estimates, also from model inputs, of the applicability, cost, 
and effectiveness of each fuel-saving technology. Therefore, the 
model's estimates of the cost to improve the fuel economy of each 
vehicle model depend upon the subclass to which the vehicle model is 
assigned.
    Each vehicle's subclass is stored in the market forecast file. When 
conducting a compliance analysis, if the Volpe model seeks to apply 
technology to a particular vehicle, it checks the market forecast to 
see if the technology is available and if the refresh/redesign criteria 
are met. If these conditions are satisfied, the model determines the 
vehicle's subclass from the market data file, which it then uses to 
reference another input called the technology input file. NHTSA 
reviewed its methodology for dividing vehicles into subclasses for 
purposes of technology application that it used in the MY 2011 final 
rule, and concluded that the same methodology would be appropriate for 
this final rule for MYs 2012-2016. No comments were received on the 
vehicle subclasses employed in the agency's NPRM analysis, and NHTSA 
has retained the subclasses and the methodology for dividing vehicles 
among them for the final rule analysis. Vehicle subclasses are 
discussed in more detail in Section V of the FRIA and in Chapter 3 of 
the TSD.
    For the reader's reference, the subclasses and example vehicles 
from the market forecast file are provided in the tables below.

           Passenger Car Subclasses Example (MY 2008) Vehicles
------------------------------------------------------------------------
               Class                          Example vehicles
------------------------------------------------------------------------
Subcompact........................  Chevy Aveo, Hyundai Accent.
Subcompact Performance............  Mazda MX-5, BMW Z4.
Compact...........................  Chevy Cobalt, Nissan Sentra and
                                     Altima.
Compact Performance...............  Audi S4, Mazda RX-8.
Midsize...........................  Chevy Impala, Toyota Camry, Honda
                                     Accord, Hyundai Azera.
Midsize Performance...............  Chevy Corvette, Ford Mustang (V8),
                                     Nissan G37 Coupe.
Large.............................  Audi A8, Cadillac CTS and DTS.
Large Performance.................  Bentley Arnage, Daimler CL600.
------------------------------------------------------------------------

            Light Truck Subclasses Example (MY 2008) Vehicles
------------------------------------------------------------------------
               Class                          Example vehicles
------------------------------------------------------------------------
Minivans..........................  Dodge Caravan, Toyota Sienna.
Small SUV/Pickup/Van..............  Ford Escape & Ranger, Nissan Rogue.
Midsize SUV/Pickup/Van............  Chevy Colorado, Jeep Wrangler,
                                     Toyota Tacoma.
Large SUV/Pickup/Van..............  Chevy Silverado, Ford E-Series,
                                     Toyota Sequoia.
------------------------------------------------------------------------

What technologies have already been applied to the vehicle (i.e., where 
in the ``decision trees'' is it)?

    NHTSA's methodology for technology application analysis developed 
out of the approach taken by NAS in the 2002 Report, and evaluates the 
application of individual technologies and their incremental costs and 
effectiveness.

[[Page 25575]]

Incremental costs and effectiveness of individual technologies are 
relative to the prior technology state, which means that it is crucial 
to understand what technologies are already present on a vehicle in 
order to determine correct incremental cost and effectiveness values. 
The benefit of the incremental approach is transparency in accounting, 
insofar as when individual technologies are added incrementally to 
individual vehicles, it is clear and easy to determine how costs and 
effectiveness add up as technology levels increase.
    To keep track of incremental costs and effectiveness and to know 
which technology to apply and in which order, the Volpe model's 
architecture uses a logical sequence, which NHTSA refers to as 
``decision trees,'' for applying fuel economy-improving technologies to 
individual vehicles. In the MY 2011 final rule, NHTSA worked with 
Ricardo to modify previously-employed decision trees in order to allow 
for a much more accurate application of technologies to vehicles. For 
purposes of the final rule, NHTSA reviewed the technology sequencing 
architecture and updated, as appropriate, the decision trees used in 
the analysis reported in the final rule for MY 2011 and in the MY 2012-
2016 NPRM.
    In general, and as described in great detail in the MY 2011 final 
rule and in Section V of the current FRIA, each technology is assigned 
to one of the five following categories based on the system it affects 
or impacts: engine, transmission, electrification/accessory, hybrid or 
vehicle. Each of these categories has its own decision tree that the 
Volpe model uses to apply technologies sequentially during the 
compliance analysis. The decision trees were designed and configured to 
allow the Volpe model to apply technologies in a cost-effective, 
logical order that also considers ease of implementation. For example, 
software or control logic changes are implemented before replacing a 
component or system with a completely redesigned one, which is 
typically a much more expensive option. In some cases, and as 
appropriate, the model may combine the sequential technologies shown on 
a decision tree and apply them simultaneously, effectively developing 
dynamic technology packages on an as-needed basis. For example, if 
compliance demands indicate, the model may elect to apply LUB, EFR, and 
ICP on a dual overhead cam engine, if they are not already present, in 
one single step. An example simplified decision tree for engine 
technologies is provided below; the other simplified decision trees may 
be found in Chapter 3 of the Joint TSD and in the FRIA. Expanded 
decision trees are available in the docket for this final rule.
BILLING CODE 6560-50-P

[[Page 25576]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.027

BILLING CODE 6560-50-C

[[Page 25577]]

    Each technology within the decision trees has an incremental cost 
and an incremental effectiveness estimate associated with it, and 
estimates are specific to a particular vehicle subclass (see the tables 
in Section V of the FRIA). Each technology's incremental estimate takes 
into account its position in the decision tree path. If a technology is 
located further down the decision tree, the estimates for the costs and 
effectiveness values attributed to that technology are influenced by 
the incremental estimates of costs and effectiveness values for prior 
technology applications. In essence, this approach accounts for ``in-
path'' effectiveness synergies, as well as cost effects that occur 
between the technologies in the same path. When comparing cost and 
effectiveness estimates from various sources and those provided by 
commenters in this and the previous CAFE rulemakings, it is important 
that the estimates evaluated are analyzed in the proper context, 
especially as concerns their likely position in the decision trees and 
other technologies that may be present or missing. Not all estimates 
available in the public domain or that have been offered for the 
agencies' consideration can be evaluated in an ``apples-to-apples'' 
comparison with those used by the Volpe model, since in some cases the 
order of application, or included technology content, is inconsistent 
with that assumed in the decision tree.
    The MY 2011 final rule discussed in detail the revisions and 
improvements made to the Volpe model and decision trees during that 
rulemaking process, including the improved handling and accuracy of 
valve train technology application and the development and 
implementation of a method for accounting path-dependent correction 
factors in order to ensure that technologies are evaluated within the 
proper context. The reader should consult the MY 2011 final rule 
documents for further information on these modeling techniques, all of 
which continued to be utilized in developing this final rule.\586\ To 
the extent that the decision trees have changed for purposes of the 
NPRM and this final rule, it was due not to revisions in the order of 
technology application, but rather to redefinitions of technologies or 
addition or subtraction of technologies.
---------------------------------------------------------------------------

    \586\ See, e.g., 74 FR 14238-46 (Mar. 30, 2009) for a full 
discussion of the decision trees in NHTSA's MY 2011 final rule, and 
Docket No. NHTSA-2009-0062-0003.1 for an expanded decision tree used 
in that rulemaking.
---------------------------------------------------------------------------

    NHTSA did not receive any comments related to the use or ordering 
of the decision trees, and the agency continued to use the decision 
trees as they were proposed in the NPRM.

Is the next technology available in this model year?

    As discussed above, the majority of technologies considered are 
available on vehicles today, and thus will be available for application 
(albeit in varying degrees) in the model years covered by this rule. 
Some technologies, however, will not become available for purposes of 
NHTSA's analysis until later in the rulemaking time frame. When the 
model is considering whether to add a technology to a vehicle, it 
checks its year of availability--if the technology is available, it may 
be added; if it is not available, the model will consider whether to 
switch to a different decision tree to look for another technology, or 
will skip to the next vehicle in a manufacturer's fleet. The year of 
availability for each technology is provided above in Table IV.C.2-1.
    CBD commented that because many of the technologies considered in 
the NPRM are currently available, manufacturers should be able to 
attain mpg levels equivalent to the MY 2016 standards in MY 2009. In 
response, as discussed above, technology ``availability'' is not 
determined based simply on whether the technology exists, but depends 
also on whether the technology has achieved a level of technical 
viability that makes it appropriate for widespread application. This 
depends in turn on component supplier constraints, capital investment 
and engineering constraints, and manufacturer product cycles, among 
other things. Moreover, even if a technology is available for 
application, it may not be available for every vehicle. Some 
technologies may have considerable fuel economy benefits, but cannot be 
applied to some vehicles due to technological constraints--for example, 
cylinder deactivation cannot be applied to vehicles with current 4-
cylinder engines (because not enough cylinders are present to 
deactivate some and continue moving the vehicle) or on vehicles with 
manual transmissions within the rulemaking timeframe. The agencies have 
provided for increases over time to reach the mpg level of the MY 2016 
standards precisely because of these types of constraints, because they 
have a real effect on how quickly manufacturers can apply technology to 
vehicles in their fleets.

Has the technology reached the phase-in cap for this model year?

    Besides the refresh/redesign cycles used in the Volpe model, which 
constrain the rate of technology application at the vehicle level so as 
to ensure a period of stability following any modeled technology 
applications, the other constraint on technology application employed 
in NHTSA's analysis is ``phase-in caps.'' Unlike vehicle-level cycle 
settings, phase-in caps constrain technology application at the vehicle 
manufacturer level.\587\ They are intended to reflect a manufacturer's 
overall resource capacity available for implementing new technologies 
(such as engineering and development personnel and financial 
resources), thereby ensuring that resource capacity is accounted for in 
the modeling process. At a high level, phase-in caps and refresh/
redesign cycles work in conjunction with one another to avoid the 
modeling process out-pacing an OEM's limited pool of available 
resources during the rulemaking time frame, especially in years where 
many models may be scheduled for refresh or redesign. This helps to 
ensure technological feasibility and economic practicability in 
determining the stringency of the standards.
---------------------------------------------------------------------------

    \587\ While phase-in caps are expressed as specific percentages 
of a manufacturer's fleet to which a technology may be applied in a 
given model year, phase-in caps cannot always be applied as precise 
limits, and the Volpe model in fact allows ``override'' of a cap in 
certain circumstances. When only a small portion of a phase-in cap 
limit remains, or when the cap is set to a very low value, or when a 
manufacturer has a very limited product line, the cap might prevent 
the technology from being applied at all since any application would 
cause the cap to be exceeded. Therefore, the Volpe model evaluates 
and enforces each phase-in cap constraint after it has been exceeded 
by the application of the technology (as opposed to evaluating it 
before application), which can result in the described overriding of 
the cap.
---------------------------------------------------------------------------

    NHTSA has been developing the concept of phase-in caps for purposes 
of the agency's modeling analysis over the course of the last several 
CAFE rulemakings, as discussed in greater detail in the MY 2011 final 
rule,\588\ and in Section V of the FRIA and Chapter 3 of the Joint TSD. 
The MY 2011 final rule employed non-linear phase-in caps (that is, caps 
that varied from year to year) that were designed to respond to 
comments raising lead-time concerns in reference to the agency's 
proposed MY 2011-2015 standards, but because the final rule covered 
only one model year, many phase-in caps for that model year were lower 
than had originally been proposed. NHTSA emphasized that the MY 2011 
phase-in caps were based on assumptions for the full five year period 
of the proposal (2011-2015), and stated that it would reconsider the 
phase-in settings for all years beyond 2011 in a future rulemaking 
analysis.\589\
---------------------------------------------------------------------------

    \588\ 74 FR 14268-14271 (Mar. 30, 2009).
    \589\ See 74 FR at 14269 (Mar. 20, 2009).

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

[[Page 25578]]

    For purposes of this final rule for MYs 2012-2016, as in the MY 
2011 final rule, NHTSA combines phase-in caps for some groups of 
similar technologies, such as valve phasing technologies that are 
applicable to different forms of engine design (SOHC, DOHC, OHV), since 
they are very similar from an engineering and implementation 
standpoint. When the phase-in caps for two technologies are combined, 
the maximum total application of either or both to any manufacturer's 
fleet is limited to the value of the cap.\590\ In contrast to the 
phase-in caps used in the MY 2011 final rule, NHTSA has increased the 
phase-in caps for most of the technologies, as discussed below.
---------------------------------------------------------------------------

    \590\ See 74 FR at 14270 (Mar. 30, 2009) for further discussion 
and examples.
---------------------------------------------------------------------------

    In developing phase-in cap values for purposes of this final rule, 
NHTSA initially considered the fact that many of the technologies 
commonly applied by the model, those placed near the top of the 
decision trees, such as low friction lubes, valve phasing, electric 
power steering, improved automatic transmission controls, and others, 
have been commonly available to manufacturers for several years now. 
Many technologies, in fact, precede the 2002 NAS Report, which 
estimated that such technologies would take 4 to 8 years to penetrate 
the fleet. Since this final rule would take effect in MY 2012, nearly 
10 years beyond the NAS report, and extends to MY 2016, and in the 
interest of harmonization with EPA's proposal, NHTSA determined that 
higher phase-in caps were likely justified. Additionally, NHTSA 
considered the fact that manufacturers, as part of the agreements 
supporting the National Program, appear to be anticipating higher 
technology application rates than those used in the MY 2011 final rule. 
This also supported higher phase-in caps for purposes of the analysis 
underlying this final rule.
    Thus, while phase-in caps for the MY 2011 final rule reached a 
maximum of 50 percent for a couple of technologies and generally fell 
in the range between 0 and 20 percent, phase-in caps for this final 
rule for the majority of technologies are set to reach 85 or 100 
percent by MY 2016, although more advanced technologies like diesels 
and strong hybrids reach only 15 percent by MY 2016.
    NHTSA received comments from the Alliance and ICCT relating to 
phase-in caps. The Alliance commented that the higher phase-in caps in 
the NPRM analysis (as compared to the MY 2011 final rule) ``ignore OEM 
engine architecture differences/limitations,'' arguing that the agency 
must consider manufacturing investment and lead time implications when 
defining phase-in caps. ICCT did not raise the issue of phase-in caps 
directly, but commented that the agencies had not provided information 
in the proposal documents explaining when each manufacturer can 
implement the different technologies and how long it will take the 
technologies to spread across the fleet. ICCT argued that this 
information was crucial to considering how quickly the stringency of 
the standards could be increased, and at what cost.
    In response to the Alliance comments, the phase-in cap constraint 
is, in fact, exactly intended to account for manufacturing investment 
and lead time implications, as discussed above: phase-in caps are 
intended to reflect a manufacturer's overall resource capacity 
available for implementing new technologies (such as engineering and 
development personnel and financial resources), to help ensure that 
resource capacity is accounted for in the modeling process. Although 
the phase-in caps for the analysis supporting these standards are 
higher than the phase-in caps employed in the MY 2011 final rule, as 
stated in the NPRM, the agencies considered the fact that 
manufacturers, as part of the agreements supporting the National 
Program, appear to be anticipating higher technology application rates 
during the rulemaking timeframe--indicating that the values selected 
for the phase-in caps are more likely within the range of 
practicability. Additionally, the agencies did not receive any comments 
from manufacturers indicating a direct concern with the proposed 
application rates, which they were able to review in the detailed 
manufacturer level model outputs. The agencies believe that as 
manufacturers focus their resources (i.e., engineering, capital 
investment, etc.) on fuel economy-improving technologies, many of which 
have been in production for many years, the application rates being 
modeled are appropriate for the timeframe being analyzed.
    In response to ICCT's comments, the combination of phase-in caps, 
refresh/redesign cycles, engineering constraints, etc., are intended to 
simulate manufacturers' technology application decisions, and 
ultimately define the technology application/implementation rates for 
each manufacturer. NHTSA has used the best public data available to 
define refresh and redesign schedules to define technology 
implementation, which allows us to apply technologies at the specific 
times each manufacturer is planning. There was full notice of not just 
the phase-in caps themselves, but their specific application as well. 
NHTSA notes that the PRIA and the FRIA do contain manufacturer-specific 
application/implementation rates for prominent technologies, and that 
manufacturer-specific technology application as employed in the 
agency's analysis is available in full in the Volpe model outputs 
available on NHTSA's Web site. The model outputs present the resultant 
application of technologies at the industry, manufacturer, and vehicle 
levels.
    Theoretically, significantly higher phase-in caps, such as those 
used in the current proposal and final rule as compared to those used 
in the MY 2011 final rule, should result in higher levels of technology 
penetration in the modeling results. Reviewing the modeling output does 
not, however, indicate unreasonable levels of technology penetration 
for the final standards.\591\ NHTSA believes that this is due to the 
interaction of the various changes in methodology for this final rule--
changes to phase-in caps are but one of a number of revisions to the 
Volpe model and its inputs that could potentially impact the rate at 
which technologies are applied in the modeling analysis for this final 
rule as compared to prior rulemakings. Other revisions that could 
impact modeled application rates include the use of transparent CAFE 
certification data in baseline fleet formulation and the use of other 
data for projecting it forward,\592\ or the use of a multi-year 
planning programming technique to apply technology retroactively to 
earlier-MY vehicles, both of which may have a direct impact on the 
modeling process. Conversely the model and inputs remain unchanged in 
other areas that also could impact technology application, such as in 
the refresh/redesign cycle settings, estimates used for the 
technologies, both of which remain largely unchanged from the MY 2011 
final rule. These changes together make it difficult to predict how 
phase-in caps should be expected to function in the new modeling 
process.
---------------------------------------------------------------------------

    \591\ The modeling output for the analysis underlying these 
final standards is available on NHTSA's Web site.
    \592\ The baseline fleet sets the starting point, from a 
technology point of view, for where the model begins the technology 
application process, so changes have a direct impact on the 
projected net application of technology.
---------------------------------------------------------------------------

    Thus, after reviewing the output files, NHTSA concludes that the 
higher phase-in caps, and the resulting technology application rates 
produced by the Volpe model, at both the industry and manufacturer 
level, are appropriate for the analysis underlying these final

[[Page 25579]]

standards, achieving a suitable level of stringency without requiring 
---------------------------------------------------------------------------
unrealistic or unachievable penetration rates.

Is the technology less expensive due to learning effects?

    Historically, NHTSA did not explicitly account for the cost 
reductions a manufacturer might realize through learning achieved from 
experience in actually applying a technology. Since working with EPA to 
develop the 2008 NPRM for MYs 2011-2015, and with Ricardo to refine the 
concept for the March 2009 MY 2011 final rule, NHTSA has accounted for 
these cost reductions through two kinds of mutually exclusive learning, 
``volume-based'' and ``time-based'' which it continues to use in this 
rule, as discussed below.
    In the 2008 NPRM, NHTSA applied learning factors to technology 
costs for the first time. These learning factors were developed using 
the parameters of learning threshold, learning rate, and the initial 
cost, and were based on the ``experience curve'' concept which 
describes reductions in production costs as a function of accumulated 
production volume. The typical curve shows a relatively steep initial 
decline in cost which flattens out to a gentle downwardly sloping line 
as the volume increase to large values. In the NPRM, NHTSA applied a 
learning rate discount of 20 percent for each successive doubling of 
production volume (on a per manufacturer basis), and a learning 
threshold of 25,000 units was assumed (thus a technology was viewed as 
being fully learned out at 100,000 units). The factor was only applied 
to certain technologies that were considered emerging or newly 
implemented on the basis that significant cost improvements would be 
achieved as economies of scale were realized (i.e., the technologies 
were on the steep part of the curve).
    In the MY 2011 final rule, NHTSA continued to use this learning 
factor, referring to it as volume-based learning since the cost 
reductions were determined by production volume increases, and again 
only applied it to emerging technologies. However, and in response to 
comments, NHTSA revised its assumptions on learning threshold, basing 
them instead on an industry-wide production basis, and increasing the 
threshold to 300,000 units annually.
    Commenters to the 2008 NPRM also described another type of learning 
factor which NHTSA decided to adopt and implement in the MY 2011 final 
rule. Commenters described a relatively small negotiated cost decrease 
that occurred on an annual basis through contractual agreements with 
first tier component and systems suppliers for readily available, high 
volume technologies commonly in use by multiple OEMs. Based on the same 
experience curve principal, however at production volumes that were on 
the flatter part of the curve (and thus the types of volumes that 
represent annual industry volumes), NHTSA adopted this type learning 
and referred to it as time-based learning. An annual cost reduction of 
3 percent in the second and each subsequent year, which was consistent 
with estimates from commenters and supported by work Ricardo conducted 
for NHTSA, was used in the final rule.
    In developing the proposed standards, NHTSA and EPA reviewed both 
types of learning factors, and the thresholds (300,000) and reduction 
rates (20 percent for volume, 3 percent for time-based) they rely on, 
and as implemented in the MY 2011 final rule, and agreed that both 
factors continue to be accurate and appropriate; each agency thus 
implemented time- and volume-based learning in their analyses. Noting 
that only one type of learning can be applied to any single technology, 
if any learning is applied at all, the agencies reviewed each to 
determine which learning factor was appropriate. Volume-based learning 
was applied to the higher complexity hybrid technologies, while no 
learning was applied to technologies likely to be affected by commodity 
costs (LUB, ROLL) or that have loosely-defined BOMs (EFR, LDB), as was 
the case in the MY 2011 final rule. Chapter 3 of the Joint TSD shows 
the specific learning factors that NHTSA has applied in this analysis 
for each technology, and discusses learning factors and each agencies' 
use of them further.
    ICCT and Ferrari commented on learning curves. ICCT stated the 
agencies could improve the accuracy of the learning curve assumptions 
if they used a more dynamic or continuous learning curve that is more 
technology-specific, rather than using step decreases as the current 
time- and volume-based learning curves appear to do. ICCT also 
commented on the appropriate application of volume- versus time-based 
learning, and stated further that worldwide production volumes should 
be taken into account when developing learning curves. Ferrari 
commented that is more difficult for small-volume manufacturers to 
negotiate cost decreases from things like cost learning effects with 
their suppliers, implying that learning effects may not be applicable 
equally for all manufacturers.
    NHTSA agrees that a continuous curve, if implemented correctly, 
could potentially improve the accuracy of modeling cost-learning 
effects, although the agency cannot estimate at this time how 
significant the improvement would be. To implement a continuous curve, 
however, NHTSA would need to develop a learning curve cost model to be 
integrated into the agency's existing model for CAFE analysis. Due to 
time constraints the agencies were not able to investigate fully the 
use of a continuous cost-learning effects curve for each technology, 
but we will investigate the applicability of this approach for future 
rulemakings. For purposes of the final rule analysis, however, NHTSA 
believes that while more detailed cost learning approaches may 
eventually be possible, the approach taken for this final rule is 
valid.
    Additionally, while the agencies agree that worldwide production 
volumes can impact learning curves, the agencies do not forecast 
worldwide vehicle production volumes in addition to the already complex 
task of forecasting the U.S. market. That said, the agencies do 
consider current and projected worldwide technology proliferation when 
determining the maturity of a particular technology used to determine 
the appropriateness of applying time- or volume-based learning, which 
helps to account for the effect of globalized production.
    With regard to ICCT's comments on the appropriate application of 
volume- versus time-based learning, however, it seems as though ICCT is 
referencing a study that defines volume- and time-based learning in a 
different manner than the current definitions used by the agencies, and 
so is not directly relevant. The agencies use ``volume-based'' learning 
for non-mature technologies that have the potential for significant 
cost reductions through learning, while ``time-based'' learning is used 
for mature technologies that have already had significant cost 
reductions and only have the potential for smaller cost reductions. For 
``time-based'' learning, the agencies chose to emulate the small year-
over-year cost reductions manufacturers realize through defined cost 
reductions, approximately 3 percent per year, negotiated into contracts 
with suppliers. A more detailed description of how the agencies define 
volume- and time-based learning can be found in NHTSA's PRIA.
    And finally, in response to Ferrari's comment, NHTSA recognizes 
that cost negotiations can be different for different manufacturers, 
but believes that on balance, cost learning at the supplier level will 
generally impact costs to all purchasers. Thus, if cost reductions are 
realized for a particular

[[Page 25580]]

technology, all entities that purchase the technology will benefit from 
these cost reductions.
Is the technology more or less effective due to synergistic effects?
    When two or more technologies are added to a particular vehicle 
model to improve its fuel efficiency and reduce CO2 
emissions, the resultant fuel consumption reduction may sometimes be 
higher or lower than the product of the individual effectiveness values 
for those items.\593\ This may occur because one or more technologies 
applied to the same vehicle partially address the same source (or 
sources) of engine, drivetrain or vehicle losses. Alternately, this 
effect may be seen when one technology shifts the engine operating 
points, and therefore increases or reduces the fuel consumption 
reduction achieved by another technology or set of technologies. The 
difference between the observed fuel consumption reduction associated 
with a set of technologies and the product of the individual 
effectiveness values in that set is referred to for purposes of this 
rulemaking as a ``synergy.'' Synergies may be positive (increased fuel 
consumption reduction compared to the product of the individual 
effects) or negative (decreased fuel consumption reduction). An example 
of a positive synergy might be a vehicle technology that reduces road 
loads at highway speeds (e.g., lower aerodynamic drag or low rolling 
resistance tires), that could extend the vehicle operating range over 
which cylinder deactivation may be employed. An example of a negative 
synergy might be a variable valvetrain system technology, which reduces 
pumping losses by altering the profile of the engine speed/load map, 
and a six-speed automatic transmission, which shifts the engine 
operating points to a portion of the engine speed/load map where 
pumping losses are less significant. As the complexity of the 
technology combinations is increased, and the number of interacting 
technologies grows accordingly, it becomes increasingly important to 
account for these synergies.
---------------------------------------------------------------------------

    \593\ More specifically, the products of the differences between 
one and the technology-specific levels of effectiveness in reducing 
fuel consumption. For example, not accounting for interactions, if 
technologies A and B are estimated to reduce fuel consumption by 10 
percent (i.e., 0.1) and 20 percent (i.e., 0.2) respectively, the 
``product of the individual effectiveness values'' would be 1-0.1 
times 1-0.2, or 0.9 times 0.8, which equals 0.72, corresponding to a 
combined effectiveness of 28 percent rather than the 30 percent 
obtained by adding 10 percent to 20 percent. The ``synergy factors'' 
discussed in this section further adjust these multiplicatively 
combined effectiveness values.
---------------------------------------------------------------------------

    NHTSA and EPA determined synergistic impacts for this rulemaking 
using EPA's ``lumped parameter'' analysis tool, which EPA described at 
length in its March 2008 Staff Technical Report.\594\ The lumped 
parameter tool is a spreadsheet model that represents energy 
consumption in terms of average performance over the fuel economy test 
procedure, rather than explicitly analyzing specific drive cycles. The 
tool begins with an apportionment of fuel consumption across several 
loss mechanisms and accounts for the average extent to which different 
technologies affect these loss mechanisms using estimates of engine, 
drivetrain and vehicle characteristics that are averaged over the EPA 
fuel economy drive cycle. Results of this analysis were generally 
consistent with those of full-scale vehicle simulation modeling 
performed in 2007 by Ricardo, Inc.
---------------------------------------------------------------------------

    \594\ EPA Staff Technical Report: Cost and Effectiveness 
Estimates of Technologies Used to Reduce Light-duty Vehicle Carbon 
Dioxide Emissions; EPA420-R-08-008, March 2008. Available at Docket 
No. NHTSA-2009-0059-0027.
---------------------------------------------------------------------------

    For the current rulemaking, NHTSA used the lumped parameter tool as 
modified in the MY 2011 CAFE final rule. NHTSA modified the lumped 
parameter tool from the version described in the EPA Staff Technical 
Report in response to public comments received in that rulemaking. The 
modifications included updating the list of technologies and their 
associated effectiveness values to match the updated list of 
technologies used in the final rule. NHTSA also expanded the list of 
synergy pairings based on further consideration of the technologies for 
which a competition for losses would be expected. These losses are 
described in more detail in Section V of the FRIA.
    NHTSA and EPA incorporate synergistic impacts in their analyses in 
slightly different manners. Because NHTSA applies technologies 
individually in its modeling analysis, NHTSA incorporates synergistic 
effects between pairings of individual technologies. The use of 
discrete technology pair incremental synergies is similar to that in 
DOE's National Energy Modeling System (NEMS).\595\ Inputs to the Volpe 
model incorporate NEMS-identified pairs, as well as additional pairs 
from the set of technologies considered in the Volpe model.
---------------------------------------------------------------------------

    \595\ U.S. Department of Energy, Energy Information 
Administration, Transportation Sector Module of the National Energy 
Modeling System: Model Documentation 2007, May 2007, Washington, DC, 
DOE/EIAM070(2007), at 29-30. Available at http://tonto.eia.doe.gov/
ftproot/modeldoc/m070(2007).pdf (last accessed March 15, 2010).
---------------------------------------------------------------------------

    NHTSA notes that synergies that occur within a decision tree are 
already addressed within the incremental values assigned and therefore 
do not require a synergy pair to address. For example, all engine 
technologies take into account incremental synergy factors of preceding 
engine technologies, and all transmission technologies take into 
account incremental synergy factors of preceding transmission 
technologies. These factors are expressed in the fuel consumption 
improvement factors in the input files used by the Volpe model.
    For applying incremental synergy factors in separate path 
technologies, the Volpe model uses an input table (see the tables in 
Chapter 3 of the TSD and in the FRIA) which lists technology pairings 
and incremental synergy factors associated with those pairings, most of 
which are between engine technologies and transmission/electrification/
hybrid technologies. When a technology is applied to a vehicle by the 
Volpe model, all instances of that technology in the incremental 
synergy table which match technologies already applied to the vehicle 
(either pre-existing or previously applied by the Volpe model) are 
summed and applied to the fuel consumption improvement factor of the 
technology being applied. Synergies for the strong hybrid technology 
fuel consumption reductions are included in the incremental value for 
the specific hybrid technology block since the model applies 
technologies in the order of the most effectiveness for least cost and 
also applies all available electrification and transmission 
technologies before applying strong hybrid technologies.
    NHTSA received only one comment regarding synergies, from MEMA, who 
commented that NHTSA's Volpe model adequately addressed synergistic 
effects. Having received no information to the contrary, NHTSA 
finalized the synergy approach and values for the final rule.
d. Where can readers find more detailed information about NHTSA's 
technology analysis?
    Much more detailed information is provided in Section V of the 
FRIA, and a discussion of how NHTSA and EPA jointly reviewed and 
updated technology assumptions for purposes of this final rule is 
available in Chapter 3 of the TSD. Additionally, all of NHTSA's model 
input and output files are now public and available for the reader's 
review and consideration. The technology input files can be found in 
the docket for this final rule, Docket No. NHTSA-2009-0059, and on 
NHTSA's

[[Page 25581]]

Web site. And finally, because much of NHTSA's technology analysis for 
purposes of this final rule builds on the work that was done for the MY 
2011 final rule, we refer readers to that document as well for 
background information concerning how NHTSA's methodology for 
technology application analysis has evolved over the past several 
rulemakings, both in response to comments and as a result of the 
agency's growing experience with this type of analysis.\596\
---------------------------------------------------------------------------

    \596\ 74 FR 14233-308 (Mar. 30, 2009).
    \597\ The $21 value is for CO2 emissions in 2010, which rises to 
$45/ton in 2050, at an average discount rate of 3 percent.
---------------------------------------------------------------------------

3. How did NHTSA develop its economic assumptions?
    NHTSA's analysis of alternative CAFE standards for the model years 
covered by this rulemaking relies on a range of forecast variables, 
economic assumptions, and parameter values. This section describes the 
sources of these forecasts, the rationale underlying each assumption, 
and the agency's choices of specific parameter values. These economic 
values play a significant role in determining the benefits of 
alternative CAFE standards, as they have for the last several CAFE 
rulemakings. Under those alternatives where standards would be 
established by reference to their costs and benefits, these economic 
values also affect the levels of the CAFE standards themselves. Some of 
these variables have more important effects on the level of CAFE 
standards and the benefits from requiring alternative increases in fuel 
economy than do others.
    In reviewing these variables and the agency's estimates of their 
values for purposes of this final rule, NHTSA reconsidered previous 
comments it had received and comments received to the NPRM, as well as 
reviewed newly available literature. As a consequence, the agency 
elected to revise some of its economic assumptions and parameter 
estimates from previous rulemakings at the NPRM stage, while retaining 
others. Some of the most important changes, which are discussed in 
greater detail below, as well as in Chapter 4 of the Joint TSD and in 
Chapter VIII of the FRIA, include significant revisions to the markup 
factors for technology costs; reducing the rebound effect from 15 to 10 
percent; and revising the value of reducing CO2 emissions 
based on recent interagency efforts to develop estimates of this value 
for government-wide use. The comments the agency received and its 
responses are discussed in detail below, as well as in the TSD and 
FRIA. For the reader's reference, Table IV.C.3-1 below summarizes the 
values used to calculate the economic benefits from each alternative.

        Table IV.C.3-1--Economic Values for Benefits Computations
                                 [2007$]
------------------------------------------------------------------------

------------------------------------------------------------------------
Fuel Economy Rebound Effect.............  10%
``Gap'' between test and on-road MPG....  20%
Value of refueling time per ($ per        $24.64
 vehicle-hour).
Average percentage of tank refilled per   55%
 refueling.
Percent of drivers refueling in response  100%
 to low fuel level.
Annual growth in average vehicle use....  1.15%
Fuel Prices (2012-50 average, $/gallon)   ..............................
    Retail gasoline price...............  $3.66
    Pre-tax gasoline price..............  $3.29
Economic Benefits from Reducing Oil       ..............................
 Imports ($/gallon)
    ``Monopsony'' Component.............  $0.00
    Price Shock Component...............  $0.17
    Military Security Component.........  $0.00
                                         -------------------------------
        Total Economic Costs ($/gallon).  $0.17
Emission Damage Costs (2020, $/ton or $/  ..............................
 metric ton)
    Carbon monoxide.....................  $0
    Volatile organic compounds (VOC)....  $1,300
    Nitrogen oxides (NOx)--vehicle use..  $5,300
    Nitrogen oxides (NOx)--fuel           $5,100
     production and distribution.
    Particulate matter (PM2.5)--vehicle   $290,000
     use.
    Particulate matter (PM2.5)--fuel      $240,000
     production and distribution.
    Sulfur dioxide (SO2)................  $31,000
    Carbon dioxide (CO2)................  $21 \597\
Annual Increase in CO2 Damage Cost......  Varies by year.
External Costs from Additional            ..............................
 Automobile Use ($/vehicle-mile)
    Congestion..........................  $0.054
    Accidents...........................  $0.023
    Noise...............................  $0.001
                                         -------------------------------
        Total External Costs............  $0.078
External Costs from Additional Light      ..............................
 Truck Use ($/vehicle-mile)
    Congestion..........................  $0.048
    Accidents...........................  $0.026
    Noise...............................  $0.001
                                         -------------------------------
        Total External Costs............  $0.075
Discount Rate Applied to Future Benefits  3%, 7%
------------------------------------------------------------------------

[[Page 25582]]

a. Costs of Fuel Economy-Improving Technologies
    NHTSA and EPA previously developed detailed estimates of the costs 
of applying fuel economy-improving technologies to vehicle models for 
use in analyzing the impacts of alternative standards considered in the 
proposed rulemaking, including varying cost estimates for applying 
certain fuel economy technologies to vehicles of different sizes and 
body styles. These estimates were modified for purposes of this 
analysis as a result of extensive consultations among engineers from 
NHTSA, EPA, and the Volpe Center. Building on NHTSA's estimates 
developed for the MY 2011 CAFE final rule and EPA's Advanced Notice of 
Proposed Rulemaking, which relied on EPA's 2008 Staff Technical Report, 
the two agencies took a fresh look at technology cost and effectiveness 
values and incorporated FEV tear-down study results for purposes of 
this joint final rule under the National Program.
    While NHTSA generally found that much of the cost information used 
in the MY 2011 final rule and EPA's 2008 Staff Report was consistent to 
a great extent, the agencies, in reconsidering information from many 
sources, revised the component costs of several major technologies 
including: turbocharging/downsizing, mild and strong hybrids, diesels, 
SGDI, and Valve Train Lift Technologies for purposes of the NPRM. In 
addition, based on FEV tear-down studies, the costs for turbocharging/
downsizing, 6-, 7-, 8-speed automatic transmissions, and dual clutch 
transmissions were revised for this final rule.
    The technology cost estimates used in this analysis are intended to 
represent manufacturers' direct costs for high-volume production of 
vehicles with these technologies and sufficient experience with their 
application so that all remaining cost reductions due to ``learning 
curve'' effects have been fully realized. However, NHTSA recognizes 
that manufacturers' actual costs for employing these technologies 
include additional outlays for accompanying design or engineering 
changes to models that use them, development and testing of prototype 
versions, recalibrating engine operating parameters, and integrating 
the technology with other attributes of the vehicle. Manufacturers' 
indirect costs for employing these technologies also include expenses 
for product development and integration, modifying assembly processes 
and training assembly workers to install them, increased expenses for 
operation and maintaining assembly lines, higher initial warranty costs 
for new technologies, any added expenses for selling and distributing 
vehicles that use these technologies, and manufacturer and dealer 
profit.
    In previous CAFE rulemakings and in NHTSA's safety rulemakings, the 
agency has accounted for these additional costs by using a Retail Price 
Equivalent (RPE) multiplier of 1.5. For purposes of this rulemaking, 
based on recent work by EPA, NHTSA has applied indirect cost 
multipliers ranging from 1.11 to 1.64 to the estimates of vehicle 
manufacturers' direct costs for producing or acquiring each technology 
to improve fuel economy.\598\ These multipliers vary with the 
complexity of each technology and the time frame over which costs are 
estimated. More complex technologies are associated with higher 
multipliers because of the larger increases in manufacturers' indirect 
costs for developing, producing (or procuring), and deploying these 
more complex technologies. The appropriate multipliers decline over 
time for technologies of all complexity levels, since increased 
familiarity and experience with their application is assumed to reduce 
manufacturers' indirect costs for employing them.
---------------------------------------------------------------------------

    \598\ NHTSA notes that in addition to the technology cost 
analysis employing this ``ICM'' approach, the FRIA contains a 
sensitivity analysis using a technology cost multiplier of 1.5.
---------------------------------------------------------------------------

    NHTSA and EPA received far fewer specific comments on technology 
cost estimates than in previous CAFE rulemakings, which suggests that 
most, although not all, stakeholders generally agreed with the 
agencies' assumptions. Several commenters supported the agencies' use 
of tear-down studies for developing some of the technology costs, 
largely citing the agencies' own reasons in support of that 
methodology. Some specific comments were received with regard to hybrid 
and other technology costs, to which the agencies are responding 
directly in Chapter 3 of the Joint TSD and in the agencies' respective 
FRIAs. Generally speaking, however, to the extent that commenters 
disagreed with the agencies' cost estimates, often the disagreement 
stemmed from assumptions about the technology's maturity, which the 
agencies have tried to account for in the analysis. These issues are 
discussed further in Chapter 3 of the TSD. Additionally, we note that 
technology costs will also be addressed in the upcoming revised NAS 
report.
    With regard to the indirect cost multiplier approach, commenters 
also generally supported the higher level of specificity provided by 
the ICM approach compared to the RPE approach, although some commenters 
suggested specific refinements to the measurement of ICMs. For example, 
while the automotive dealer organization NADA argued that all dealer 
costs of sales should be included in ``dealer profit,'' another 
commenter noted expressly that the ICM does not include profits. 
Comments from ICCT also argued in favor of revising the ``technology 
complexity'' component of the ICM to account for the complexity of 
integrating a new technology into a vehicle, rather than for only the 
complexity of producing the technology itself. These comments and 
others on the ICM are addressed in Chapter 3 of the Joint TSD and in 
the agencies' respective FRIAs. NHTSA notes that profits were not 
included in the indirect cost estimates of this rule, and also that 
NHTSA's sensitivity analysis, presented in Chapter X of the FRIA, 
indicates that using the 1.5 RPE multiplier would result in higher 
costs compared to today's final rule costs incorporating the ICM 
multiplier, although even with those higher costs the 1.5 RPE analysis 
still resulted in significant net benefits for the rulemaking as a 
whole. NHTSA continues to study this issue and may employ a different 
approach in future rulemakings.
b. Potential Opportunity Costs of Improved Fuel Economy
    An important concern is whether achieving the fuel economy 
improvements required by alternative CAFE standards might result in 
manufacturers compromising the performance, carrying capacity, safety, 
or comfort of their vehicle models. To the extent that it does so, the 
resulting sacrifice in the value of these attributes to consumers 
represents an additional cost of achieving the required improvements in 
fuel economy. (This possibility is addressed in detail in Section 
IV.G.6.) Although exact dollar values of these attributes to consumers 
are difficult to infer, differences in vehicle purchase prices and 
buyers' choices among competing models that feature varying 
combinations of these characteristics clearly demonstrate that changes 
in these attributes affect the utility and economic value that vehicles 
offer to potential buyers.\599\
---------------------------------------------------------------------------

    \599\ See, e.g., Kleit A.N., 1990. ``The Effect of Annual 
Changes in Automobile Fuel Economy Standards.'' Journal of 
Regulatory Economics 2: 151-172 (Docket EPA-HQ-OAR-2009-0472-0015); 
Berry, Steven, James Levinsohn, and Ariel Pakes, 1995. ``Automobile 
Prices in Market Equilibrium,'' Econometrica 63(4): 841-940 (Docket 
NHTSA-2009-0059-0031); McCarthy, Patrick S., 1996. ``Market Price 
and Income Elasticities of New Vehicle Demands.'' Review of 
Economics and Statistics 78: 543-547 (Docket NHTSA-2009-0059-0039); 
and Goldberg, Pinelopi K., 1998. ``The Effects of the Corporate 
Average Fuel Efficiency Standards in the U.S.,'' Journal of 
Industrial Economics 46(1): 1-33 (Docket EPA-HQ-OAR-2009-0472-0017).

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[[Page 25583]]

    NHTSA and EPA have approached this potential problem by developing 
cost estimates for fuel economy-improving technologies that include any 
additional manufacturing costs that would be necessary to maintain the 
originally planned levels of performance, comfort, carrying capacity, 
and safety of any light-duty vehicle model to which those technologies 
are applied. In doing so, the agencies followed the precedent 
established by the 2002 NAS Report, which estimated ``constant 
performance and utility'' costs for fuel economy technologies. NHTSA 
has used these as the basis for its continuing efforts to refine the 
technology costs it uses to analyze manufacturer's costs for complying 
with alternative passenger car and light truck CAFE standards for MYs 
2012-2016. Although the agency has revised its estimates of 
manufacturers' costs for some technologies significantly for use in 
this rulemaking, these revised estimates are still intended to 
represent costs that would allow manufacturers to maintain the 
performance, carrying capacity, and utility of vehicle models while 
improving their fuel economy.
    Although we believe that our cost estimates for fuel economy-
improving technologies include adequate provision for accompanying 
outlays that are necessary to prevent any significant degradation in 
other attributes that vehicle owners value, it is possible that they do 
not include adequate allowance for the necessary efforts by 
manufacturers to prevent sacrifices in these attributes on all vehicle 
models. If this is the case, the true economic costs of achieving 
higher fuel economy should include the opportunity costs to vehicle 
owners of any sacrifices in vehicles' performance, carrying capacity, 
and utility, and omitting these will cause the agency's estimated 
technology costs to underestimate the true economic costs of improving 
fuel economy.
    Recognizing this possibility, it would be desirable to estimate 
explicitly the changes in vehicle buyers' welfare from the combination 
of higher prices for new vehicle models, increases in their fuel 
economy, and any accompanying changes in vehicle attributes such as 
performance, passenger- and cargo-carrying capacity, or other 
dimensions of utility. The net change in buyer's welfare that results 
from the combination of these changes would provide a more accurate 
estimate of the true economic costs for improving fuel economy. 
Although the agency has been unable to develop a procedure for doing so 
as part of this rulemaking, Section IV.G.6. below includes a detailed 
analysis and discussion of how omitting possible changes in vehicle 
attributes other than their prices and fuel economy might affect its 
estimates of benefits and costs resulting from the standards this rule 
establishes.
c. The On-Road Fuel Economy ``Gap''
    Actual fuel economy levels achieved by light-duty vehicles in on-
road driving fall somewhat short of their levels measured under the 
laboratory-like test conditions used by EPA to establish its published 
fuel economy ratings for different models. In analyzing the fuel 
savings from alternative CAFE standards, NHTSA has previously adjusted 
the actual fuel economy performance of each light truck model downward 
from its rated value to reflect the expected size of this on-road fuel 
economy ``gap.'' On December 27, 2006, EPA adopted changes to its 
regulations on fuel economy labeling, which were intended to bring 
vehicles' rated fuel economy levels closer to their actual on-road fuel 
economy levels.\600\
---------------------------------------------------------------------------

    \600\ 71 FR 77871 (Dec. 27, 2006).
---------------------------------------------------------------------------

    In its Final Rule, EPA estimated that actual on-road fuel economy 
for light-duty vehicles averages 20 percent lower than published fuel 
economy levels. For example, if the overall EPA fuel economy rating of 
a light truck is 20 mpg, the on-road fuel economy actually achieved by 
a typical driver of that vehicle is expected to be 16 mpg (20*.80). 
NHTSA employed EPA's revised estimate of this on-road fuel economy gap 
in its analysis of the fuel savings resulting from alternative CAFE 
standards evaluated in the MY 2011 final rule.
    For purposes of this final rule, NHTSA conducted additional 
analysis of this issue. The agency used data on the number of passenger 
cars and light trucks of each model year that were registered for use 
during calendar years 2000 through 2006, average rated fuel economy for 
passenger cars and light trucks produced during each model year, and 
estimates of average miles driven per year by cars and light trucks of 
different ages. These data were combined to develop estimates of the 
average fuel economy that the U.S. passenger vehicle fleet would have 
achieved from 2000 through 2006 if cars and light trucks of each model 
year achieved the same fuel economy levels in actual on-road driving as 
they did under test conditions when new.
    NHTSA compared these estimates to the Federal Highway 
Administration's (FHWA) published values of actual on-road fuel economy 
for passenger cars and light trucks during each of those years.\601\ 
FHWA's estimates of actual fuel economy for passenger cars averaged 22 
percent lower than NHTSA's estimates of its fleet-wide average value 
under test conditions over this period, while FHWA's estimates for 
light trucks averaged 17 lower than NHTSA's estimates of average light 
truck fuel economy under test conditions. These results appear to 
confirm that the 20 percent on-road fuel economy discount or gap 
represents a reasonable estimate for use in evaluating the fuel savings 
likely to result from alternative CAFE standards for MY 2012-2016 
vehicles.
---------------------------------------------------------------------------

    \601\ Federal Highway Administration, Highway Statistics, 2000 
through 2006 editions, Table VM-1; See http://www.fhwa.dot.gov/
policy/ohpi/hss/hsspubs.cfm (last accessed March 1, 2010).
---------------------------------------------------------------------------

    NHTSA received no comments on this issue in response to the NPRM. 
Accordingly, it has not revised its estimate of the on-road fuel 
economy gap from the 20 percent figure used previously.
d. Fuel Prices and the Value of Saving Fuel
    Projected future fuel prices are a critical input into the economic 
analysis of alternative CAFE standards, because they determine the 
value of fuel savings both to new vehicle buyers and to society. NHTSA 
relied on the most recent fuel price projections from the U.S. Energy 
Information Administration's (EIA) Annual Energy Outlook (AEO) for this 
analysis. Specifically, we used the AEO 2010 Early Release (December 
2009) Reference Case forecasts of inflation-adjusted (constant-dollar) 
retail gasoline and diesel fuel prices, which represent the EIA's most 
up-to-date estimate of the most likely course of future prices for 
petroleum products.\602\ This forecast is

[[Page 25584]]

somewhat lower than the AEO 2009 Reference Case forecast the agency 
relied upon in the analysis it conducted for the NPRM. Over the period 
from 2010 to 2030, the AEO 2010 Early Release Reference Case forecast 
of retail gasoline prices used in this analysis averages $3.18 per 
gallon (in 2007 dollars), in contrast to the $3.38 per gallon average 
price for that same period forecast in the earlier AEO 2009 Reference 
Case and used in the NPRM analysis.
---------------------------------------------------------------------------

    \602\ Energy Information Administration, Annual Energy Outlook 
2010 Early Release, Reference Case (December 2009), Table A12. 
Available at http://www.eia.doe.gov/oiaf/aeo/pdf/appa.pdf, p. 25 
(last accessed March 1, 2010). These forecasts reflect the 
provisions of the Energy Independence and Security Act of 2007 
(EISA), including the requirement that the combined mpg level of 
U.S. cars and light trucks reach 35 miles per gallon by model year 
2020. Because this provision would be expected to reduce future U.S. 
demand for gasoline and lead to a decline in its future price, there 
is some concern about whether the AEO 2010 forecast of fuel prices 
partly reflects the increases in CAFE standards considered in this 
rule, and thus whether it is suitable for valuing the projected 
reductions in fuel use. In response to this concern, the agency 
notes that EIA issued a revised version of AEO 2008 in June 2008, 
which modified its previous December 2007 Early Release of AEO 2008 
to reflect the effects of then recently-passed EISA legislation. The 
fuel price forecasts reported in EIA's Revised Release of AEO 2008 
differed by less than one cent per gallon throughout the entire 
forecast period (2008-2030) from those previously issued as part of 
its initial release of AEO 2008. Thus, the agencies are reasonably 
confident that the fuel price forecasts presented in AEO 2010 and 
used to analyze the value of fuel savings projected to result from 
this rule are not unduly affected by the CAFE provisions of EISA.
---------------------------------------------------------------------------

    While NHTSA relied on the forecasts of fuel prices presented in AEO 
2008 High Price Case in the MY 2011 final rule, we noted at the time 
that we were relying on that estimate primarily because volatility in 
the oil market appeared to have overtaken the Reference Case. We also 
anticipated that the Reference Case forecasts would be significantly 
higher in subsequent editions of AEO, and that in future rulemaking 
analyses the agency would be likely to rely on the Reference Case 
rather than High Price Case forecasts. In fact, both EIA's AEO 2009 
Reference Case and its subsequent AEO 2010 Early Release Reference Case 
forecasts project higher retail fuel prices in most future years than 
those forecast in the High Price Case from AEO 2008. NHTSA is thus 
confident that the AEO 2010 Early Release Reference Case is an 
appropriate forecast for projected future fuel prices.
    NHTSA and EPA received relatively few comments on the fuel prices 
used in the NPRM analysis, compared to previous CAFE rulemakings. Two 
commenters, CARB and NADA, supported the use of AEO's Reference Case 
for use in the agencies' analysis, although they disagreed on the 
agencies' use of the High and Low Price Cases for sensitivities. Both 
commenters emphasized the sensitivity of the market and the agencies' 
analysis to higher and lower gas prices, and on that basis, CARB 
supported the use of the High and Low Price Cases in sensitivity 
analysis but urged the agencies to caveat the ``Reference Case'' 
results more explicitly. In contrast, NADA argued that the agencies 
should not use the High and Low Price Cases, because EIA does not 
assign specific probabilities to either of them. Only one commenter, 
James Adcock, argued that the agencies should use forecasts of future 
fuel prices other than those reported in AEO; Adcock stated that future 
fuel prices should be assumed to be higher than current pump prices.
    Measured in constant 2007 dollars, the AEO 2010 Early Release 
Reference Case forecast of retail gasoline prices during calendar year 
2010 is $2.44 per gallon, and rises gradually to $3.83 by the year 2035 
(these values include Federal, State and local taxes). However, the 
agency's analysis of the value of fuel savings over the lifetimes of MY 
2012-2016 cars and light trucks requires forecasts extending through 
calendar year 2050, approximately the last year during which a 
significant number of MY 2016 vehicles will remain in service. To 
obtain fuel price forecasts for the years 2036 through 2050, the agency 
assumes that retail fuel prices will continue to increase after 2035 at 
the average annual rates projected for 2025 through 2035 in the AEO 
2010 Early Release Reference Case.\603\ This assumption results in a 
projected retail price of gasoline that reaches $4.49 in 2007 dollars 
during the year 2050.
---------------------------------------------------------------------------

    \603\ This projection uses the rate of increase in fuel prices 
for 2020-2030 rather than that over the complete forecast period 
(2009-2030) because there is extreme volatility in the forecasts for 
the years 2009 through approximately 2020. Using the average rate of 
change over the complete 2009-2030 forecast period would result in 
projections of declining fuel prices after 2030.
---------------------------------------------------------------------------

    The value of fuel savings resulting from improved fuel economy to 
buyers of light-duty vehicles is determined by the retail price of 
fuel, which includes Federal, State, and any local taxes imposed on 
fuel sales. The agency has updated the estimates of gasoline taxes it 
employed in the NPRM using the recent data on State fuel tax rates; 
expressed in 2007 dollars, Federal gasoline taxes are currently $0.178, 
while State and local gasoline taxes together average $0.231 per 
gallon, for a total tax burden of $0.401 per gallon. Because fuel taxes 
represent transfers of resources from fuel buyers to government 
agencies, however, rather than real resources that are consumed in the 
process of supplying or using fuel, NHTSA deducts their value from 
retail fuel prices to determine the true value of fuel savings 
resulting from more stringent CAFE standards to the U.S. economy.
    NHTSA follows the assumptions used by EIA in AEO 2010 Early Release 
that State and local gasoline taxes will keep pace with inflation in 
nominal terms, and thus remain constant when expressed in constant 
dollars. In contrast, EIA assumes that Federal gasoline taxes will 
remain unchanged in nominal terms, and thus decline throughout the 
forecast period when expressed in constant dollars. These differing 
assumptions about the likely future behavior of Federal and State/local 
fuel taxes are consistent with recent historical experience, which 
reflects the fact that Federal as well as most State motor fuel taxes 
are specified on a cents-per-gallon rather than an ad valorem basis, 
and typically require legislation to change. The projected value of 
total taxes is deducted from each future year's forecast of retail 
gasoline and diesel prices to determine the economic value of each 
gallon of fuel saved during that year as a result of improved fuel 
economy. Subtracting fuel taxes from the retail prices forecast in AEO 
2010 Early Release results in a projected value for saving gasoline of 
$2.04 per gallon during 2010, rising to $3.48 per gallon by the year 
2035,and averaging $2.91 over this 25-year period.
    Although the Early Release of AEO 2010 contains only the Reference 
Case forecast, EIA includes ``High Price Case'' and ``Low Price Case'' 
forecasts in each year's complete AEO, which reflect uncertainties 
regarding future levels of oil production and demand. For this final 
rule, NHTSA has continued to use the most recent ``High Price Case'' 
and ``Low Price Case'' forecasts available, which are those from AEO 
2009. While NHTSA recognizes that these forecasts are not 
probabilistic, as NADA commented, we continue to believe that using 
them for sensitivity analyses provides valuable information for agency 
decision-makers, because it illustrates the sensitivity of the rule's 
primary economic benefit resulting from uncertainty about future growth 
in world demand for petroleum energy and the strategic behavior of oil 
suppliers.
    These alternative scenarios project retail gasoline prices that 
range from a low of $2.02 to a high of $5.04 per gallon during 2020, 
and from $2.04 to $5.47 per gallon during 2030 (all figures in 2007 
dollars). In conjunction with our assumption that fuel taxes will 
remain constant in real or inflation-adjusted terms over this period, 
these forecasts imply pre-tax values of saving fuel ranging from $1.63 
to $4.65 per gallon during 2020, and from $1.66 to $5.09 per gallon in 
2030 (again, all figures are in constant 2007 dollars). In conducting 
the analysis of uncertainty in benefits and costs from alternative CAFE 
standards required by OMB, NHTSA evaluated the sensitivity of its 
benefits estimates to these alternative forecasts of future fuel 
prices. Detailed

[[Page 25585]]

results and discussion of this sensitivity analysis can be found in the 
FRIA. Generally, however, this analysis confirmed that as several 
commenters suggested, the primary economic benefit resulting from the 
rule--the value of fuel savings--is quite sensitive to forecast fuel 
prices.
e. Consumer Valuation of Fuel Economy and Payback Period
    In estimating the impacts on vehicle sales that would result from 
alternative CAFE standards to potential vehicle buyers, NHTSA assumes, 
as in the MY 2011 final rule, that potential vehicle buyers value the 
resulting fuel savings over only part of the expected lifetime of the 
vehicles they purchase. Specifically, we assume that buyers value fuel 
savings over the first five years of a new vehicle's lifetime, and 
discount the value of these future fuel savings at a 3 percent annual 
rate. The five-year figure represents approximately the current average 
term of consumer loans to finance the purchase of new vehicles. We 
recognize that the period over which individual buyers finance new 
vehicle purchases may not correspond exactly to the time horizons they 
apply in valuing fuel savings from higher fuel economy.
    The agency deducts the discounted present value of fuel savings 
over the first five years of a vehicle model's lifetime from the 
technology costs incurred by its manufacturer to improve that model's 
fuel economy to determine the increase in its ``effective price'' to 
buyers. The Volpe model uses these estimates of effective costs for 
increasing the fuel economy of each vehicle model to identify the order 
in which manufacturers would be likely to select models for the 
application of fuel economy-improving technologies in order to comply 
with stricter standards. The average value of the resulting increase in 
effective cost from each manufacturer's simulated compliance strategy 
is also used to estimate the impact of alternative standards on its 
total sales for future model years.
    One commenter, NADA, supported the agency's assumption of a five-
year period for buyers' valuation of fuel economy, on the basis that 
the considerable majority of consumers seek to recoup costs quickly. 
However, NADA also encouraged the agencies to ensure that purchaser 
finance costs, opportunity costs of vehicle ownership, and increased 
maintenance costs were accounted for. Another commenter, James Adcock, 
argued that the assumption of a five-year period was irrational, 
because it did not account for the fact that first purchasers will be 
able to sell a higher-mpg vehicle for more money than a lower-mpg 
vehicle.
    In response to these comments, the agency notes that it estimates 
the aggregate value to the U.S. economy of fuel savings resulting from 
alternative standards--or their ``social'' value--over the entire 
expected lifetimes of vehicles manufactured under those standards, 
rather than over the shorter 5-year ``payback period'' we assume that 
manufacturers employ to represent the preferences of vehicle buyers. 
The 5-year payback period is only utilized to identify the likely 
sequence of improvements in fuel economy that manufacturers are likely 
to make to their different vehicle models. The procedure the agency 
uses for calculating lifetime fuel savings is discussed in detail in 
the following section, while alternative assumptions about the time 
horizon over which potential buyers consider fuel savings in their 
vehicle purchasing decisions are analyzed and discussed in detail in 
Section IV.G.6 below.
    Valuing fuel savings over vehicles' entire lifetimes in effect 
recognizes the gains that future vehicle owners will receive, even if 
initial purchasers of higher-mpg models are not able to recover the 
entire remaining value of fuel savings when they re-sell those 
vehicles. The agency acknowledges, however, that it has not accounted 
for any effects of increased financing costs for purchasing vehicles 
with higher fuel economy or increased expenses for maintaining them on 
benefits to vehicle owners, over either the short-run payback period or 
the full lifetimes of vehicles.
f. Vehicle Survival and Use Assumptions
    NHTSA's first step in estimating lifetime fuel consumption by 
vehicles produced during a model year is to calculate the number 
expected to remain in service during each year following their 
production and sale.\604\ This is calculated by multiplying the number 
of vehicles originally produced during a model year by the proportion 
typically expected to remain in service at their age during each later 
year, often referred to as a ``survival rate.''
---------------------------------------------------------------------------

    \604\ Vehicles are defined to be of age 1 during the calendar 
year corresponding to the model year in which they are produced; 
thus for example, model year 2000 vehicles are considered to be of 
age 1 during calendar year 2000, age 2 during calendar year 2001, 
and to reach their maximum age of 26 years during calendar year 
2025. NHTSA considers the maximum lifetime of vehicles to be the age 
after which less than 2 percent of the vehicles originally produced 
during a model year remain in service. Applying these conventions to 
vehicle registration data indicates that passenger cars have a 
maximum age of 26 years, while light trucks have a maximum lifetime 
of 36 years. See Lu, S., NHTSA, Regulatory Analysis and Evaluation 
Division, ``Vehicle Survivability and Travel Mileage Schedules,'' 
DOT HS 809 952, 8-11 (January 2006). Available at http://www-
nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed March 1, 2010).
---------------------------------------------------------------------------

    As discussed in more detail in Section II.B.3 above and in Chapter 
1 of the TSD, to estimate production volumes of passenger cars and 
light trucks for individual manufacturers, NHTSA relied on a baseline 
market forecast constructed by EPA staff beginning with MY 2008 CAFE 
certification data. After constructing a MY 2008 baseline, EPA and 
NHTSA used projected car and truck volumes for this period from Energy 
Information Administration's (EIA's) Annual Energy Outlook (AEO) 2009 
in the NPRM analysis.\605\ For the analysis supporting this final rule, 
NHTSA substituted the revised forecasts of total volume reported in 
EIA's Annual Energy Outlook 2010 Early Release. However, Annual Energy 
Outlook forecasts only total car and light truck sales, rather than 
sales at the manufacturer and model-specific level, which the agencies 
require in order to estimate the effects new standards will have on 
individual manufacturers.\606\
---------------------------------------------------------------------------

    \605\ Available at http://www.eia.doe.gov/oiaf/aeo/index.html 
(last accessed March 15, 2010). NHTSA and EPA made the simplifying 
assumption that projected sales of cars and light trucks during each 
calendar year from 2012 through 2016 represented the likely 
production volumes for the corresponding model year. The agency did 
not attempt to establish the exact correspondence between projected 
sales during individual calendar years and production volumes for 
specific model years.
    \606\ Because AEO 2009's ``car'' and ``truck'' classes did not 
reflect NHTSA's recent reclassification (in March 2009 for 
enforcement beginning MY 2011) of many two wheel drive SUVs from the 
nonpassenger (i.e., light truck) fleet to the passenger car fleet, 
EPA staff made adjustments to account for such vehicles in the 
baseline.
---------------------------------------------------------------------------

    To estimate sales of individual car and light truck models produced 
by each manufacturer, EPA purchased data from CSM Worldwide and used 
its projections of the number of vehicles of each type (car or truck) 
that will be produced and sold by manufacturers in model years 2011 
through 2015.\607\ This provided year-by-year estimates of the 
percentage of cars and trucks sold by each manufacturer, as well as the 
sales percentages accounted for by each vehicle market segment. (The 
distributions of car and truck sales by manufacturer and by market 
segment for the 2016 model year and beyond were assumed to be the same 
as CSM's forecast for the 2015 calendar year.) Normalizing these 
percentages to the

[[Page 25586]]

total car and light truck sales volumes projected for 2012 through 2016 
in AEO 2009 provided manufacturer-specific market share and model-
specific sales estimates for those model years. The volumes were then 
scaled to AEO 2010 total volume for each year.
---------------------------------------------------------------------------

    \607\ EPA also considered other sources of similar information, 
such as J.D. Powers, and concluded that CSM was better able to 
provide forecasts at the requisite level of detail for most of the 
model years of interest.
---------------------------------------------------------------------------

    To estimate the number of passenger cars and light trucks 
originally produced during model years 2012 through 2016 that will 
remain in use during each subsequent year, the agency applied age-
specific survival rates for cars and light trucks to these adjusted 
forecasts of passenger car and light truck sales. In 2008, NHTSA 
updated its previous estimates of car and light truck survival rates 
using the most current registration data for vehicles produced during 
recent model years, in order to ensure that they reflected recent 
increases in the durability and expected life spans of cars and light 
trucks.\608\
---------------------------------------------------------------------------

    \608\ Lu, S., NHTSA, Regulatory Analysis and Evaluation 
Division, ``Vehicle Survivability and Travel Mileage Schedules,'' 
DOT HS 809 952, 8-11 (January 2006). Available at http://www-
nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed March 1, 2010). 
These updated survival rates suggest that the expected lifetimes of 
recent-model passenger cars and light trucks are 13.8 and 14.5 
years.
---------------------------------------------------------------------------

    The next step in estimating fuel use is to calculate the total 
number of miles that model year 2012-2016 cars and light trucks 
remaining in use will be driven each year. To estimate total miles 
driven, the number projected to remain in use during each future year 
is multiplied by the average number of miles they are expected to be 
driven at the age they will reach in that year. The agency estimated 
annual usage of cars and light trucks of each age using data from the 
Federal Highway Administration's 2001 National Household Transportation 
Survey (NHTS).\609\ Because these estimates reflect the historically 
low gasoline prices that prevailed at the time the 2001 NHTS was 
conducted, however, NHTSA adjusted them to account for the effect on 
vehicle use of subsequent increases in fuel prices. Details of this 
adjustment are provided in Chapter VIII of the FRIA and Chapter 4 of 
the Joint TSD.
---------------------------------------------------------------------------

    \609\ For a description of the Survey, See http://nhts.ornl.gov/
quickStart.shtml (last accessed March 1, 2010).
---------------------------------------------------------------------------

    Increases in average annual use of cars and light trucks have been 
an important source of historical growth in the total number of miles 
they are driven each year. To estimate future growth in their average 
annual use for purposes of this rulemaking, NHTSA calculated the rate 
of growth in the adjusted mileage schedules derived from the 2001 NHTS 
necessary for total car and light truck travel to increase at the rate 
forecast in the AEO 2010 Early Release Reference Case.\610\ This rate 
was calculated to be consistent with future changes in the overall size 
and age distributions of the U.S. passenger car and light truck fleets 
that result from the agency's forecasts of total car and light truck 
sales and updated survival rates. The resulting growth rate in average 
annual car and light truck use of 1.15 percent per year was applied to 
the mileage figures derived from the 2001 NHTS to estimate annual 
mileage during each year of the expected lifetimes of MY 2012-2016 cars 
and light trucks.\611\
---------------------------------------------------------------------------

    \610\ This approach differs from that used in the MY 2011 final 
rule, where it was assumed that future growth in the total number of 
cars and light trucks in use resulting from projected sales of new 
vehicles was adequate by itself to account for growth in total 
vehicle use, without assuming continuing growth in average vehicle 
use.
    \611\ While the adjustment for future fuel prices reduces 
average mileage at each age from the values derived from the 2001 
NHTS, the adjustment for expected future growth in average vehicle 
use increases it. The net effect of these two adjustments is to 
increase expected lifetime mileage by about 18 percent significantly 
for both passenger cars and about 16 percent for light trucks.
---------------------------------------------------------------------------

    Finally, the agency estimated total fuel consumption by passenger 
cars and light trucks remaining in use each year by dividing the total 
number of miles surviving vehicles are driven by the fuel economy they 
are expected to achieve under each alternative CAFE standard. Each 
model year's total lifetime fuel consumption is the sum of fuel use by 
the cars or light trucks produced during that model year during each 
year of their life spans. In turn, the savings in a model year's 
lifetime fuel use that will result from each alternative CAFE standard 
is the difference between its lifetime fuel use at the fuel economy 
level it attains under the Baseline alternative, and its lifetime fuel 
use at the higher fuel economy level it is projected to achieve under 
that alternative standard.\612\
---------------------------------------------------------------------------

    \612\ To illustrate these calculations, the agency's adjustment 
of the AEO 2009 Revised Reference Case forecast indicates that 9.26 
million passenger cars will be produced during 2012, and the 
agency's updated survival rates show that 83 percent of these 
vehicles, or 7.64 million, are projected to remain in service during 
the year 2022, when they will have reached an age of 10 years. At 
that age, passenger achieving the fuel economy level they are 
projected to achieve under the Baseline alternative are driven an 
average of about 800 miles, so surviving model year 2012 passenger 
cars will be driven a total of 82.5 billion miles (= 7.64 million 
surviving vehicles x 10,800 miles per vehicle) during 2022. Summing 
the results of similar calculations for each year of their 26-year 
maximum lifetime, model year 2012 passenger cars will be driven a 
total of 1,395 billion miles under the Baseline alternative. Under 
that alternative, they are projected to achieve a test fuel economy 
level of 32.4 mpg, which corresponds to actual on-road fuel economy 
of 25.9 mpg (= 32.4 mpg x 80 percent). Thus their lifetime fuel use 
under the Baseline alternative is projected to be 53.9 billion 
gallons (= 1,395 billion miles divided by 25.9 miles per gallon).
---------------------------------------------------------------------------

    NHTSA and EPA received no comments on their respective NPRMs 
indicating that these assumptions should be updated or reconsidered. 
Thus the agencies have continued to employ them in the analysis 
supporting this final rule.
g. Accounting for the Fuel Economy Rebound Effect
    The fuel economy rebound effect refers to the fraction of fuel 
savings expected to result from an increase in vehicle fuel economy--
particularly an increase required by the adoption of higher CAFE 
standards--that is offset by additional vehicle use. The increase in 
vehicle use occurs because higher fuel economy reduces the fuel cost of 
driving, typically the largest single component of the monetary cost of 
operating a vehicle, and vehicle owners respond to this reduction in 
operating costs by driving slightly more. By lowering the marginal cost 
of vehicle use, improved fuel economy may lead to an increase in the 
number of miles vehicles are driven each year and over their lifetimes. 
Even with their higher fuel economy, this additional driving consumes 
some fuel, so the rebound effect reduces the net fuel savings that 
result when new CAFE standards require manufacturers to improve fuel 
economy.
    The magnitude of the rebound effect is an important determinant of 
the actual fuel savings that are likely to result from adopting 
stricter CAFE standards. Research on the magnitude of the rebound 
effect in light-duty vehicle use dates to the early 1980s, and 
generally concludes that a statistically significant rebound effect 
occurs when vehicle fuel efficiency improves.\613\ The agency reviewed 
studies of the rebound effect it had previously relied upon, considered 
more recently published estimates, and developed new estimates of its 
magnitude for purposes of the NPRM.\614\ Recent studies provide some 
evidence that the rebound effect has been declining over time, and may 
decline further over the immediate future if incomes rise faster than 
gasoline prices. This result appears

[[Page 25587]]

plausible, because the responsiveness of vehicle use to variation in 
fuel costs is expected to decline as they account for a smaller 
proportion of the total monetary cost of driving, which has been the 
case until very recently. At the same time, rising personal incomes 
would be expected to reduce the sensitivity of vehicle use to fuel 
costs as the time component of driving costs--which is likely to be 
related to income levels--accounts for a larger fraction the total cost 
of automobile travel.
---------------------------------------------------------------------------

    \613\ Some studies estimate that the long-run rebound effect is 
significantly larger than the immediate response to increased fuel 
efficiency. Although their estimates of the adjustment period 
required for the rebound effect to reach its long-run magnitude 
vary, this long-run effect is most appropriate for evaluating the 
fuel savings and emissions reductions resulting from stricter 
standards that would apply to future model years.
    \614\ For details of the agency's analysis, see Chapter VIII of 
the PRIA and Chapter 4 of the draft Joint TSD accompanying this 
proposed rule.
---------------------------------------------------------------------------

    NHTSA developed new estimates of the rebound effect by using 
national data on light-duty vehicle travel over the period from 1950 
through 2006 to estimate various econometric models of the relationship 
between vehicle miles-traveled and factors likely to influence it, 
including household income, fuel prices, vehicle fuel efficiency, road 
supply, the number of vehicles in use, vehicle prices, and other 
factors.\615\ The results of NHTSA's analysis are consistent with the 
findings from other recent research: the average long-run rebound 
effect ranged from 16 percent to 30 percent over the period from 1950 
through 2007, while estimates of the rebound effect in 2007 range from 
8 percent to 14 percent. Projected values of the rebound effect for the 
period from 2010 through 2030, which the agency developed using 
forecasts of personal income, fuel prices, and fuel efficiency from AEO 
2009's Reference Case, range from 4 percent to 16 percent, depending on 
the specific model used to generate them.
---------------------------------------------------------------------------

    \615\ The agency used several different model specifications and 
estimation procedures to control for the effect of fuel prices on 
fuel efficiency in order to obtain accurate estimates of the rebound 
effect.
---------------------------------------------------------------------------

    In light of these results, the agency's judgment is that the 
apparent decline over time in the magnitude of the rebound effect 
justifies using a value for future analysis that is lower than 
historical estimates, which average 15-25 percent. Because the 
lifetimes of vehicles affected by the alternative CAFE standards 
considered in this rulemaking will extend from 2012 until nearly 2050, 
a value that is significantly lower than historical estimates appears 
to be appropriate. Thus NHTSA used a 10 percent rebound effect in its 
analysis of fuel savings and other benefits from higher CAFE standards 
for the NPRM. The agency also sought comment on other alternatives for 
estimating the rebound effect, such as whether it would be appropriate 
to use the price elasticity of demand for gasoline, or other 
alternative approaches, to guide the choice of a value for the rebound 
effect.
    NHTSA and EPA received far fewer comments on the rebound effect 
than were previously received to CAFE rulemakings. Only one commenter, 
NJ DEP, expressly supported the agencies' assumption of 10 percent for 
the rebound effect; other commenters (CARB, CBD, ICCT) argued that 10 
percent should be the absolute maximum value and that the rebound 
effect assumed by the agencies should be lower, and would also be 
expected to decline over time. ICCT added that the price elasticity of 
gasoline demand could be a useful comparison for the rebound effect, 
but should not be used to derive it. Other commenters argued that a 
rebound effect either was unlikely to occur (James Hyde), or was 
unlikely to produce a uniform increase in use of all vehicles with 
improved fuel economy (Missouri DNR). NADA argued, in contrast, that 
the agencies had not provided sufficient justification for lowering the 
rebound effect to 10 percent from the ``historically justified'' range 
of 15 to 30 percent.
    The agency's interpretation of historical and recent evidence on 
the magnitude of the rebound effect is that a significant fuel economy 
rebound effect exists, and commenters did not provide any additional 
data or analysis to justify revising our initial estimates of the 
rebound effect. Therefore, the data available at this time do not 
justify using a rebound effect below the 10 percent figure employed in 
its NPRM analysis. NHTSA believes that projections of a continued 
decline in the magnitude of the rebound effect are unrealistic because 
they assume the rate at which it declines in response to increasing 
incomes remain constant, and in some cases imply that the rebound 
effect will become negative in the near future. In addition, the 
continued increases in fuel prices used in this analysis will tend to 
increase the magnitude of the rebound effect, thus offsetting part of 
the effect of rising incomes. As the preceding discussion indicates, 
there is a wide range of estimates for both the historical magnitude of 
the rebound effect and its projected future value, and there is some 
evidence that the magnitude of the rebound effect appears to be 
declining over time. Nevertheless, NHTSA requires a single point 
estimate for the rebound effect as an input to its analysis, although a 
range of estimates can be used to test the sensitivity to uncertainty 
about its exact magnitude. For the final rule, NHTSA chose to use 10 
percent as its primary estimate of the rebound effect, with a range of 
5-15 percent for use in sensitivity testing.
    The 10 percent figure is well below those reported in almost all 
previous research, and it is also below most estimates of the 
historical and current magnitude of the rebound effect developed by 
NHTSA. However, other recent research--particularly that conducted by 
Small and Van Dender and by Greene--reports persuasive evidence that 
the magnitude of the rebound effect is likely to be declining over 
time, and the forecasts developed by NHTSA also suggest that this is 
likely to be the case. As a consequence, NHTSA concluded that a value 
below the historical estimates reported here is likely to provide a 
more reliable estimate of its magnitude during the future period 
spanned by NHTSA's analysis of the impacts of this rule. The 10 percent 
estimate meets this condition, since it lies below the 15-30 percent 
range of estimates for the historical rebound effect reported in most 
previous research, and at the upper end of the 5-10 percent range of 
estimates for the future rebound effect reported in the recent studies 
by Small and Van Dender and by Greene. It also lies within the 3-16 
percent range of forecasts of the future magnitude of the rebound 
effect developed by NHTSA in its recent research. In summary, the 10 
percent value was not derived from a single point estimate from a 
particular study, but instead represents a reasonable compromise 
between the historical estimates and the projected future estimates. 
NHTSA will continue to review this estimate of the rebound effect in 
future rulemakings, but the agency has continued to use the 10 percent 
rebound effect over the entire future period spanned by the analysis it 
conducted for this final rule.
h. Benefits From Increased Vehicle Use
    The increase in vehicle use from the rebound effect provides 
additional benefits to their owners, who may make more frequent trips 
or travel farther to reach more desirable destinations. This additional 
travel provides benefits to drivers and their passengers by improving 
their access to social and economic opportunities away from home. As 
evidenced by their decisions to make more frequent or longer trips when 
improved fuel economy reduces their costs for driving, the benefits 
from this additional travel exceed the costs drivers and passengers 
incur in making more frequent or longer trips.
    The agency's analysis estimates the economic benefits from 
increased rebound-effect driving as the sum of fuel costs drivers incur 
plus the consumer surplus they receive from the additional

[[Page 25588]]

accessibility it provides.\616\ Because the increase in travel depends 
on the extent of improvement in fuel economy, the value of benefits it 
provides differs among model years and alternative CAFE standards. 
Under even those alternatives that would impose the highest standards, 
however, the magnitude of these benefits represents a small fraction of 
total benefits. Because no comments addressed this issue of benefits 
from increased vehicle use or the procedure used to estimate them, the 
agencies have finalized their proposed assumptions for purposes of the 
final rule analysis.
---------------------------------------------------------------------------

    \616\ The consumer surplus provided by added travel is estimated 
as one-half of the product of the decline in fuel cost per mile and 
the resulting increase in the annual number of miles driven.
---------------------------------------------------------------------------

i. The Value of Increased Driving Range
    Improving vehicles' fuel economy may also increase their driving 
range before they require refueling. By reducing the frequency with 
which drivers typically refuel, and by extending the upper limit of the 
range they can travel before requiring refueling, improving fuel 
economy thus provides some additional benefits to their owners.\617\ 
NHTSA re-examined this issue for purposes of this rulemaking, and found 
no information in comments or elsewhere that would cause the agency to 
revise its previous approach. Since no direct estimates of the value of 
extended vehicle range are available, NHTSA calculates directly the 
reduction in the annual number of required refueling cycles that 
results from improved fuel economy, and applies DOT-recommended values 
of travel time savings to convert the resulting time savings to their 
economic value.\618\
---------------------------------------------------------------------------

    \617\ If manufacturers respond to improved fuel economy by 
reducing the size of fuel tanks to maintain a constant driving 
range, the resulting cost saving will presumably be reflected in 
lower vehicle sales prices.
    \618\ See Department of Transportation, Guidance Memorandum, 
``The Value of Saving Travel Time: Departmental Guidance for 
Conducting Economic Evaluations,'' Apr. 9, 1997. http://
ostpxweb.dot.gov/policy/Data/VOT97guid.pdf (last accessed March 1, 
2010); update available at http://ostpxweb.dot.gov/policy/Data/
VOTrevision1_2-11-03.pdf (last accessed March 1, 2010).
---------------------------------------------------------------------------

    As an illustration, a typical small light truck model has an 
average fuel tank size of approximately 20 gallons. Assuming that 
drivers typically refuel when their tanks are 55 percent full (i.e., 11 
gallons in reserve), increasing this model's actual on-road fuel 
economy from 24 to 25 mpg would extend its driving range from 216 miles 
(= 9 gallons x 24 mpg) to 225 miles (= 9 gallons x 25 mpg). Assuming 
that it is driven 12,000 miles/year, this reduces the number of times 
it needs to be refueled each year from 55.6 (= 12,000 miles per year/
216 miles per refueling) to 53.3 (= 12,000 miles per year/225 miles per 
refueling), or by 2.3 refuelings per year.
    Weighted by the nationwide mix of urban and rural driving, personal 
and business travel in urban and rural areas, and average vehicle 
occupancy for driving trips, the DOT-recommended values of travel time 
per vehicle-hour is $24.64 (in 2007 dollars).\619\Assuming that 
locating a station and filling up requires a total of five minutes, the 
annual value of time saved as a result of less frequent refueling 
amounts to $4.72 (calculated as 5/60 x 2.3 x $24.64). This calculation 
is repeated for each future year that model year 2012-2016 cars and 
light trucks would remain in service. Like fuel savings and other 
benefits, the value of this benefit declines over a model year's 
lifetime, because a smaller number of vehicles originally produced 
during that model year remain in service each year, and those remaining 
in service are driven fewer miles.
---------------------------------------------------------------------------

    \619\ The hourly wage rate during 2008 is estimated to average 
$25.50 when expressed in 2007 dollars. Personal travel in urban 
areas (which represents 94 percent of urban travel) is valued at 50 
percent of the hourly wage rate, while business travel (the 
remaining 6 percent of urban travel) is valued at 100 percent of the 
hourly wage rate. For intercity travel, personal travel (87 percent 
of total intercity travel) is valued at 70 percent of the wage rate, 
while business travel (13 percent) is valued at 100 percent of the 
wage rate. The resulting values of travel time are $12.67 for urban 
travel and $17.66 for intercity travel, and must be multiplied by 
vehicle occupancy (1.6) to obtain the estimated values of time per 
vehicle hour in urban and rural driving. Finally, about 66% of 
driving occurs in urban areas, while the remaining 34% takes place 
in rural areas, and these percentages are used to calculate a 
weighted average of the value of time in all driving.
---------------------------------------------------------------------------

    Although the agencies received no public comments on the procedures 
they used to estimate the benefits from less frequent refueling or the 
magnitude of those benefits, we note also that the estimated value of 
less frequent refueling events is subject to a number of uncertainties 
which we discuss in detail in Chapter 4.1.11 of the Joint TSD, and the 
actual value could be higher or lower than the value presented here. 
Specifically, the analysis makes three assumptions: (a) That 
manufacturers will not adjust fuel tank capacities downward (from the 
current average of 19.3 gallons) when they improve the fuel economy of 
their vehicle models. (b) that the average fuel purchase (55 percent of 
fuel tank capacity) is the typical fuel purchase. (c) that 100 percent 
of all refueling is demand-based; i.e., that every gallon of fuel which 
is saved would reduce the need to return to the refueling station. 
NHTSA has planned a new research project which will include a detailed 
study of refueling events, and which is expected to improve upon these 
assumptions. These assumptions and the upcoming research project are 
discussed in detail in Joint TSD Chapter 4.2.10, as well as in Chapter 
VIII of NHTSA's FRIA.
j. Added Costs From Congestion, Crashes and Noise
    Increased vehicle use associated with the rebound effect also 
contributes to increased traffic congestion, motor vehicle accidents, 
and highway noise. NHTSA relies on estimates of per-mile congestion, 
accident, and noise costs caused by increased use of automobiles and 
light trucks developed by the Federal Highway Administration to 
estimate these increased costs.\620\ NHTSA employed these estimates 
previously in its analysis accompanying the MY 2011 final rule, and 
after reviewing the procedures used by FHWA to develop them and 
considering other available estimates of these values, continues to 
find them appropriate for use in this final rule. The agency multiplies 
FHWA's estimates of per-mile costs by the annual increases in 
automobile and light truck use from the rebound effect to yield the 
estimated increases in congestion, accident, and noise externality 
costs during each future year.
---------------------------------------------------------------------------

    \620\ These estimates were developed by FHWA for use in its 1997 
Federal Highway Cost Allocation Study; See http://www.fhwa.dot.gov/
policy/hcas/final/index.htm (last accessed March 1, 2010).
---------------------------------------------------------------------------

    One commenter, Inrix, Inc., stated that ``deeply connected 
vehicles,'' i.e., those with built-in computer systems to help drivers 
identify alternative routes to avoid congestion, are better able to 
avoid congestion than conventional vehicles. The commenter argued that 
increased use of these models may be less likely to contribute to 
increased congestion, and urged the agencies to consider the impact of 
this on their estimates of fuel use and GHG emissions. NHTSA notes that 
the number of such vehicles is extremely small at present, and is 
likely to remain modest for the model years affected by this rule, and 
has thus continued to employ the estimates of congestion costs from 
additional rebound-effect vehicle use that it utilized in the NPRM 
analysis. The agency recognizes that these vehicles may become 
sufficiently common in the future that their effect on the fuel economy 
drivers actually experience could become significant, but notes that to 
the extent this occurs,

[[Page 25589]]

it would be reflected in the gap between test and on-road fuel economy. 
NHTSA will continue to monitor the production of such vehicles and 
their representation in the vehicle fleet in its future rulemakings.
k. Petroleum Consumption and Import Externalities
    U.S. consumption and imports of petroleum products also impose 
costs on the domestic economy that are not reflected in the market 
price for crude petroleum, or in the prices paid by consumers of 
petroleum products such as gasoline. These costs include (1) higher 
prices for petroleum products resulting from the effect of U.S. oil 
import demand on the world oil price; (2) the risk of disruptions to 
the U.S. economy caused by sudden reductions in the supply of imported 
oil to the U.S.; and (3) expenses for maintaining a U.S. military 
presence to secure imported oil supplies from unstable regions, and for 
maintaining the strategic petroleum reserve (SPR) to cushion against 
resulting price increases.\621\
---------------------------------------------------------------------------

    \621\ See, e.g., Bohi, Douglas R. and W. David Montgomery 
(1982). Oil Prices, Energy Security, and Import Policy Washington, 
DC: Resources for the Future, Johns Hopkins University Press; Bohi, 
D.R., and M.A. Toman (1993). ``Energy and Security: Externalities 
and Policies,'' Energy Policy 21:1093-1109 (Docket NHTSA-2009-0062-
24); and Toman, M.A. (1993). ``The Economics of Energy Security: 
Theory, Evidence, Policy,'' in A.V. Kneese and J.L. Sweeney, eds. 
(1993) (Docket NHTSA-2009-0062-23). Handbook of Natural Resource and 
Energy Economics, Vol. III. Amsterdam: North-Holland, pp. 1167-1218.
---------------------------------------------------------------------------

    Higher U.S. imports of crude oil or refined petroleum products 
increase the magnitude of these external economic costs, thus 
increasing the true economic cost of supplying transportation fuels 
above their market prices. Conversely, lowering U.S. imports of crude 
petroleum or refined fuels by reducing domestic fuel consumption can 
reduce these external costs, and any reduction in their total value 
that results from improved fuel economy represents an economic benefit 
of more stringent CAFE standards, in addition to the value of saving 
fuel itself.
    NHTSA has carefully reviewed its assumptions regarding the 
appropriate value of these benefits for this final rule. In analyzing 
benefits from its recent actions to increase light truck CAFE standards 
for model years 2005-07 and 2008-11, NHTSA relied on a 1997 study by 
Oak Ridge National Laboratory (ORNL) to estimate the value of reduced 
economic externalities from petroleum consumption and imports.\622\ 
More recently, ORNL updated its estimates of the value of these 
externalities, using the analytic framework developed in its original 
1997 study in conjunction with recent estimates of the variables and 
parameters that determine their value.\623\ The updated ORNL study was 
subjected to a detailed peer review comissioned by EPA, and ORNL's 
estimates of the value of oil import externalities were subsequently 
revised to reflect their comments and recommendations of the peer 
reviewers.\624\ Finally, at the request of EPA, ORNL further revised 
its 2008 estimates of external costs from U.S. oil imports to reflect 
recent changes in the outlook for world petroleum prices, as well as 
continuing changes in the structure and characteristics of global 
petroleum supply and demand.
---------------------------------------------------------------------------

    \622\ Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and 
Russell Lee, Oil Imports: An Assessment of Benefits and Costs, ORNL-
6851, Oak Ridge National Laboratory, November 1, 1997. Available at 
http://pzl1.ed.ornl.gov/ORNL6851.pdf (last accessed March 1, 2010).
    \623\ Leiby, Paul N. ``Estimating the Energy Security Benefits 
of Reduced U.S. Oil Imports,'' Oak Ridge National Laboratory, ORNL/
TM-2007/028, Revised July 23, 2007. Available at http://
pzl1.ed.ornl.gov/energysecurity.html (click on link below ``Oil 
Imports Costs and Benefits'') (last accessed March 1, 2010).
    \624\ Peer Review Report Summary: Estimating the Energy Security 
Benefits of Reduced U.S. Oil Imports, ICF, Inc., September 2007. 
Available at Docket No. NHTSA-2009-0059-0160.
---------------------------------------------------------------------------

    These most recent revisions increase ORNL's estimates of the 
``monopsony premium'' associated with U.S. oil imports, which measures 
the increase in payments from U.S. oil purchasers to foreign oil 
suppliers beyond the increased purchase price of petroleum itself that 
results when increased U.S. import demand raises the world price of 
petroleum.\625\ However, the monopsony premium represents a financial 
transfer from consumers of petroleum products to oil producers, which 
does not entail the consumption of real economic resources. Thus 
reducing the magnitude of the monopsony premium produces no savings in 
real economic resources globally or domestically, although it does 
reduce the value of the financial transfer from U.S. consumers of 
petroleum products to foreign suppliers of petroleum. Accordingly, 
NHTSA's analysis of the benefits from adopting proposed CAFE standards 
for MY 2012-2016 cars and light trucks excluded the reduced value of 
monopsony payments by U.S. oil consumers that might result from lower 
fuel consumption by these vehicles. The agency sought comment on 
whether it would be reasonable to include the reduction in monopsony 
payments by U.S. consumers of petroleum products in their estimates of 
total economic benefits from reducing U.S. fuel consumption.
---------------------------------------------------------------------------

    \625\ The reduction in payments from U.S. oil purchasers to 
domestic petroleum producers is not included as a benefit, since it 
represents a transfer that occurs entirely within the U.S. economy.
---------------------------------------------------------------------------

    Commenters from NYU School of Law argued that monopsony payments 
should be treated as a distributional effect, not a standard efficiency 
benefit. An individual commenter, A.G. Fraas, also supported the 
agencies' exclusion of the monopsony benefit, arguing that it 
represents a pecuniary externality that should not be considered in 
benefit-cost analyses of governmental actions--again, in essence, that 
it represents a distributional effect. These comments support the 
agency's decision to exclude any reduction in monopsony premium 
payments that results from lower U.S. petroleum imports from its 
accounting of benefits from reduced fuel consumption. Thus the agency 
continues to exclude any reduction in monopsony premium payments from 
its estimates of benefits for the stricter CAFE standards this final 
rule establishes.
    ORNL's most recently revised estimates of the increase in the 
expected costs associated with potential disruptions in U.S. petroleum 
imports imply that each gallon of imported fuel or petroleum saved 
reduces the expected costs of oil supply disruptions to the U.S. 
economy by $0.169 per gallon (in 2007$). In contrast to reduced 
monopsony premium payments, the reduction in expected disruption costs 
represents a real savings in resources, and thus contributes economic 
benefits in addition to the savings in fuel production costs that 
result from increasing fuel economy. NHTSA employs this value in its 
analysis of the economic benefits from adopting higher CAFE standards 
for MY 2012-2016 cars and light trucks.
    A.G. Fraas commented on this proposed rule and felt that that 
magnitude of the economic disruption portion of the energy security 
benefit may be too high. He cites a recent paper written by Stephen 
P.A. Brown and Hillard G. Huntington, entitled ``Estimating U.S. Oil 
Security Premiums'' (September 2009). He commented that the Brown and 
Huntington premium associated with replacing oil imports by increased 
domestic oil production while keeping U.S. oil consumption unchanged 
(i.e., ``the cost of displacing a barrel of domestic oil with a barrel 
of imported oil'') ranges from $2.17 per barrel in 2015 to $2.37 per 
barrel in 2030 (2007$), or $0.052 to $0.056 per gallon.
    In contrast, this rule is not a domestic oil supply initiative, but 
is one intended to reduce domestic oil consumption and thereby also to 
a significant extent reduce U.S. oil imports. When NHTSA

[[Page 25590]]

used the ORNL Energy Security Premium Analysis to calculate the energy 
security premium for this rule, it based the energy security premium on 
decreased demand for oil and oil products. The agency estimated that 
most of the decreased demand for oil and oil products would come from 
decreased imports of oil, given the inelasticity of U.S. supply and the 
modest estimated change in world oil price. The Brown and Huntington 
estimates for this change, considering the disruption component alone, 
are much in line with the ORNL estimates. For a reduction in U.S. 
consumption that largely leads to a reduction in imports, Brown and 
Huntington estimate a midpoint premium of $4.98 per barrel in 2015 
rising to $6.82 per barrel by 2030 (2007$). The 2015 disruption premium 
estimate has an uncertainty range of $1.10 to $14.35 (2007$). The 
corresponding 2030 estimate from ORNL is only about 19 percent higher 
($8.12/bbl), with an uncertainty range--$3.90 to $13.04--completely 
enclosed by that of Brown and Huntington. Thus, we conclude that the 
ORNL disruption security premium estimates for this rule is roughly 
consistent with the Brown and Huntington results.
    Commenters from the NYU School of Law agreed that reduced 
disruption costs should be counted as a benefit, but stated that the 
agencies should disaggregate and exclude any reduction in wealth 
transfers that occur during oil shocks from their calculation of this 
benefit. NHTSA acknowledges that for consistency with its exclusion of 
reductions in monopsony premium payments from the benefits of reduced 
fuel consumption and petroleum imports, it may be necessary to exclude 
reductions in the wealth transfer component of macroeconomic disruption 
costs from the benefits of reducing U.S. petroleum imports. In future 
rulemakings, the agency will assess the arguments for excluding the 
wealth transfer component of disruption costs from its accounting of 
benefits from reducing domestic fuel consumption and U.S. petroleum 
imports, and explore whether it is practical to estimate its value 
separately and exclude it from the benefits calculations.
    NHTSA's analysis does not include savings in budgetary outlays to 
support U.S. military activities among the benefits of higher fuel 
economy and the resulting fuel savings.\626\ NHTSA's analysis of 
benefits from alternative CAFE standards for MY 2012-2016 also excludes 
any cost savings from maintaining a smaller SPR from its estimates of 
the external benefits of reducing gasoline consumption and petroleum 
imports. This view concurs with that of the recent ORNL study of 
economic costs from U.S. oil imports, which concludes that savings in 
government outlays for these purposes are unlikely to result from 
reductions in consumption of petroleum products and oil imports on the 
scale of those resulting from higher CAFE standards.
---------------------------------------------------------------------------

    \626\ However, the agency conducted a sensitivity analysis of 
the potential effect of assuming that some reduction military 
spending would result from fuel savings and reduced petroleum 
imports in order to investigate its impacts on the standards and 
fuel savings.
---------------------------------------------------------------------------

    Commenters from the NYU School of Law stated that the agencies were 
justified in not including a value for military security, as long as 
the agencies incorporate the increased protection value of the SPR into 
their calculation of disruption effects. CBD and James Adcock 
disagreed, and stated that the agencies should, in fact, include a 
value for military security--CBD cited several studies, and Mr. Adcock 
presented his own value of $0.275 per gallon. CARB stated simply that 
the agencies should include a sensitivity analysis for military 
security at $0.15 per gallon, in addition to the $0.05 per gallon 
already evaluated. EDF also cited studies claiming a benefit for 
increased national security.
    In response to the comments from CBD and Mr. Adcock, NHTSA's 
examination of the historical record indicates that while costs for 
U.S. military security may vary over time in response to long-term 
changes in the level of oil imports into the U.S., these costs are 
unlikely to decline in response to the small reductions in U.S. oil 
imports (relative to total oil imports) that are typically projected to 
result from raising CAFE standards for light-duty vehicles. U.S. 
military activities in regions that represent vital sources of oil 
imports also serve a broader range of security and foreign policy 
objectives than simply protecting oil supplies, and as a consequence 
are unlikely to vary significantly in response to the modest changes in 
the level of oil imports likely to be prompted by higher CAFE 
standards.
    The agency does not find evidence in the historical record that 
Congress or the Executive Branch has ever attempted to calibrate U.S. 
military expenditures, overall force levels, or specific deployments to 
any measure of global oil market activity or U.S. reliance on petroleum 
imports, or to any calculation of the projected economic consequences 
of hostilities arising in the Persian Gulf. Instead, changes in U.S. 
force levels, deployments, and thus military spending in that region 
have been largely governed by political events, emerging threats, and 
other military and political considerations, rather than by shifts in 
U.S. oil consumption or imports. NHTSA thus concludes that the levels 
of U.S. military activity and expenditures are likely to remain 
unaffected by even relatively large changes in light duty vehicle fuel 
consumption, and has continued to exclude any reduction in these 
outlays from its estimates of the economic benefits resulting from 
lower U.S. fuel consumption and petroleum imports.
    In response to the comments from the NYU School of Law, NHTSA will 
explore how it might estimate the contribution of the SPR to reducing 
potential macroeconomic costs from oil supply disruptions, although the 
agency notes that to some extent the existence of the SPR may already 
be reflected in the magnitude of price elasticities of the supplies of 
foreign oil available for import to the U.S. However, the agency notes 
that the size of the SPR has not appeared to change significantly in 
response to historical variation in U.S. petroleum consumption or 
imports, suggesting that its effect on the magnitude of potential 
macroeconomic costs from disruptions in petroleum imports may be 
limited.
    Finally, in response to the comment from EDF, the agency notes that 
the value of $0.05 per gallon for the reduction in military security 
outlays that is used for sensitivity analysis assumes that the entire 
reduction in U.S. petroleum imports resulting from higher CAFE 
standards would reflect lower imports from Persian Gulf suppliers, that 
the estimate of annual U.S. military costs for securing Persian Gulf 
oil supplies reported by Delucchi and Murphy is correct, and that 
Congress would reduce half of these outlays in proportion to any 
decline in U.S. oil imports from the region. The $0.15 per gallon 
estimate recommended by CARB would thus require that U.S. military 
outlays to protect Persian Gulf oil supplies are three times as large 
as Delucchi and Murphy estimate, or that Congress would reduce military 
spending in that region more than in proportion to any reduction in 
U.S. petroleum imports originating there. Because it views these 
possibilities as unrealistic, NHTSA has continued to use the $0.05 
figure in its sensitivity analysis, rather than the higher figure 
suggested.
    Based on a detailed analysis of differences in fuel consumption,

[[Page 25591]]

petroleum imports, and imports of refined petroleum products among the 
Reference Case, High Economic Growth, and Low Economic Growth Scenarios 
presented in AEO 2009, NHTSA estimated that approximately 50 percent of 
the reduction in fuel consumption resulting from adopting higher CAFE 
standards is likely to be reflected in reduced U.S. imports of refined 
fuel, while the remaining 50 percent would reduce domestic fuel 
refining.\627\ Of this latter figure, 90 percent is anticipated to 
reduce U.S. imports of crude petroleum for use as a refinery feedstock, 
while the remaining 10 percent is expected to reduce U.S. domestic 
production of crude petroleum.\628\ Thus on balance, each 100 gallons 
of fuel saved as a consequence of higher CAFE standards is anticipated 
to reduce total U.S. imports of crude petroleum or refined fuel by 95 
gallons.\629\
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    \627\ Differences between forecast annual U.S. imports of crude 
petroleum and refined products among these three scenarios range 
from 24-89 percent of differences in projected annual gasoline and 
diesel fuel consumption in the U.S. These differences average 49 
percent over the forecast period spanned by AEO 2009.
    \628\ Differences between forecast annual U.S. imports of crude 
petroleum among these three scenarios range from 67-97 percent of 
differences in total U.S. refining of crude petroleum, and average 
85 percent over the forecast period spanned by AEO 2009.
    \629\ This figure is calculated as 50 gallons + 50 gallons*90% = 
50 gallons + 45 gallons = 95 gallons.
---------------------------------------------------------------------------

    NHTSA employed this estimate in the analysis presented in the NPRM, 
and received no comments on the assumptions or data used to develop it. 
Hence the agency has continued to assume that each 100 gallons of fuel 
saved as a consequence of the CAFE standards established by this final 
rule will reduce total U.S. imports of crude petroleum or refined fuel 
by 95 gallons. NHTSA has applied the estimates of economic benefits 
from lower U.S. petroleum imports to the resulting estimate of 
reductions in imports of crude petroleum and refined fuel.
l. Air Pollutant Emissions
i. Changes in Criteria Air Pollutant Emissions
    Criteria air pollutants emitted by vehicles and during fuel 
production include carbon monoxide (CO), hydrocarbon compounds (usually 
referred to as ``volatile organic compounds,'' or VOC), nitrogen oxides 
(NOX), fine particulate matter (PM2.5), and 
sulfur oxides (SOX). While reductions in domestic fuel 
refining and distribution that result from lower fuel consumption will 
reduce U.S. emissions of these pollutants, additional vehicle use 
associated with the rebound effect from higher fuel economy will 
increase their emissions. Thus the net effect of stricter CAFE 
standards on emissions of each criteria pollutant depends on the 
relative magnitudes of its reduced emissions in fuel refining and 
distribution, and increases in its emissions from vehicle use. Because 
the relationship between emissions in fuel refining and vehicle use is 
different for each criteria pollutant, the net effect of fuel savings 
from the proposed standards on total emissions of each pollutant is 
likely to differ. We note that any benefits in terms of criteria air 
pollutant reductions resulting from this rule would not be direct 
benefits.
    With the exception of SO2, NHTSA calculated annual 
emissions of each criteria pollutant resulting from vehicle use by 
multiplying its estimates of car and light truck use during each year 
over their expected lifetimes by per-mile emission rates appropriate to 
each vehicle type, fuel, model year, and age. These emission rates were 
developed by U.S. EPA using its Motor Vehicle Emission Simulator (MOVES 
2010).\630\ Emission rates for SO2 were calculated by NHTSA 
using average fuel sulfur content estimates supplied by EPA, together 
with the assumption that the entire sulfur content of fuel is emitted 
in the form of SO2.\631\ Total SO2 emissions 
under each alternative CAFE standard were calculated by applying the 
resulting emission rates directly to estimated annual gasoline and 
diesel fuel use by cars and light trucks.
---------------------------------------------------------------------------

    \630\ The MOVES model assumes that the per-mile rates at which 
these pollutants are emitted are determined by EPA regulations and 
the effectiveness of catalytic after-treatment of engine exhaust 
emissions, and are thus unaffected by changes in car and light truck 
fuel economy.
    \631\ These are 30 and 15 parts per million (ppm, measured on a 
mass basis) for gasoline and diesel respectively, which produces 
emission rates of 0.17 grams of SO2 per gallon of 
gasoline and 0.10 grams per gallon of diesel.
---------------------------------------------------------------------------

    As with other impacts, the changes in emissions of criteria air 
pollutants resulting from alternative increases in CAFE standards for 
MY 2012-2016 cars and light trucks were calculated from the differences 
between emissions under each alternative that would increase CAFE 
standards, and emissions under the baseline alternative.
    NHTSA estimated the reductions in criteria pollutant emissions from 
producing and distributing fuel that would occur under alternative CAFE 
standards using emission rates obtained by EPA from Argonne National 
Laboratories' Greenhouse Gases and Regulated Emissions in 
Transportation (GREET) model.\632\ The GREET model provides separate 
estimates of air pollutant emissions that occur in different phases of 
fuel production and distribution, including crude oil extraction, 
transportation, and storage, fuel refining, and fuel distribution and 
storage.\633\ EPA modified the GREET model to change certain 
assumptions about emissions during crude petroleum extraction and 
transportation, as well as to update its emission rates to reflect 
adopted and pending EPA emission standards. NHTSA converted these 
emission rates from the mass per fuel energy content basis on which 
GREET reports them to mass per gallon of fuel supplied using estimates 
of fuel energy content supplied by GREET.
---------------------------------------------------------------------------

    \632\ Argonne National Laboratories, The Greenhouse Gas and 
Regulated Emissions from Transportation (GREET) Model, Version 1.8, 
June 2007, available at http://www.transportation.anl.gov/modeling_
simulation/GREET/index.html (last accessed March 15, 2010).
    \633\ Emissions that occur during vehicle refueling at retail 
gasoline stations (primarily evaporative emissions of volatile 
organic compounds, or VOCs) are already accounted for in the 
``tailpipe'' emission factors used to estimate the emissions 
generated by increased light truck use. GREET estimates emissions in 
each phase of gasoline production and distribution in mass per unit 
of gasoline energy content; these factors are then converted to mass 
per gallon of gasoline using the average energy content of gasoline.
---------------------------------------------------------------------------

    The resulting emission rates were applied to the agency's estimates 
of fuel consumption under each alternative CAFE standard to develop 
estimates of total emissions of each criteria pollutant during fuel 
production and distribution. The assumptions about the effects of 
changes in fuel consumption on domestic and imported sources of fuel 
supply discussed above were then employed to calculate the effects of 
reductions in fuel use from alternative CAFE standards on changes in 
imports of refined fuel and domestic refining. NHTSA's analysis assumes 
that reductions in imports of refined fuel would reduce criteria 
pollutant emissions during fuel storage and distribution only. 
Reductions in domestic fuel refining using imported crude oil as a 
feedstock are assumed to reduce emissions during fuel refining, 
storage, and distribution, because each of these activities would be 
reduced. Reduced domestic fuel refining using domestically-produced 
crude oil is assumed to reduce emissions during all four phases of fuel 
production and distribution.\634\
---------------------------------------------------------------------------

    \634\ In effect, this assumes that the distances crude oil 
travels to U.S. refineries are approximately the same regardless of 
whether it travels from domestic oilfields or import terminals, and 
that the distances that gasoline travels from refineries to retail 
stations are approximately the same as those from import terminals 
to gasoline stations. We note that while assuming that all changes 
in upstream emissions result from a decrease in petroleum production 
and transport, our analysis of downstream criteria pollutant impacts 
assumes no change in the composition of the gasoline fuel supply.

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

[[Page 25592]]

    Finally, NHTSA calculated the net changes in domestic emissions of 
each criteria pollutant by summing the increases in emissions projected 
to result from increased vehicle use, and the reductions anticipated to 
result from lower domestic fuel refining and distribution.\635\ As 
indicated previously, the effect of adopting higher CAFE standards on 
total emissions of each criteria pollutant depends on the relative 
magnitudes of the resulting reduction in emissions from fuel refining 
and distribution, and the increase in emissions from additional vehicle 
use. Although these net changes vary significantly among individual 
criteria pollutants, the agency projects that on balance, adopting 
higher CAFE standards would reduce emissions of all criteria air 
pollutants except carbon monoxide (CO).
---------------------------------------------------------------------------

    \635\ All emissions from increased vehicle use are assumed to 
occur within the U.S., since CAFE standards would apply only to 
vehicles produced for sale in the U.S.
---------------------------------------------------------------------------

    The net changes in domestic emissions of fine particulates 
(PM2.5) and its chemical precursors (such as NOX, 
SOX, and VOCs) are converted to economic values using 
estimates of the reductions in health damage costs per ton of emissions 
of each pollutant that is avoided, which were developed and recently 
revised by EPA. These savings represent the estimated reductions in the 
value of damages to human health resulting from lower atmospheric 
concentrations and population exposure to air pollution that occur when 
emissions of each pollutant that contributes to atmospheric 
PM2.5 concentrations are reduced. The value of reductions in 
the risk of premature death due to exposure to fine particulate 
pollution (PM2.5) account for a majority of EPA's estimated 
values of reducing criteria pollutant emissions, although the value of 
avoiding other health impacts is also included in these estimates.
    These values do not include a number of unquantified benefits, such 
as reduction in the welfare and environmental impacts of 
PM2.5 pollution, or reductions in health and welfare impacts 
related to other criteria pollutants (ozone, NO2, and 
SO2) and air toxics. EPA estimates different PM-related per-
ton values for reducing emissions from vehicle use than for reductions 
in emissions of that occur during fuel production and 
distribution.\636\ NHTSA applies these separate values to its estimates 
of changes in emissions from vehicle use and fuel production and 
distribution to determine the net change in total economic damages from 
emissions of these pollutants.
---------------------------------------------------------------------------

    \636\ These reflect differences in the typical geographic 
distributions of emissions of each pollutant, their contributions to 
ambient PM2.5 concentrations, pollution levels 
(predominantly those of PM2.5), and resulting changes in 
population exposure.
---------------------------------------------------------------------------

    EPA projects that the per-ton values for reducing emissions of 
criteria pollutants from both mobile sources (including motor vehicles) 
and stationary sources such as fuel refineries and storage facilities 
will increase over time. These projected increases reflect rising 
income levels, which are assumed to increase affected individuals' 
willingness to pay for reduced exposure to health threats from air 
pollution, as well as future population growth, which increases 
population exposure to future levels of air pollution.
    NHTSA and EPA received no comments on the procedures they employed 
to estimate the reductions in emissions of criteria air pollutants 
reported in their respective NPRMs, or on the unit economic values the 
agencies applied to those reductions to calculate their total value. 
Thus the agencies have continued to employ these procedures and values 
in the analysis reported in this final rule. However, the agencies have 
made some minor changes in the emission factors used to calculate 
changes in emissions resulting from increased vehicle use; these 
revisions are detailed in Chapter 4 of the Final Technical Support 
Document accompanying this rule.
ii. Reductions in CO2 Emissions
    Emissions of carbon dioxide and other greenhouse gases (GHGs) occur 
throughout the process of producing and distributing transportation 
fuels, as well as from fuel combustion itself. By reducing the volume 
of fuel consumed by passenger cars and light trucks, higher CAFE 
standards will reduce GHG emissions generated by fuel use, as well as 
throughout the fuel supply cycle. Lowering these emissions is likely to 
slow the projected pace and reduce the ultimate extent of future 
changes in the global climate, thus reducing future economic damages 
that changes in the global climate are expected to cause. By reducing 
the probability that climate changes with potentially catastrophic 
economic or environmental impacts will occur, lowering GHG emissions 
may also result in economic benefits that exceed the resulting 
reduction in the expected future economic costs caused by gradual 
changes in the earth's climatic systems.
    Quantifying and monetizing benefits from reducing GHG emissions is 
thus an important step in estimating the total economic benefits likely 
to result from establishing higher CAFE standards. The agency estimated 
emissions of CO2 from passenger car and light truck use by 
multiplying the number of gallons of each type of fuel (gasoline and 
diesel) they are projected to consume under alternative CAFE standards 
by the quantity or mass of CO2 emissions released per gallon 
of fuel consumed. This calculation assumes that the entire carbon 
content of each fuel is converted to CO2 emissions during 
the combustion process. Carbon dioxide emissions account for nearly 95 
percent of total GHG emissions that result from fuel combustion during 
vehicle use.
iii. Economic Value of Reductions in CO2 Emissions
    NHTSA has taken the economic benefits of reducing CO2 
emission into account in this rulemaking, both in developing 
alternative CAFE standards and in assessing the economic benefits of 
each alternative that was considered. Since direct estimates of the 
economic benefits from reducing CO2 or other GHG emissions 
are generally not reported in published literature on the impacts of 
climate change, these benefits are typically assumed to be the ``mirror 
image'' of the estimated incremental costs resulting from an increase 
in those emissions. Thus the benefits from reducing CO2 
emissions are usually measured by the savings in estimated economic 
damages that an equivalent increase in emissions would otherwise have 
caused.
    The ``social cost of carbon'' (SCC) is intended to be a monetary 
measure of the incremental damage resulting from increased carbon 
dioxide (CO2) emissions, including losses in agricultural 
productivity, the economic damages caused by adverse effects on human 
health, property losses and damages resulting from sea level rise, and 
changes in the value of ecosystem services. The SCC is usually 
expressed in dollars per additional metric ton of CO2 
emissions occurring during a specified year, and is higher for more 
distant future years because the damages caused by an additional ton of 
emissions increase with larger existing concentrations of 
CO2 in the earth's atmosphere. Marginal reductions in 
CO2 emissions that are projected to result from lower fuel 
consumption, refining, and distribution during each future year are 
multiplied by the estimated SCC appropriate for that year, which is 
used

[[Page 25593]]

to represent the value of eliminating each ton of CO2 
emissions, to determine the total economic benefit from reduced 
emissions during that year. These benefits are then discounted to their 
present value as usual, using a discount rate that is consistent with 
that used to develop the estimate of the SCC itself.
    The agency's NPRM incorporated the Federal interagency working 
group's interim guidance on appropriate SCC values for estimating 
economic benefits from reductions in CO2 emissions. NHTSA 
specifically asked for comment on the procedures employed by the group 
to develop its recommended values, as well as on the reasonableness and 
correct interpretation of those values. Comments the agency received 
address several different issues, including (1) the interagency group's 
procedures for selecting SCC estimates to incorporate in its 
recommended values; (2) the appropriateness of the procedures the 
agency used to combine and summarize these estimates; (3) the parameter 
values and input assumptions used by different researchers to develop 
their estimates of the SCC; (4) the choice between global and domestic 
estimates of the SCC for use in Federal regulatory analysis, (5) the 
discount rates used to derive estimates of the SCC; and (6) the overall 
level of the agency's SCC estimates.
NHTSA's Procedures for Selecting SCC Estimates
    Many of the comments NHTSA received concerned the group's 
procedures for selecting published estimates and aggregating them to 
arrive at its range of recommended values. CARB asked for a clearer 
explanation of why mean SCC estimates from only two of the three major 
climate models were included in the average values reported in the 
interim guidance, and whether the arithmetic mean of reported values is 
the appropriate measure of their central tendency. Students from the 
University of California at Santa Barbara (UCSB) noted that the 
interagency group often selected only a single SCC estimate from 
studies reporting multiple estimates or a range of values to include in 
developing its summary values, and objected that this procedure caused 
the group to understate the degree of uncertainty surrounding its 
recommended values.
    Steven Rose also noted that the interagency group's ``filtering'' 
of published estimates of the SCC on the basis of their vintage and 
input assumptions tended to restrict the included estimates to a 
relatively narrow band that excluded most potentially catastrophic 
climate changes, and thus was not representative of the wide 
uncertainty surrounding the ``true'' SCC. If the purpose of 
incorporating the SCC into regulatory analysis was effectively to price 
CO2 emissions so that emitters would account for climate 
damages caused by their actions, he reasoned, then the estimate to be 
used should incorporate the wide range of uncertainty surrounding the 
magnitude of potential damages.
    Rose also noted that many of the more recent studies reporting 
estimates of the SCC were designed to explore the influence of 
different factors on the extent and timing of climate damages, rather 
than to estimate the SCC specifically, and thus that these more recent 
estimates were not necessarily more informative than SCC estimates 
reported in some older studies. Rose argued that because there has been 
little change in major climate models since about 2001, all estimates 
published after that date should be considered in order to expand the 
size of the sample represented by average values, rather than limiting 
it by including only the most recently-reported estimates.
    James Adcock objected to the interagency group's reliance on Tol's 
survey of published estimates of the SCC, since many of the estimates 
it included were developed by Tol himself. In contrast, Steven Rose 
argued that the Tol survey offered a useful way to summarize and 
represent variation among published estimates of the SCC, and thus to 
indicate the uncertainty surrounding its true value.
Procedures for Summarizing Published SCC Estimates
    Steven Rose argued that combining SCC estimates generated using 
different discount rates was inappropriate, and urged the interagency 
group instead to select one or more discount rates and then to average 
only SCC estimates developed using the same discount rate. Rose also 
noted that the interagency group's explanation of how it applied the 
procedure developed by Newell and Pizer to incorporate uncertainty in 
the discount rate was inadequately detailed, and in any case it may not 
be appropriate for use in combining SCC estimates that were based on 
different discount rates. UCS also questioned NHTSA's use of averaging 
to combine estimates of the SCC relying on different discount rates, as 
well as the agency's equal weighting of upper- and lower-bound SCC 
estimates reported in published studies.
    NESCAUM commented that the interagency group's basis for deriving 
the $20 SCC estimate from its summary of published values was not 
adequately clear, and that the group's guidance should clarify the 
origin of this value. NESCAUM also urged the interagency group to 
identify a representative range of alternative SCC estimates for use in 
assessing benefits from reduced emissions, rather than a single value.
    Ford commented that the interagency group's methodology for 
developing an estimate of the SCC was acceptable, but argued that NHTSA 
agency should rely on the costs of reducing CO2 emissions in 
other sectors of the U.S. economy to evaluate economic benefits from 
reducing motor vehicle emission. Ford asserted that this represented a 
more reliable estimate of the benefits from reducing emissions than the 
potential climate damages avoided by reducing vehicle emissions, since 
lowering vehicle emissions reduces the need to control emissions from 
other economic sectors.
Parameter Values and Input Assumptions Underlying SCC Estimates
    CARB also noted that some of the wide variation in published SCC 
estimates relied upon by the interagency group could be attributed to 
authors' differing assumptions about future GHG emissions scenarios and 
choices of discount rates. Steven Rose noted that SCC estimates derived 
using future emissions scenarios that assumed significant reductions in 
emissions were probably inappropriate for use in Federal regulatory 
analysis, since Federal regulations must be adopted individually and 
are each likely to lead to only marginal reductions in emissions, so it 
is unreasonable to assume that their collective effect on future 
emissions will be large.
    CARB also emphasized that SCC estimates were not available over the 
same range of discount rates for all major climate models, thus making 
averages of available results less reliable as indicators of any 
central tendency in estimates of the SCC. To remedy this shortcoming, 
the Pew Center on Climate Change urged the interagency group to analyze 
the sensitivity of SCC estimates to systematic variation in uncertain 
model parameters and input scenarios as a means of identifying the 
range of uncertainty in the SCC itself, as well as to include a risk 
premium in its SCC estimates as a means of compensating for climate 
models' omission of potential economic damages from catastrophic 
climate changes.
    CBD commented that the interim nature of the interagency group's 
guidance made it impossible for decision-makers to determine whether 
the agency's proposed CAFE standards

[[Page 25594]]

were sufficiently stringent. CBD also argued that economic models' 
exclusion of some potential climate impacts caused them to 
underestimate the ``true'' SCC, and that the interagency group's 
procedure of averaging published estimates failed to convey important 
information about variation in estimates of the SCC to decision makers. 
In a related comment, the Pew Center on Climate Change cautioned 
against use of the interagency group's interim SCC estimates for 
analyzing benefits from NHTSA's final rule, on the grounds that some 
older estimates of the SCC surveyed for the interim guidance 
implausibly suggested that there could be positive net benefits from 
climate change, while more recent research suggests uniformly negative 
economic impacts.
    James Adcock presented his own estimate of the value of reducing 
CO2 emissions, which he derived by assuming that climate 
change would completely eliminate the economic value of all services 
provided by the local natural environment within a 50-year time frame. 
In addition, Adcock urged that Federal agencies use a consistent 
estimate of the SCC in their regulatory analyses, and that this 
estimate be updated regularly to reflect new knowledge; he also 
asserted that the SCC should be above the per-ton price of 
CO2 emissions permits under a cap-and-trade system.
Global vs. Domestic SCC Values
    NADA argued that NHTSA should employ an estimate of the domestic 
value of reducing CO2 emissions for purposes of estimating 
their aggregate economic benefits, since the agency includes only the 
domestic value of benefits stemming from reductions in other 
environmental and energy security externalities. In contrast, both the 
Pew Center on Climate Change and students from the University of 
California at Santa Barbara (UCSB) asserted that a global value of the 
SCC was appropriate for use even in analyzing benefits from U.S. 
domestic environmental regulations such as CAFE, and Steven Rose added 
that it was difficult to identify any proper role for a domestic 
estimate of the SCC. James Adcock commented that the agency's 
derivation of the fraction of the global SCC it employed (6 percent) to 
obtain a domestic value was not clearly explained.
Discount Rates Used To Derive SCC Estimates
    NRDC also cited the effect of positive discount rates on damages 
occurring in the distant future, which reduce the present value of 
those damages to misleadingly low levels. Similarly, Steven Rose argued 
that the interagency group should have used discount rates below the 3 
percent lower bound the group selected, and that the discount rate 
should also have been allowed to vary over time to account for 
uncertainty in its true value. The Pew Center also urged NHTSA to 
account explicitly for uncertainty surrounding the correct discount 
rate, but did not indicate how the agency should do so.
    CARB echoed the recommendation for including SCC values reflecting 
discount rates below 3 percent, since EPA had previously used lower 
rates in previously proposed rules to discount benefits that were not 
expected to occur until the distant future, and thus to be experienced 
mainly by future generations. The New Jersey Department of 
Environmental Protection noted that giving nearly equal weight to 
future generations would imply a discount rate of less than 3 percent--
probably in the neighborhood of 2 percent--and endorsed the interagency 
group's use of the procedure developed by Newell and Pizer to account 
for uncertainty surrounding the correct discount rate.
    The Pew Center urged the agency to ignore SCC estimates derived 
using discount rates above 5 percent, and instead to use the lowest 
possible rates, even including the possibility of negative values. 
Similarly, NRDC asserted that both the 3 percent and 5 percent discount 
rates selected by the interagency group are inappropriately high, but 
did not recommend a specific alternative rate. Students from UCSB 
observed that the interagency group's equal weighting of the 3 percent 
and 5 percent rates appeared to be inconsistent with the more frequent 
use of 3 percent in published estimates of the SCC, as well as with 
OMB's guidance that the 3 percent rate was appropriate for discounting 
future impacts on consumption. The group urged NHTSA to consider a 
wider range of discount rates in its revised estimates of the SCC, 
including some below 3 percent. CBD argued that the discount rate 
should increase over the future to reflect the potential for 
catastrophic climate impacts.
    CBD asserted that because the potential consequences of climate 
change are so extreme, that future economic impacts of climate change 
should not be discounted (i.e., a 0 percent discount rate should be 
used). James Adcock echoed this view.
Overall Level of SCC Estimates
    NRDC argued that the SCC estimate recommended by the interagency 
group was likely to be too low, because of most models' omission of 
some important climate impacts, particularly including potential 
catastrophic impacts resulting from non-incremental changes in climate 
conditions. CARB argued that it seemed prudent to include SCC values as 
high as $200 per ton, to reflect the possibility of low-probability but 
catastrophic changes in the global climate and the resulting economic 
damages.
    The New Jersey Department of Environmental Protection pointed out 
that SCC estimates reviewed by the IPCC ranged as high as $95/ton, and 
that the Stern Report's estimate was $85/ton, suggesting the 
possibility that the interagency group may have inappropriately 
filtered out the highest estimates of the SCC. Other commenters 
including NACAA, NESCAUM, NRDC, and UCS urged NHTSA to employ higher 
SCC values than it used in the NPRM analysis, but did not recommend 
specific values. CARB urged the agency to use higher values of the SCC 
than it employed in its NPRM analysis, and recommended a value of $25/
ton, growing at 2.4 percent annually, or alternatively, a fixed value 
of $50/ton.
    Steven Rose cautioned against applying a uniform 3 percent annual 
growth rate to all of the provisional SCC estimates recommended by the 
interagency group, and noted that the base year where such growth is 
assumed to begin should be determined carefully for each estimate.
    Finally, the Institute for Energy Research commented that NHTSA had 
probably overstated the reductions in CO2 emissions that 
would result from the proposed standards--and thus their economic 
value--because of the potential for compensating increases in 
emissions, such as those cause by increased retention and use of older, 
less fuel-efficient vehicles in the fleet.
    After carefully considering comments received to the NPRM, for 
purposes of this final rule, NHTSA has relied on estimates of the SCC 
developed by the Federal interagency working group convened for the 
specific purpose of developing new estimates to be used by U.S. Federal 
agencies in regulatory evaluations. Under Executive Order 12866, 
Federal agencies are required, to the extent permitted by law, ``to 
assess both the costs and the benefits of the intended regulation and, 
recognizing that some costs and benefits are difficult to quantify, 
propose or adopt a regulation only upon a reasoned determination that 
the benefits of the intended regulation justify its costs.'' The 
group's purpose in developing new estimates of the SCC was to allow

[[Page 25595]]

Federal agencies to incorporate the social benefits of reducing carbon 
dioxide (CO2) emissions into cost-benefit analyses of 
regulatory actions that have small, or ``marginal,'' impacts on 
cumulative global emissions, as most Federal regulatory actions can be 
expected to have.
    The interagency group convened on a regular basis to consider 
public comments, explore the technical literature in relevant fields, 
and discuss key inputs and assumptions in order to generate SCC 
estimates. Agencies that actively participated in the interagency 
process included the Environmental Protection Agency and the 
Departments of Agriculture, Commerce, Energy, Transportation, and 
Treasury. This process was convened by the Council of Economic Advisers 
and the Office of Management and Budget, with active participation and 
regular input from the Council on Environmental Quality, National 
Economic Council, Office of Energy and Climate Change, and Office of 
Science and Technology Policy. The main objective of this process was 
to develop a range of SCC values using a defensible set of input 
assumptions that are grounded in the existing literature. In this way, 
key uncertainties and model differences can more transparently and 
consistently inform the range of SCC estimates used in the rulemaking 
process.
    The interagency group developed its estimates of the SCC estimates 
while clearly acknowledging the many uncertainties involved, and with a 
clear understanding that they should be updated over time to reflect 
increasing knowledge of the science and economics of climate impacts. 
Technical experts from numerous agencies met on a regular basis to 
consider public comments, explore the technical literature in relevant 
fields, and discuss key model inputs and assumptions. The main 
objective of this process was to develop a range of SCC values using a 
defensible set of input assumptions grounded in the existing scientific 
and economic literature. In this way, key uncertainties and model 
differences transparently and consistently can inform the range of SCC 
estimates used in the rulemaking process.
    The group ultimately selected four SCC values for use in regulatory 
analyses. Three values are based on the average SCC from three 
integrated assessment models, using discount rates of 2.5, 3, and 5 
percent. The fourth value, which represents the 95th percentile SCC 
estimate across all three models at a 3 percent discount rate, is 
included to represent the possibility of higher-than-expected impacts 
from temperature change that lie further out in the tails of the 
distribution of SCC estimates. Table IV.C.3-2 summarizes the 
interagency group's estimates of the SCC during various future years. 
The SCC estimates reported in the table assume that the marginal 
damages from increased emissions are constant for small departures from 
the baseline emissions path, an approximation that is reasonable for 
policies that have effects on emissions that are small relative to 
cumulative global carbon dioxide emissions.

                             Table IV.C.3-2--Social Cost of CO2 Emissions, 2010-2050
                                                 [2007 dollars]
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
            Discount rate                     5%                 3%                2.5%                3%
----------------------------------------------------------------------------------------------------------------
               Source                                   Average of estimates                     95th Percentile
                                                                                                        estimate
----------------------------------------------------------------------------------------------------------------
2010................................                4.7               21.4               35.1               64.9
2015................................                5.7               23.8               38.4               72.8
2020................................                6.8               26.3               41.7               80.7
2025................................                8.2               29.6               45.9               90.4
2030................................                9.7               32.8               50.0              100.0
2035................................               11.2               36.0               54.2              109.7
2040................................               12.7               39.2               58.4              119.3
2045................................               14.2               42.1               61.7              127.8
2050................................               15.7               44.9               65.0              136.2
----------------------------------------------------------------------------------------------------------------

    As Table IV.C.3-2 shows, the four SCC estimates selected by the 
interagency group for use in regulatory analyses are $5, $21, $35, and 
$65 (in 2007 dollars) for emissions occurring in the year 2010. The 
first three estimates are based on the average SCC across models and 
socio-economic and emissions scenarios at the 5, 3, and 2.5 percent 
discount rates, respectively. The fourth value is included to represent 
the higher-than-expected impacts from temperature change further out in 
the tails of the SCC distribution. For this purpose, the group elected 
to use the SCC value for the 95th percentile at a 3 percent discount 
rate.
    The central value identified by the interagency group is the 
average SCC across models at the 3 percent discount rate, or $21 per 
metric ton in 2010. To capture the uncertainties involved in regulatory 
impact analysis, however, the group emphasized the importance of 
considering the full range of estimated SCC values. As the table also 
shows, the SCC estimates also rise over time; for example, the central 
value increases to $24 per ton of CO2 in 2015 and $26 per 
ton of CO2 in 2020.
    The interagency group is committed to updating these estimates as 
the science and economic understanding of climate change and its 
impacts on society improves over time. Specifically, the group has set 
a preliminary goal of revisiting the SCC values within two years or at 
such time as substantially updated models become available, and to 
continue to support research in this area. U.S. Federal agencies will 
periodically review and reconsider estimates of the SCC used for cost-
benefit analyses to reflect increasing knowledge of the science and 
economics of climate impacts, as well as improvements in modeling.
    Details of the process used by the interagency group to develop its 
SCC estimates, complete results including year-by-year estimates of 
each of the four values, and a thorough discussion of their intended 
use and limitations is provided in the document Social Cost of Carbon 
for Regulatory Impact Analysis Under Executive Order 12866, Interagency 
Working Group on Social Cost of Carbon, United States Government, 
February 2010.\637\
---------------------------------------------------------------------------

    \637\ This document is available in the docket for this 
rulemaking (NHTSA-2009-0059).

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[[Page 25596]]

m. Discounting Future Benefits and Costs
    Discounting future fuel savings and other benefits is intended to 
account for the reduction in their value to society when they are 
deferred until some future date, rather than received immediately. The 
discount rate expresses the percent decline in the value of these 
benefits--as viewed from today's perspective--for each year they are 
deferred into the future. In evaluating the benefits from alternative 
proposed increases in CAFE standards for MY 2012-2016 passenger cars 
and light trucks, NHTSA employed a discount rate of 3 percent per year, 
but also presents these benefit and cost estimates at a 7 percent 
discount rate.
    While both discount rates are presented, NHTSA believes that 3 
percent is the most appropriate rate for discounting future benefits 
from increased CAFE standards because most or all of vehicle 
manufacturers' costs for complying with higher CAFE standards will 
ultimately be reflected in higher sales prices for their new vehicle 
models. By increasing sales prices for new cars and light trucks, CAFE 
regulations will thus primarily affect vehicle purchases and other 
private consumption decisions. Both economic theory and OMB guidance on 
discounting indicate that the future benefits and costs of regulations 
that mainly affect private consumption should be discounted at 
consumers' rate of time preference.\638\
---------------------------------------------------------------------------

    \638\ Id.
---------------------------------------------------------------------------

    OMB guidance also indicates that savers appear to discount future 
consumption at an average real (that is, adjusted to remove the effect 
of inflation) rate of about 3 percent when they face little risk about 
its likely level. Since the real rate that savers use to discount 
future consumption represents a reasonable estimate of consumers' rate 
of time preference, NHTSA believes that the 3 percent rate to discount 
projected future benefits and costs resulting from higher CAFE 
standards for MY 2012-2016 passenger cars and light trucks is more 
appropriate than 7 percent, but presents both.\639\ One commenter, 
NRDC, supported the agencies' use of a 3 percent discount rate as 
consistent with DOE practice in energy efficiency-related rulemakings 
and OMB guidance. OMB guidance actually requires that benefits and 
costs be presented at both a 3 and a 7 percent discount rate.
---------------------------------------------------------------------------

    \639\ Office of Management and Budget, Circular A-4, 
``Regulatory Analysis,'' September 17, 2003, 33. Available at http:/
/www.whitehouse.gov/omb/circulars/a004/a-4.pdf (last accessed August 
9, 2009).
---------------------------------------------------------------------------

    Because there is some remaining uncertainty about whether vehicle 
manufacturers will completely recover their costs for complying with 
higher CAFE standards by increasing vehicle sales prices, however, 
NHTSA also presents these benefit and cost estimates using a higher 
discount rate. OMB guidance indicates that the real economy-wide 
opportunity cost of capital is the appropriate discount rate to apply 
to future benefits and costs when the primary effect of a regulation is 
``* * * to displace or alter the use of capital in the private 
sector,'' and OMB estimates that this rate currently averages about 7 
percent.\640\ Thus the agency has also examined its benefit and cost 
estimates for alternative MY 2012-2016 CAFE standards using a 7 percent 
real discount rate.
---------------------------------------------------------------------------

    \640\ Id.
---------------------------------------------------------------------------

    In its proposed rule, NHTSA sought comment on whether it should 
evaluate CAFE standards using a discount rate of 3 percent, 7 percent, 
or an alternative value. NRDC not only opposed the agency's use of a 7 
percent discount rate, but also opposed conducting even sensitivity 
analyses with discount rates higher than 3 percent. In contrast, two 
other commenters, NADA and the Institute for Energy Research, advised 
that the agencies should use discount rates of 7 percent or higher. 
NADA argued that the most appropriate discount rate would be one closer 
to historical financing rates on motor vehicle loans (which currently 
average about 6.5 percent), while the Institute for Energy Research 
argued that consumers may have much higher discount rates than the 
agencies assumed, perhaps even as high as 25 percent.
    After carefully considering these comments, NHTSA has elected to 
use discount rates of both 3 and 7 percent in the analysis supporting 
this final rule. As indicated above, the agency believes that vehicle 
manufacturers will recover most or all of their added costs for 
complying with the CAFE standards this rule establishes by raising 
sales prices for some or all vehicle models. As a consequence, this 
regulation will thus primarily affect vehicle purchases and related 
consumption decisions, which suggests that its future benefits and 
costs should be discounted at the rate of time preference vehicle 
buyers reveal in their consumption and savings behavior. OMB's 3 
percent figure appears to be a conservative (i.e., low) estimate of 
this rate, because it assumes in effect that vehicle buyers face little 
risk about the value of future fuel savings and other benefits from the 
rule; nevertheless, in the current economic environment it appears to 
represent a reasonable estimate of consumers' rate of time preference. 
Thus NHTSA has mainly relied upon the 3 percent rate to discount 
projected future benefits and costs resulting from higher CAFE 
standards for MY 2012-2016 passenger cars and light trucks
    One important exception to the 3 percent discount rate is the rates 
used to discount benefits from reducing CO2 emissions from 
the years in which reduced emissions occur, which span the lifetimes of 
MY 2012-2016 cars and light trucks, to their present values. In order 
to ensure consistency in the derivation and use of the interagency 
group's estimates of the unit values of reducing CO2 
emissions, the benefits from reducing those emissions during each 
future year are discounted using the same ``intergenerational'' 
discount rates that were used to derive each of the alternative unit 
values of reducing CO2 emissions. As indicate in Table 
IV.C.3-2 above, these rates are 2.5 percent, 3 percent, and 5 percent 
depending on which estimate of the SCC is being considered.\641\
---------------------------------------------------------------------------

    \641\ The fact that the 3 percent discount rate used by the 
interagency group to derive its central estimate of the SCC is 
identical to the 3 percent short-term or ``intra-generational'' 
discount rate used by NHTSA to discount future benefits other than 
reductions in CO2 emissions is coincidental, and should 
not be interpreted as a required condition that must be satisfied in 
future rulemakings.
---------------------------------------------------------------------------

n. Accounting for Uncertainty in Benefits and Costs
    In analyzing the uncertainty surrounding its estimates of benefits 
and costs from alternative CAFE standards, NHTSA has considered 
alternative estimates of those assumptions and parameters likely to 
have the largest effect. These include the projected costs of fuel 
economy-improving technologies and their expected effectiveness in 
reducing vehicle fuel consumption, forecasts of future fuel prices, the 
magnitude of the rebound effect, the reduction in external economic 
costs resulting from lower U.S. oil imports, and the discount rate 
applied to future benefits and costs. The range for each of these 
variables employed in the uncertainty analysis is presented in the 
section of this notice discussing each variable.
    The uncertainty analysis was conducted by assuming independent 
normal probability distributions for each of these variables, using the 
low and high estimates for each variable as the values below which 5 
percent and

[[Page 25597]]

95 percent of observed values are believed to fall. Each trial of the 
uncertainty analysis employed a set of values randomly drawn from each 
of these probability distributions, assuming that the value of each 
variable is independent of the others. Benefits and costs of each 
alternative standard were estimated using each combination of 
variables. A total of 1,000 trials were used to establish the likely 
probability distributions of estimated benefits and costs for each 
alternative standard.
o. Where can readers find more information about the economic 
assumptions?
    Much more detailed information is provided in Chapter VIII of the 
FRIA, and a discussion of how NHTSA and EPA jointly reviewed and 
updated economic assumptions for purposes of this final rule is 
available in Chapter 4 of the Joint TSD. In addition, all of NHTSA's 
model input and output files are now public and available for the 
reader's review and consideration. The economic input files can be 
found in the docket for this final rule, NHTSA-2009-0059, and on 
NHTSA's Web site.\642\ Finally, because much of NHTSA's economic 
analysis for purposes of this final rule builds on the work that was 
done for the MY 2011 final rule, we refer readers to that document as 
well for background information concerning how NHTSA's assumptions 
regarding economic inputs for CAFE analysis have evolved over the past 
several rulemakings, both in response to comments and as a result of 
the agency's growing experience with this type of analysis.\643\
---------------------------------------------------------------------------

    \642\ See http://www.nhtsa.dot.gov (click on ``Fuel Economy 
Standards (CAFE),'' click on ``Related Links: CAFE Compliance and 
Effects Modeling System: The Volpe Model'').
    \643\ 74 FR 14308-14358 (Mar. 30, 2009).
---------------------------------------------------------------------------

4. How does NHTSA use the assumptions in its modeling analysis?
    In developing today's final CAFE standards, NHTSA has made 
significant use of results produced by the CAFE Compliance and Effects 
Model (commonly referred to as ``the CAFE model'' or ``the Volpe 
model''), which DOT's Volpe National Transportation Systems Center 
developed specifically to support NHTSA's CAFE rulemakings. The model, 
which has been constructed specifically for the purpose of analyzing 
potential CAFE standards, integrates the following core capabilities:
    (1) Estimating how manufacturers could apply technologies in 
response to new fuel economy standards,
    (2) Estimating the costs that would be incurred in applying these 
technologies,
    (3) Estimating the physical effects resulting from the application 
of these technologies, such as changes in travel demand, fuel 
consumption, and emissions of carbon dioxide and criteria pollutants, 
and
    (4) Estimating the monetized societal benefits of these physical 
effects.
    An overview of the model follows below. Separate model 
documentation provides a detailed explanation of the functions the 
model performs, the calculations it performs in doing so, and how to 
install the model, construct inputs to the model, and interpret the 
model's outputs. Documentation of the model, along with model 
installation files, source code, and sample inputs are available at 
NHTSA's Web site. The model documentation is also available in the 
docket for today's final rule, as are inputs for and outputs from 
analysis of today's final CAFE standards.
a. How does the model operate?
    As discussed above, the agency uses the Volpe model to estimate how 
manufacturers could attempt to comply with a given CAFE standard by 
adding technology to fleets that the agency anticipates they will 
produce in future model years. This exercise constitutes a simulation 
of manufacturers' decisions regarding compliance with CAFE standards.
    This compliance simulation begins with the following inputs: (a) 
The baseline and reference market forecast discussed above in Section 
IV.C.1 and Chapter 1 of the TSD, (b) technology-related estimates 
discussed above in Section IV.C.2 and Chapter 3 of the TSD, (c) 
economic inputs discussed above in Section IV.C.3 and Chapter 4 of the 
TSD, and (d) inputs defining baseline and potential new CAFE standards. 
For each manufacturer, the model applies technologies in a sequence 
that follows a defined engineering logic (``decision trees'' discussed 
in the MY 2011 final rule and in the model documentation) and a cost-
minimizing strategy in order to identify a set of technologies the 
manufacturer could apply in response to new CAFE standards.\644\ The 
model applies technologies to each of the projected individual vehicles 
in a manufacturer's fleet, until one of three things occurs:
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    \644\ NHTSA does its best to remain scrupulously neutral in the 
application of technologies through the modeling analysis, to avoid 
picking technology ``winners.'' The technology application 
methodology has been reviewed by the agency over the course of 
several rulemakings, and commenters have been generally supportive 
of the agency's approach. See, e.g., 74 FR 14238-14246 (Mar. 30, 
2009).
---------------------------------------------------------------------------

    (1) The manufacturer's fleet achieves compliance with the 
applicable standard;
    (2) The manufacturer ``exhausts'' \645\ available technologies; or
---------------------------------------------------------------------------

    \645\ In a given model year, the model makes additional 
technologies available to each vehicle model within several 
constraints, including (a) whether or not the technology is 
applicable to the vehicle model's technology class, (b) whether the 
vehicle is undergoing a redesign or freshening in the given model 
year, (c) whether engineering aspects of the vehicle make the 
technology unavailable (e.g., secondary axle disconnect cannot be 
applied to two-wheel drive vehicles), and (d) whether technology 
application remains within ``phase in caps'' constraining the 
overall share of a manufacturer's fleet to which the technology can 
be added in a given model year. Once enough technology is added to a 
given manufacturer's fleet in a given model year that these 
constraints make further technology application unavailable, 
technologies are ``exhausted'' for that manufacturer in that model 
year.
---------------------------------------------------------------------------

    (3) For manufacturers estimated to be willing to pay civil 
penalties, the manufacturer reaches the point at which doing so would 
be more cost-effective (from the manufacturer's perspective) than 
adding further technology.\646\
---------------------------------------------------------------------------

    \646\ This possibility was added to the model to account for the 
fact that under EPCA/EISA, manufacturers must pay fines if they do 
not achieve compliance with applicable CAFE standards. 49 U.S.C. 
32912(b). NHTSA recognizes that some manufacturers will find it more 
cost-effective to pay fines than to achieve compliance, and believes 
that to assume these manufacturers would exhaust available 
technologies before paying fines would cause unrealistically high 
estimates of market penetration of expensive technologies such as 
diesel engines and strong hybrid electric vehicles, as well as 
correspondingly inflated estimates of both the costs and benefits of 
any potential CAFE standards. NHTSA thus includes the possibility of 
manufacturers choosing to pay fines in its modeling analysis in 
order to achieve what the agency believes is a more realistic 
simulation of manufacturer decision-making. Unlike flex-fuel and 
other credits, NHTSA is not barred by statute from considering fine-
payment in determining maximum feasible standards under EPCA/EISA. 
49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    As discussed below, the model has also been modified in order to 
apply additional technology in early model years if doing so will 
facilitate compliance in later model years. This is designed to 
simulate a manufacturer's decision to plan for CAFE obligations several 
years in advance, which NHTSA believes better replicates manufacturers' 
actual behavior as compared to the year-by-year evaluation which EPCA 
would otherwise require.
    The model accounts explicitly for each model year, applying most 
technologies when vehicles are scheduled to be redesigned or freshened, 
and carrying forward technologies between model years. The CAFE model 
accounts explicitly for each model year because EPCA requires that 
NHTSA make a year-by-year determination of the appropriate level of 
stringency and then set the standard at

[[Page 25598]]

that level, while ensuring ratable increases in average fuel 
economy.\647\ The multi-year planning capability mentioned above 
increases the model's ability to simulate manufacturers' real-world 
behavior, accounting for the fact that manufacturers will seek out 
compliance paths for several model years at a time, while accommodating 
the year-by-year requirement.
---------------------------------------------------------------------------

    \647\ 49 U.S.C. 32902(a) states that at least 18 months before 
the beginning of each model year, the Secretary of Transportation 
shall prescribe by regulation average fuel economy standards for 
automobiles manufactured by a manufacturer in that model year, and 
that each standard shall be the maximum feasible average fuel 
economy level that the Secretary decides the manufacturers can 
achieve in that year. NHTSA has long interpreted this statutory 
language to require year-by-year assessment of manufacturer 
capabilities. 49 U.S.C. 32902(b)(2)(C) also requires that standards 
increase ratably between MY 2011 and MY 2020.
---------------------------------------------------------------------------

    The model also calculates the costs, effects, and benefits of 
technologies that it estimates could be added in response to a given 
CAFE standard.\648\ It calculates costs by applying the cost estimation 
techniques discussed above in Section IV.C.2, and by accounting for the 
number of affected vehicles. It accounts for effects such as changes in 
vehicle travel, changes in fuel consumption, and changes in greenhouse 
gas and criteria pollutant emissions. It does so by applying the fuel 
consumption estimation techniques also discussed in Section IV.C.2, and 
the vehicle survival and mileage accumulation forecasts, the rebound 
effect estimate and the fuel properties and emission factors discussed 
in Section IV.C.3. Considering changes in travel demand and fuel 
consumption, the model estimates the monetized value of accompanying 
benefits to society, as discussed in Section IV.C.3. The model 
calculates both the undiscounted and discounted value of benefits that 
accrue over time in the future.
---------------------------------------------------------------------------

    \648\ As for all of its other rulemakings, NHTSA is required by 
Executive Order 12866 and DOT regulations to analyze the costs and 
benefits of CAFE standards. Executive Order 12866, 58 FR 51735 (Oct. 
4, 1993); DOT Order 2100.5, ``Regulatory Policies and Procedures,'' 
1979, available at http://regs.dot.gov/rulemakingrequirements.htm 
(last accessed February 21, 2010).
---------------------------------------------------------------------------

    The Volpe model has other capabilities that facilitate the 
development of a CAFE standard. It can be used to fit a mathematical 
function forming the basis for an attribute-based CAFE standard, 
following the steps described below. It can also be used to evaluate 
many (e.g., 200 per model year) potential levels of stringency 
sequentially, and identify the stringency at which specific criteria 
are met. For example, it can identify the stringency at which net 
benefits to society are maximized, the stringency at which a specified 
total cost is reached, or the stringency at which a given average 
required fuel economy level is attained. This allows the agency to 
compare more easily the impacts in terms of fuel savings, emissions 
reductions, and costs and benefits of achieving different levels of 
stringency according to different criteria. The model can also be used 
to perform uncertainty analysis (i.e., Monte Carlo simulation), in 
which input estimates are varied randomly according to specified 
probability distributions, such that the uncertainty of key measures 
(e.g., fuel consumption, costs, benefits) can be evaluated.
b. Has NHTSA considered other models?
    Nothing in EPCA requires NHTSA to use the Volpe model. In 
principle, NHTSA could perform all of these tasks through other means. 
For example, in developing today's final standards, the agency did not 
use the Volpe model's curve fitting routines; rather, as discussed 
above in Section II, the agency fitted curves outside the model (as for 
the NPRM) but elected to retain the curve shapes defining the proposed 
standards. In general, though, these model capabilities have greatly 
increased the agency's ability to rapidly, systematically, and 
reproducibly conduct key analyses relevant to the formulation and 
evaluation of new CAFE standards.
    During its previous rulemaking, which led to the final MY 2011 
standards promulgated earlier this year, NHTSA received comments from 
the Alliance and CARB encouraging NHTSA to examine the usefulness of 
other models. As discussed in that final rule, NHTSA, having undertaken 
such consideration, concluded that the Volpe model is a sound and 
reliable tool for the development and evaluation of potential CAFE 
standards.\649\ Also, although some observers have criticized analyses 
the agency has conducted using the Volpe model, those criticisms have 
largely concerned inputs to the model (such as fuel prices and the 
estimated economic cost of CO2 emissions), not the model 
itself. In comments on the NPRM preceding today's final rule, one of 
these observers, the Center for Biological Diversity (CBD), suggested 
that the revisions to such inputs have produced an unbiased cost-
benefit analysis.
---------------------------------------------------------------------------

    \649\ 74 FR 14372 (Mar. 30, 2009).
---------------------------------------------------------------------------

    One commenter, the International Council on Clean Transportation 
(ICCT) suggested that the Volpe model is excessively complex and 
insufficiently transparent. However, in NHTSA's view, the complexity of 
the Volpe model has evolved in response to the complex analytical 
demands surrounding very significant regulations impacting a large and 
important sector of the economy, and ICCT's own comments illustrate 
some of the potential pitfalls of model simplification. Furthermore, 
ICCT's assertions regarding model transparency relate to the use of 
confidential business information, not to the Volpe model itself; as 
discussed elsewhere in this final rule, NHTSA and the Volpe Center have 
taken pains to make the Volpe model transparent by releasing the model 
and supporting documentation, along with the underlying source code and 
accompanying model inputs and outputs. Therefore, the agency disagrees 
with these ICCT comments.
    In reconsidering and reaffirming this conclusion for purposes of 
this NPRM, NHTSA notes that the Volpe model not only has been formally 
peer-reviewed and tested through three rulemakings, but also has some 
features especially important for the analysis of CAFE standards under 
EPCA/EISA. Among these are the ability to perform year-by-year 
analysis, and the ability to account for engineering differences 
between specific vehicle models.
    EPCA requires that NHTSA set CAFE standards for each model year at 
the level that would be ``maximum feasible'' for that year.\650\ Doing 
so requires the ability to analyze each model year and, when developing 
regulations covering multiple model years, to account for the 
interdependency of model years in terms of the appropriate levels of 
stringency for each one. Also, as part of the evaluation of the 
economic practicability of the standards, as required by EPCA, NHTSA 
has traditionally assessed the annual costs and benefits of the 
standards. The first (2002) version of DOT's model treated each model 
year separately, and did not perform this type of explicit accounting. 
Manufacturers took strong exception to these shortcomings. For example, 
GM commented in 2002 that ``although the table suggests that the 
proposed standard for MY 2007, considered in isolation, promises 
benefits exceeding costs, that anomalous outcome is merely an artifact 
of the peculiar Volpe methodology, which treats each year independently 
of any other * * *'' In 2002, GM also criticized DOT's analysis for, in 
some cases, adding a technology in MY 2006 and then replacing it with 
another technology in MY 2007. GM

[[Page 25599]]

(and other manufacturers) argued that this completely failed to 
represent true manufacturer product-development cycles, and therefore 
could not be technologically feasible or economically practicable.
---------------------------------------------------------------------------

    \650\ 49 U.S.C. 32902(a).
---------------------------------------------------------------------------

    In response to these concerns, and to related concerns expressed by 
other manufacturers, DOT modified the CAFE model in order to account 
for dependencies between model years and to better represent 
manufacturers' planning cycles, in a way that still allowed NHTSA to 
comply with the statutory requirement to determine the appropriate 
level of the standards for each model year. This was accomplished by 
limiting the application of many technologies to model years in which 
vehicle models are scheduled to be redesigned (or, for some 
technologies, ``freshened''), and by causing the model to ``carry 
forward'' applied technologies from one model year to the next.
    During the recent rulemaking for MY 2011 passenger cars and light 
trucks, DOT further modified the CAFE model to account for cost 
reductions attributable to ``learning effects'' related to volume 
(i.e., economies of scale) and the passage of time (i.e., time-based 
learning), both of which evolve on year-by-year basis. These changes 
were implemented in response to comments by environmental groups and 
other stakeholders.
    The Volpe model is also able to account for important engineering 
differences between specific vehicle models, and to thereby reduce the 
risk of applying technologies that may be incompatible with or already 
present on a given vehicle model. Some commenters have previously 
suggested that manufacturers are most likely to broadly apply generic 
technology ``packages,'' and the Volpe model does tend to form 
``packages'' dynamically, based on vehicle characteristics, redesign 
schedules, and schedules for increases in CAFE standards. For example, 
under the final CAFE standards for passenger cars, the CAFE model 
estimated that manufacturers could apply turbocharged SGDI engines 
mated with dual-clutch AMTs to 2.4 million passenger cars in MY 2016, 
about 22 percent of the MY 2016 passenger car fleet. Recent 
modifications to the model, discussed below, to represent multi-year 
planning, increase the model's tendency to add relatively cost-
effective technologies when vehicles are estimated to be redesigned, 
and thereby increase the model's tendency to form such packages.
    On the other hand, some manufacturers have indicated that 
especially when faced with significant progressive increases in the 
stringency of new CAFE standards, they are likely to also look for 
narrower opportunities to apply specific technologies. By progressively 
applying specific technologies to specific vehicle models, the CAFE 
model also produces such outcomes. For example, under the final CAFE 
standards for passenger cars, the CAFE model estimated that in MY 2012, 
some manufacturers could find it advantageous to apply SIDI to some 
vehicle models without also adding turbochargers.
    By following this approach of combining technologies incrementally 
and on a model-by-model basis, the CAFE model is able to account for 
important engineering differences between vehicle models and avoid 
unlikely technology combinations. For example, the model does not apply 
dual-clutch AMTs (or strong hybrid systems) to vehicle models with 6-
speed manual transmissions. Some vehicle buyers prefer a manual 
transmission; this preference cannot be assumed away. The model's 
accounting for manual transmissions is also important for vehicles with 
larger engines: For example, cylinder deactivation cannot be applied to 
vehicles with manual transmissions because there is no reliable means 
of predicting when the driver will change gears. By retaining cylinder 
deactivation as a specific technology rather than part of a pre-
determined package and by retaining differentiation between vehicles 
with different transmissions, DOT's model is able to target cylinder 
deactivation only to vehicle models for which it is technologically 
feasible.
    The Volpe model also produces a single vehicle-level output file 
that, for each vehicle model, shows which technologies were present at 
the outset of modeling, which technologies were superseded by other 
technologies, and which technologies were ultimately present at the 
conclusion of modeling. For each vehicle, the same file shows resultant 
changes in vehicle weight, fuel economy, and cost. This provides for 
efficient identification, analysis, and correction of errors, a task 
with which the public can now assist the agency, since all inputs and 
outputs are public.
    Such considerations, as well as those related to the efficiency 
with which the Volpe model is able to analyze attribute-based CAFE 
standards and changes in vehicle classification, and to perform higher-
level analysis such as stringency estimation (to meet predetermined 
criteria), sensitivity analysis, and uncertainty analysis, lead the 
agency to conclude that the model remains the best available to the 
agency for the purposes of analyzing potential new CAFE standards.
c. What changes has DOT made to the model?
    As discussed in the NPRM preceding today's final rule, the Volpe 
model has been revised to make some minor improvements, and to add one 
significant new capability: The ability to simulate manufacturers' 
ability to engage in ``multi-year planning.'' Multi-year planning 
refers to the fact that when redesigning or freshening vehicles, 
manufacturers can anticipate future fuel economy or CO2 
standards, and add technologies accounting for these standards. For 
example, a manufacturer might choose to over-comply in a given model 
year when many vehicle models are scheduled for redesign, in order to 
facilitate compliance in a later model year when standards will be more 
stringent yet few vehicle models are scheduled for redesign.\651\ Prior 
comments have indicated that the Volpe model, by not representing such 
manufacturer choices, tended to overestimate compliance costs. However, 
because of the technical complexity involved in representing these 
choices when, as in the Volpe model, each model year is accounted for 
separately and explicitly, the model could not be modified to add this 
capability prior to the statutory deadline for the MY 2011 final 
standards.
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    \651\ Although a manufacturer may, in addition, generate CAFE 
credits in early model years for use in later model years (or, less 
likely, in later years for use in early years), EPCA does not allow 
NHTSA, when setting CAFE standards, to account for manufacturers' 
use of CAFE credits.
---------------------------------------------------------------------------

    The model now includes this capability, and NHTSA has applied it in 
conducting analysis to support the NPRM and in analyzing the standards 
finalized today. Consequently, this new capability often produces 
results indicating that manufacturers could over-comply in some model 
years (with corresponding increases in costs and benefits in those 
model years) and thereby ``carry forward'' technology into later model 
years in order to reduce compliance costs in those later model years. 
NHTSA believes this better represents how manufacturers would actually 
respond to new CAFE standards, and thereby produces more realistic 
estimates of the costs and benefits of such standards.
    The Volpe model has also been modified to accommodate inputs 
specifying the amount of CAFE credit to be applied to each 
manufacturer's fleet.

[[Page 25600]]

Although the model is not currently capable of estimating 
manufacturers' decisions regarding the generation and use of CAFE 
credits, and EPCA does not allow NHTSA, in setting CAFE standards, to 
take into account manufacturers' potential use of credits, this 
additional capability in the Volpe model provides a basis for more 
accurately estimating costs, effects, and benefits that may actually 
result from new CAFE standards. Insofar as some manufacturers actually 
do earn and use CAFE credits, this provides NHTSA with some ability to 
examine outcomes more realistically than EPCA allows for purposes of 
setting new CAFE standards.
    In comments on recent NHTSA rulemakings, some reviewers have 
suggested that the Volpe model should be modified to estimate the 
extent to which new CAFE standards would induce changes in the mix of 
vehicles in the new vehicle fleet. NHTSA, like EPA, agrees that a 
``market shift'' model, also called a consumer vehicle choice model, 
could provide useful information regarding the possible effects of 
potential new CAFE standards. An earlier experimental version of the 
Volpe model included a multinomial logit model that estimated changes 
in sales resulting from CAFE-induced increases in new vehicle fuel 
economy and prices. A fuller description of this attempt can be found 
in Section V of the FRIA. However, NHTSA has thus far been unable to 
develop credible coefficients specifying such a model. In addition, as 
discussed in Section II.H.4, such a model is sensitive to the 
coefficients used in it, and there is great variation over some key 
values of these coefficients in published studies.
    In the NPRM preceding today's final rule, NHTSA sought comment on 
ways to improve on this earlier work and develop this capability 
effectively. Some comments implied that the agency should continue work 
to do so, without providing specific recommendations. The Alliance of 
Automobile Manufacturers identified consumer choice as one of several 
factors outside the industry's control yet influential with respect to 
the agencies' analysis. Also, the University of Pennsylvania 
Environmental Law Project suggested that the rule would change 
consumers' vehicle purchasing decisions, and the California Air 
Resources Board expressed support for continued consideration of 
consumer choice modeling. On the other hand, citing concerns regarding 
model calibration, handling of advanced technologies, and applicability 
to the future light vehicle market, ACEEE, ICCT, UCS, and NRDC all 
expressed opposition to the possibility of using consumer choice models 
in estimating the costs and benefits of new standards. Notwithstanding 
comments on this issue, NHTSA has been unable to further develop this 
capability in time to include it in the analysis supporting decisions 
regarding final CAFE standards. The agency will, however, continue 
efforts to develop and make use of this capability in future 
rulemakings, taking into account comments received in connection with 
today's final rule.
d. Does the model set the standards?
    Since NHTSA began using the Volpe model in CAFE analysis, some 
commenters have interpreted the agency's use of the model as the way by 
which the agency chooses the maximum feasible fuel economy standards. 
This is incorrect. Although NHTSA currently uses the Volpe model as a 
tool to inform its consideration of potential CAFE standards, the Volpe 
model does not determine the CAFE standards that NHTSA proposes or 
promulgates as final regulations. The results it produces are 
completely dependent on inputs selected by NHTSA, based on the best 
available information and data available in the agency's estimation at 
the time standards are set. Although the model has been programmed in 
previous rulemakings to estimate at what stringency net benefits are 
maximized, it was not the model's decision to seek that level of 
stringency, it was the agency's, as it is always the agency's decision 
what level of CAFE stringency is appropriate. Ultimately, NHTSA's 
selection of appropriate CAFE standards is governed and guided by the 
statutory requirements of EPCA, as amended by EISA: NHTSA sets the 
standard at the maximum feasible average fuel economy level that it 
determines is achievable during a particular model year, considering 
technological feasibility, economic practicability, the effect of other 
standards of the Government on fuel economy, and the need of the nation 
to conserve energy.
    NHTSA considers the results of analyses conducted by the Volpe 
model and analyses conducted outside of the Volpe model, including 
analysis of the impacts of carbon dioxide and criteria pollutant 
emissions, analysis of technologies that may be available in the long 
term and whether NHTSA could expedite their entry into the market 
through these standards, and analysis of the extent to which changes in 
vehicle prices and fuel economy might affect vehicle production and 
sales. Using all of this information--not solely that from the Volpe 
model--the agency considers the governing statutory factors, along with 
environmental issues and other relevant societal issues such as safety, 
and promulgates the standards based on its best judgment on how to 
balance these factors.
    This is why the agency considered eight regulatory alternatives, 
only one of which reflects the agency's final standards, based on the 
agency's determinations and assumptions. Others assess alternative 
standards, some of which exceed the final standards and/or the point at 
which net benefits are maximized.\652\ These comprehensive analyses, 
which also included scenarios with different economic input assumptions 
as presented in the FEIS and FRIA, are intended to inform and 
contribute to the agency's consideration of the ``need of the United 
States to conserve energy,'' as well as the other statutory factors. 49 
U.S.C. 32902(f). Additionally, the agency's analysis considers the need 
of the nation to conserve energy by accounting for economic 
externalities of petroleum consumption and monetizing the economic 
costs of incremental CO2 emissions in the social cost of 
carbon. NHTSA uses information from the model when considering what 
standards to propose and finalize, but the model does not determine the 
standards.
---------------------------------------------------------------------------

    \652\ See Section IV.F below for a discussion of the regulatory 
alternatives considered in this rulemaking.
---------------------------------------------------------------------------

e. How does NHTSA make the model available and transparent?
    Model documentation, which is publicly available in the rulemaking 
docket and on NHTSA's Web site, explains how the model is installed, 
how the model inputs (all of which are available to the public) \653\ 
and outputs are structured, and how the model is used. The model can be 
used on any Windows-based personal computer with Microsoft Office 2003 
or 2007 and the Microsoft .NET framework installed (the latter 
available without charge from Microsoft). The executable version of the 
model and the underlying source code are also available at NHTSA's Web 
site. The input files used to conduct the core analysis documented in 
this final rule are available in the public docket. With the model and 
these input files, anyone is capable of independently

[[Page 25601]]

running the model to repeat, evaluate, and/or modify the agency's 
analysis.
---------------------------------------------------------------------------

    \653\ We note, however, that files from any supplemental 
analysis conducted that relied in part on confidential manufacturer 
product plans cannot be made public, as prohibited under 49 CFR part 
512.
---------------------------------------------------------------------------

    NHTSA is aware of two attempts by commenters to install and use the 
Volpe model in connection with the NPRM. James Adcock, an individual 
reviewer, reported difficulties installing the model on a computer with 
Microsoft[supreg] Office 2003 installed. Also, students from the 
University of California at Santa Barbara, though successful in 
installing and running the model, reported being unable to reproduce 
NHTSA's results underlying the development of the shapes of the 
passenger car and light truck curves.
    Regarding the difficulties Mr. Adcock reported encountering, NHTSA 
staff is aware of no attempts to contact the agency for assistance 
locating supporting material related to the MYs 2012-2016 CAFE 
rulemaking. Further, the model documentation provides specific minimum 
hardware requirements and also indicates operating environment 
requirements, both of which have remained materially unchanged for more 
than a year. Volpe Center staff members routinely install and run the 
model successfully on new laptops, desktops, and servers as part of 
normal equipment refreshes and interagency support activities. We 
believe, therefore, that if the minimum hardware and operating 
environment requirements are met, installing and running the model 
should be straightforward and successful. The model documentation notes 
that some of the development and operating environment used by the 
Volpe model (e.g., the software environment rather than the hardware on 
which that software environment operates), particularly the version of 
Microsoft[supreg] Excel used by the model, is Microsoft[supreg] Office 
2003. We recognize that some users may have more recent versions of 
Microsoft[supreg] Office. However, as in the case of other large 
organizations, software licensing decisions, including the version of 
Microsoft[supreg] Office, is centralized in the Office of the Chief 
Information Officer. Nonetheless, the Volpe Model is proven on both 
Microsoft[supreg] Office version 2003 and the newer 2007 version.
    As discussed in Section II.C, considering comments by the UC Santa 
Barbara students regarding difficulties reproducing NHTSA's analysis, 
NHTSA reexamined its analysis, and discovered some erroneous entries in 
model inputs underlying the analysis used to develop the curves 
proposed in the NPRM. These errors are discussed in the FRIA and have 
since been corrected. Updated inputs and outputs have been posted to 
NHTSA's Web site, and should enable outside replication of the analysis 
documented in today's notice.
5. How did NHTSA develop the shape of the target curves for the final 
standards?
    In developing the shape of the target curves for today's final 
standards, NHTSA took a new approach, primarily in response to comments 
received in the MY 2011 rulemaking. NHTSA's authority under EISA allows 
consideration of any ``attribute related to fuel economy'' and any 
``mathematical function.'' While the attribute, footprint, is the same 
for these final standards as the attribute used for the MY 2011 
standards, the mathematical function is new.
    Both vehicle manufacturers and public interest groups expressed 
concern in the MY 2011 rulemaking process that the constrained logistic 
function, particularly the function for the passenger car standards, 
was overly steep and could lead, on the one hand, to fuel economy 
targets that were overly stringent for small footprint vehicles, and on 
the other hand, to a greater incentive for manufacturers to upsize 
vehicles in order to reduce their compliance obligation (because 
larger-footprint vehicles have less stringent targets) in ways that 
could compromise energy and environmental benefits. Given comments 
received in response to the NPRM preceding this final rule, it appears 
that the constrained linear function developed here significantly 
mitigates prior steepness concerns, and appropriately balances, for 
purposes of this rulemaking, the objectives of (1) discouraging vehicle 
downsizing that could compromise highway safety and (2) avoiding an 
overly strong incentive to increase vehicle sizes in ways that could 
compromise energy and environmental benefits.
a. Standards Are Attribute-Based and Defined by a Mathematical Function
    EPCA, as amended by EISA, expressly requires that CAFE standards 
for passenger cars and light trucks be based on one or more vehicle 
attributes related to fuel economy, and be expressed in the form of a 
mathematical function.\654\ Like the MY 2011 standards, the MY 2012-
2016 passenger car and light truck standards are attribute-based and 
defined by a mathematical function.\655\ Also like the MY 2011 
standards, the MY 2012-2016 standards are based on the footprint 
attribute. However, unlike the MY 2011 standards, the MY 2012-2016 
standards are defined by a constrained linear rather than a constrained 
logistic function. The reasons for these similarities and differences 
are explained below.
---------------------------------------------------------------------------

    \654\ 49 U.S.C. 32902(a)(3)(A).
    \655\ As discussed in Chapter 2 of the TSD, EPA is also setting 
attribute-based CO2 standards that are defined by a 
mathematical function, given the advantages of using attribute-based 
standards and given the goal of coordinating and harmonizing the 
CAFE and CO2 standards as expressed by President Obama in 
his announcement of the new National Program and in the joint NOI.
---------------------------------------------------------------------------

    As discussed above in Section II, under attribute-based standards, 
the fleet-wide average fuel economy that a particular manufacturer must 
achieve in a given model year depends on the mix of vehicles that it 
produces for sale. Until NHTSA began to set ``Reformed'' attribute-
based standards for light trucks in MYs 2008-2011, and until EISA gave 
NHTSA authority to set attribute-based standards for passenger cars 
beginning in MY 2011, NHTSA set ``universal'' or ``flat'' industry-wide 
average CAFE standards. Attribute-based standards are preferable to 
universal industry-wide average standards for several reasons. First, 
attribute-based standards increase fuel savings and reduce emissions 
when compared to an equivalent universal industry-wide standard under 
which each manufacturer is subject to the same numerical requirement. 
Absent a policy to require all full-line manufacturers to produce and 
sell essentially the same mix of vehicles, the stringency of the 
universal industry-wide standards is constrained by the capability of 
those full-line manufacturers whose product mix includes a relatively 
high proportion of larger and heavier vehicles. In effect, the 
standards are based on the mix of those manufacturers. As a result, the 
standards are generally set below the capabilities of full-line and 
limited-line manufacturers that sell predominantly lighter and smaller 
vehicles.
    Under an attribute-based system, in contrast, every manufacturer is 
more likely to be required to continue adding more fuel-saving 
technology each year because the level of the compliance obligation of 
each manufacturer is based on its own particular product mix. Thus, the 
compliance obligation of a manufacturer with a higher percentage of 
lighter and smaller vehicles will have a higher compliance obligation 
than a manufacturer with a lower percentage of such vehicles. As a 
result, all manufacturers must use technologies to enhance the fuel 
economy levels of the vehicles they sell. Therefore, fuel savings and 
CO2 emissions reductions should be higher under an 
attribute-based system than under a comparable industry-wide standard.
    Second, attribute-based standards minimize the incentive for 
manufacturers to respond to CAFE in

[[Page 25602]]

ways harmful to safety.\656\ Because each vehicle model has its own 
target (based on the attribute chosen), attribute-based standards 
provide no incentive to build smaller vehicles simply to meet a fleet-
wide average. Since smaller vehicles are subject to more stringent fuel 
economy targets, a manufacturer's increasing its proportion of smaller 
vehicles would simply cause its compliance obligation to increase.
---------------------------------------------------------------------------

    \656\ The 2002 NAS Report described at length and quantified the 
potential safety problem with average fuel economy standards that 
specify a single numerical requirement for the entire industry. See 
NAS Report at 5, finding 12.
---------------------------------------------------------------------------

    Third, attribute-based standards provide a more equitable 
regulatory framework for different vehicle manufacturers.\657\ A 
universal industry-wide average standard imposes disproportionate cost 
burdens and compliance difficulties on the manufacturers that need to 
change their product plans and no obligation on those manufacturers 
that have no need to change their plans. Attribute-based standards 
spread the regulatory cost burden for fuel economy more broadly across 
all of the vehicle manufacturers within the industry.
---------------------------------------------------------------------------

    \657\ Id. at 4-5, finding 10.
---------------------------------------------------------------------------

    And fourth, attribute-based standards respect economic conditions 
and consumer choice, instead of having the government mandate a certain 
fleet mix. Manufacturers are required to invest in technologies that 
improve the fuel economy of their fleets, regardless of vehicle mix. 
Additionally, attribute-based standards help to avoid the need to 
conduct rulemakings to amend standards if economic conditions change, 
causing a shift in the mix of vehicles demanded by the public. NHTSA 
conducted three rulemakings during the 1980s to amend passenger car 
standards for MYs 1986-1989 in response to unexpected drops in fuel 
prices and resulting shifts in consumer demand that made the universal 
passenger car standard of 27.5 mpg infeasible for several years 
following the change in fuel prices.
    As discussed above in Section II, for purposes of the CAFE 
standards finalized in this NPRM, NHTSA recognizes that the risk, even 
if small, does exist that low fuel prices in MYs 2012-2016 might lead 
indirectly to less than currently anticipated fuel savings and 
emissions reductions. Section II discusses the reasons that the agency 
does not believe that fuel savings and emissions reductions will be 
significantly lower than anticipated such as to warrant additional 
backstop measures beyond the one mandated by EISA, but the agency will 
monitor the situation and consider further rulemaking solutions if 
necessary and as lead time permits. See also Section IV.E.3 below for 
further discussion of NHTSA's backstop authority.
b. What attribute does NHTSA use, and why?
    Consistent with the MY 2011 CAFE standards, NHTSA is using 
footprint as the attribute for the MY 2012-2016 CAFE standards. There 
are several policy reasons why NHTSA and EPA both believe that 
footprint is the most appropriate attribute on which to base the 
standards, as discussed below.
    As discussed in Section IV.D.1.a.ii below, in NHTSA's judgment, 
from the standpoint of vehicle safety, it is important that the CAFE 
standards be set in a way that does not encourage manufacturers to 
respond by selling vehicles that are in any way less safe. NHTSA's 
research indicates that reductions in vehicle mass tend to compromise 
vehicle safety if applied on an equal basis across the entire light 
duty vehicle fleet, however if greater mass reduction is applied to the 
higher mass vehicles (the larger light trucks), an improvement in 
aggregate fleet safety is possible. Footprint-based standards provide 
an incentive to use advanced lightweight materials and structures that, 
if carefully designed and validated, should minimize impacts on safety, 
although that will be better proven as these vehicles become more 
prevalent in the future.
    Further, although we recognize that weight is better correlated 
with fuel economy than is footprint, we continue to believe that there 
is less risk of ``gaming'' (artificial manipulation of the attribute(s) 
to achieve a more favorable target) by increasing footprint under 
footprint-based standards than by increasing vehicle mass under weight-
based standards--it is relatively easy for a manufacturer to add enough 
weight to a vehicle to decrease its applicable fuel economy target a 
significant amount, as compared to increasing vehicle footprint. We 
also agree with concerns raised in 2008 by some commenters in the MY 
2011 CAFE rulemaking that there would be greater potential for gaming 
under multi-attribute standards, such as standards under which targets 
would also depend on attributes such as weight, torque, power, towing 
capability, and/or off-road capability. Standards that incorporate such 
attributes in conjunction with footprint would not only be 
significantly more complex, but by providing degrees of freedom with 
respect to more easily-adjusted attributes, they would make it less 
certain that the future fleet would actually achieve the projected 
average fuel economy and CO2 reduction levels.
    As discussed above in Section II.C, NHTSA and EPA sought comment on 
whether the agencies should consider setting standards for the final 
rule based on another attribute or another combination of attributes. 
Although NHTSA specifically requested that the commenters address the 
concerns raised in the paragraphs above regarding the use of other 
attributes, and explain how standards should be developed using the 
other attribute(s) in a way that contributes more to fuel savings and 
CO2 reductions than the footprint-based standards, without 
compromising safety, commenters raising the issue largely reiterated 
comments submitted in prior CAFE rulemakings, which the agency answered 
in the MY 2011 final rule.\658\ As a result, and as discussed further 
in Section II, the agencies finalized target curve standards based on 
footprint for MYs 2012-2016.
---------------------------------------------------------------------------

    \658\ See 74 FR at 14358-59 (Mar. 30, 2009).
---------------------------------------------------------------------------

c. What mathematical function did NHTSA use for the recently-
promulgated MY 2011 CAFE standards?
    The MY 2011 CAFE standards are defined by a continuous, constrained 
logistic function, which takes the form of an S-curve, and is defined 
according to the following formula:
[GRAPHIC] [TIFF OMITTED] TR07MY10.028

[[Page 25603]]

    Here, TARGET is the fuel economy target (in mpg) applicable to 
vehicles of a given footprint (FOOTPRINT, in square feet), b and a 
are the function's lower and upper asymptotes (also in mpg), e is 
approximately equal to 2.718,\659\ c is the footprint (in square 
feet) at which the inverse of the fuel economy target falls halfway 
between the inverses of the lower and upper asymptotes, and d is a 
parameter (in square feet) that determines how gradually the fuel 
economy target transitions from the upper toward the lower asymptote 
as the footprint increases.

    \659\ e is the irrational number for which the slope of the 
function y = number\x\ is equal to 1 when x is equal to zero. The 
first 8 digits of e are 2.7182818.
---------------------------------------------------------------------------

    After fitting this mathematical form (separately) to the passenger 
car and light truck fleets and determining the stringency of the 
standards (i.e., the vertical positions of the curves), NHTSA arrived 
at the following curves to define the MY 2011 standards:
[GRAPHIC] [TIFF OMITTED] TR07MY10.029

d. What mathematical function is NHTSA using for the MYs 2012-2016 CAFE 
standards, and why?
    In finalizing the MY 2011 standards, NHTSA noted that the agency is 
not required to use a constrained logistic function and indicated that 
the agency may consider defining future CAFE standards in terms of a 
different mathematical function. NHTSA has done so for the final CAFE 
standards.
    In revisiting this question, NHTSA found that the final MY 2011 
CAFE standard for passenger cars, though less steep than the MY 2011 
standard NHTSA final in 2008, continues to concentrate the sloped 
portion of the curve (from a compliance perspective, the area in which 
upsizing results in a slightly lower applicable target) within a 
relatively narrow footprint range (approximately 47-55 square feet). 
Further, most passenger car models have footprints smaller than the 
curve's 51.4 square foot inflection point, and many passenger car 
models have footprints at which the curve is relatively flat.
    For both passenger cars and light trucks, a mathematical function 
that has some slope at most footprints where vehicles are produced is 
advantageous in terms of fairly balancing regulatory burdens among 
manufacturers, and in terms of providing a disincentive to respond to 
new standards by downsizing vehicles in ways that compromise vehicle 
safety. For example, a flat standard may be very difficult for a full-
line manufacturer to meet, while requiring very little of a 
manufacturer concentrating on small vehicles, and a flat standard may 
provide an incentive to manufacturers to downsize certain vehicles, in 
order to ``balance out'' other vehicles subject to the same standard. 
As discussed above in Section II.C, NHTSA and EPA have considered 
comments by students from UC Santa Barbara indicating that the 
passenger car and light truck curves should be flatter. The agencies 
conclude that flatter curves would reduce the incentives intended in 
shifting from

[[Page 25604]]

``flat'' CAFE standards to attribute-based CAFE and GHG standards--
those being the incentive to respond to attribute-based standards in 
ways that minimize compromises in vehicle safety, and the incentive for 
more manufacturers (than primarily those selling a wider range of 
vehicles) across the range of the attribute to have to increase the 
application of fuel-saving technologies.
    As a potential alternative to the constrained logistic function, 
NHTSA had, in proposing MY 2011 standards, presented information 
regarding a constrained linear function. As shown in the 2008 NPRM, a 
constrained linear function has the potential to avoid creating a 
localized region (in terms of vehicle footprint) over which the slope 
of the function is relatively steep. Although NHTSA did not receive 
public comments on this option at that time, the agency indicated that 
it still believed a linear function constrained by upper (on a gpm 
basis) and possibly lower limits could merit reconsideration in future 
CAFE rulemakings.
    Having re-examined a constrained linear function for purposes of 
the final standards, and considered comments discussed above in Section 
II, NHTSA, with EPA, concludes that for both passenger cars and light 
trucks, the constrained linear functions finalized today remain 
meaningfully sloped over a wide footprint range, thereby providing a 
well-distributed disincentive to downsize vehicles in ways that could 
compromise highway safety. Further, the constrained linear functions 
finalized today are not so steeply sloped that they would provide a 
strong incentive to increase vehicle size in order to obtain a lower 
CAFE requirement and higher CO2 limit, thereby compromising 
energy and environmental benefits. Therefore, today's final CAFE 
standards are defined by constrained linear functions.
    The constrained linear function is defined according to the 
following formula:
[GRAPHIC] [TIFF OMITTED] TR07MY10.030

    Here, TARGET is the fuel economy target (in mpg) applicable to 
vehicles of a given footprint (FOOTPRINT, in square feet), b and a 
are the function's lower and upper asymptotes (also in mpg), 
respectively, c is the slope (in gpm per square foot) of the sloped 
portion of the function, and d is the intercept (in gpm) of the 
sloped portion of the function (that is, the value the sloped 
portion would take if extended to a footprint of 0 square feet. The 
MIN and MAX functions take the minimum and maximum, respectively of 
the included values; for example, MIN(1,2) = 1, MAX(1,2) = 2, and 
MIN[MAX(1,2),3)]=2.
e. How did NHTSA fit the coefficients that determine the shape of the 
final curves?
    For purposes of this final rule and the preceding NPRM, and for 
EPA's use in developing new CO2 emissions standards, 
potential curve shapes were fitted using methods similar to those 
applied by NHTSA in fitting the curves defining the MY 2011 standards. 
We began with the market inputs discussed above, but because the 
baseline fleet is technologically heterogeneous, NHTSA used the CAFE 
model to develop a fleet to which nearly all the technologies discussed 
in Section V of the FRIA and Chapter 3 of the Joint TSD \660\ were 
applied, by taking the following steps: (1) Treating all manufacturers 
as unwilling to pay civil penalties rather than applying technology, 
(2) applying any technology at any time, irrespective of scheduled 
vehicle redesigns or freshening, and (3) ignoring ``phase-in caps'' 
that constrain the overall amount of technology that can be applied by 
the model to a given manufacturer's fleet. These steps helped to 
increase technological parity among vehicle models, thereby providing a 
better basis (than the baseline fleet) for estimating the statistical 
relationship between vehicle size and fuel economy.
---------------------------------------------------------------------------

    \660\ The agencies excluded diesel engines and strong hybrid 
vehicle technologies from this exercise (and only this exercise) 
because the agencies expect that manufacturers would not need to 
rely heavily on these technologies in order to comply with the final 
standards. NHTSA and EPA did include diesel engines and strong 
hybrid vehicle technologies in all other portions of their analyses.
---------------------------------------------------------------------------

    However, while this approach produced curves that the agencies' 
judged appropriate for the NPRM, it did not do so for the final rule. 
Corrections to some engineering inputs in NHTSA's market forecast, 
while leading to a light truck curve nearly identical to that derived 
for the NPRM, yielded a considerably steeper passenger car curve. As 
discussed above in Section II, NHTSA and EPA are concerned about the 
incentives that would result from a significantly steeper curve. 
Considering this, and considering that the updated analysis--in terms 
of the error measure applied by the agency--supports the curve from the 
NPRM nearly as well as it supports the steeper curve, NHTSA and EPA are 
promulgating final standards based on the curves proposed in the NPRM.
    More information on the process for fitting the passenger car and 
light truck curves for MYs 2012-2016 is available above in Section 
II.C, and NHTSA refers the reader to that section and to Chapter 2 of 
the Joint TSD. Section II.C also discusses comments NHTSA and EPA 
received on this process, and on the outcomes thereof.

D. Statutory Requirements

1. EPCA, as Amended by EISA
a. Standard Setting
    NHTSA must establish separate standards for MY 2011-2020 passenger 
cars and light trucks, subject to two principal requirements.\661\ 
First, the standards are subject to a minimum requirement regarding 
stringency: they must be set at levels high enough to ensure that the 
combined U.S. passenger car and light truck fleet achieves an average 
fuel economy level of not less than 35 mpg not later than MY 2020.\662\ 
Second, as discussed above and at length in the March 2009 final rule 
establishing the MY 2011 CAFE standards, EPCA requires that the agency 
establish standards for all new passenger cars and light trucks at the 
maximum feasible average fuel economy level that the Secretary decides 
the manufacturers can achieve in that model year, based on a balancing 
of

[[Page 25605]]

express statutory and other factors.\663\ The implication of this 
second requirement is that it calls for setting a standard that exceeds 
the minimum requirement if the agency determines that the manufacturers 
can achieve a higher level. When determining the level achievable by 
the manufacturers, EPCA requires that the agency consider the four 
statutory factors of technological feasibility, economic 
practicability, the effect of other motor vehicle standards of the 
Government on fuel economy, and the need of the United States to 
conserve energy. In addition, the agency has the authority to and 
traditionally does consider other relevant factors, such as the effect 
of the CAFE standards on motor vehicle safety. The ultimate 
determination of what standards can be considered maximum feasible 
involves a weighing and balancing of these factors. NHTSA received a 
number of comments on how the agency interprets its statutory 
requirements, and will respond to them in this section.
---------------------------------------------------------------------------

    \661\ EISA added the following additional requirements: (1) 
Standards must be attribute-based and expressed in the form of a 
mathematical function. 49 U.S.C. 32902(b)(3)(A). (2) Standards for 
MYs 2011-2020 must ``increase ratably'' in each model year. 49 
U.S.C. 32902(b)(2)(C). This requirement does not have a precise 
mathematical meaning, particularly because it must be interpreted in 
conjunction with the requirement to set the standards for each model 
year at the level determined to be the maximum feasible level for 
that model year. Generally speaking, the requirement for ratable 
increases means that the annual increases should not be 
disproportionately large or small in relation to each other.
    \662\ 49 U.S.C. 32902(b)(2)(A).
    \663\ 49 U.S.C. 32902(a).
---------------------------------------------------------------------------

i. Statutory Factors Considered in Determining the Achievable Level of 
Average Fuel Economy
    As none of the four factors is defined in EPCA and each remains 
interpreted only to a limited degree by case law, NHTSA has 
considerable latitude in interpreting them. NHTSA interprets the four 
statutory factors as set forth below.
(1) Technological Feasibility
    ``Technological feasibility'' refers to whether a particular 
technology for improving fuel economy is available or can become 
available for commercial application in the model year for which a 
standard is being established. Thus, the agency is not limited in 
determining the level of new standards to technology that is already 
being commercially applied at the time of the rulemaking. It can, 
instead, set technology-forcing standards, i.e., ones that make it 
necessary for manufacturers to engage in research and development in 
order to bring a new technology to market.
    Commenters appear to have generally agreed with the agency's 
interpretation of technological feasibility. NESCAUM commented that the 
proposed standards were technologically feasible and cost-effective in 
the rulemaking timeframe. CBD and the UCSB students focused their 
comments more on the technology-forcing aspects of the definition of 
technological feasibility. CBD commented that the standards must be 
below the level of all that is technologically feasible if all the 
technology necessary to meet them is available today. The UCSB students 
similarly commented that the agencies should not base regulations for 
MY 2016 solely on technologies available today, that they should also 
consider technologies still in the research phase for the later years 
of the rulemaking timeframe.
    While NHTSA agrees that the technological feasibility factor can 
include a degree of technology forcing, and that this could certainly 
be appropriate given EPCA's overarching purpose of energy conservation, 
we note that determining what levels of technology to require in the 
rulemaking timeframe requires a balancing of all relevant factors. 
Technologies that are still in the research phase now may be 
sufficiently advanced to become available for commercial application 
in, for example, MY 2016. However, given the rate at which the 
standards already require average mpg to rise, and given the current 
state of the industry, NHTSA does not believe that it would be 
reasonable to set standards mandating that manufacturers devote 
substantial resources to bringing these technologies to market 
immediately rather than to simply improving the fuel economy of their 
fleets by applying more of the technologies on the market today. As 
will be discussed further in Section IV.F below, technological 
feasibility is one of four factors that the agency balances in 
determining what standards would be maximum feasible for each model 
year. As the balancing may vary depending on the circumstances at hand 
for the model years in which the standards are set, the extent to which 
technological feasibility is simply met or plays a more dynamic role 
may also shift.
(2) Economic Practicability
    ``Economic practicability'' refers to whether a standard is one 
``within the financial capability of the industry, but not so stringent 
as to'' lead to ``adverse economic consequences, such as a significant 
loss of jobs or the unreasonable elimination of consumer choice.'' 
\664\ In an attempt to ensure the standards' economic practicability, 
the agency considers a variety of factors, including the annual rate at 
which manufacturers can increase the percentage of the fleet that has a 
particular type of fuel saving technology, and cost to consumers. 
Consumer acceptability is also an element of economic practicability.
---------------------------------------------------------------------------

    \664\ 67 FR 77015, 77021 (Dec. 16, 2002).
---------------------------------------------------------------------------

    At the same time, the law does not preclude a CAFE standard that 
poses considerable challenges to any individual manufacturer. The 
Conference Report for EPCA, as enacted in 1975, makes clear, and the 
case law affirms, ``(A) determination of maximum feasible average fuel 
economy should not be keyed to the single manufacturer which might have 
the most difficulty achieving a given level of average fuel economy.'' 
\665\ Instead, the agency is compelled ``to weigh the benefits to the 
nation of a higher fuel economy standard against the difficulties of 
individual automobile manufacturers.'' Id. The law permits CAFE 
standards exceeding the projected capability of any particular 
manufacturer as long as the standard is economically practicable for 
the industry as a whole. Thus, while a particular CAFE standard may 
pose difficulties for one manufacturer, it may also present 
opportunities for another. The CAFE program is not necessarily intended 
to maintain the competitive positioning of each particular company. 
Rather, it is intended to enhance fuel economy of the vehicle fleet on 
American roads, while protecting motor vehicle safety and being mindful 
of the risk of harm to the overall United States economy.
---------------------------------------------------------------------------

    \665\ CEI-I, 793 F.2d 1322, 1352 (DC Cir. 1986).
---------------------------------------------------------------------------

    Thus, NHTSA believes that this factor must be considered in the 
context of the competing concerns associated with different levels of 
standards. Prior to the MY 2005-2007 rulemaking, the agency generally 
sought to ensure the economy practicability of standards in part by 
setting them at or near the capability of the ``least capable 
manufacturer'' with a significant share of the market, i.e., typically 
the manufacturer whose vehicles are, on average, the heaviest and 
largest. In the first several rulemakings to establish attribute based 
standards, the agency applied marginal cost benefit analysis. This 
ensured that the agency's application of technologies was limited to 
those that would pay for themselves and thus should have significant 
appeal to consumers. However, the agency can and has limited its 
application of technologies to those technologies, with or without the 
use of such analysis.
    Besides the many commenters raising economic practicability as an 
issue in the context of the stringency of the proposed standards, some 
commenters also directly addressed the agency's interpretation of 
economic practicability. AIAM commented that NHTSA has wide discretion 
to consider economic practicability concerns as long as EPCA's 
overarching purpose of energy conservation is met, and that it would be 
within NHTSA's statutory discretion to set standards at levels

[[Page 25606]]

below those at which net benefits are maximized due to economic 
practicability. GM and Mitsubishi both commented that consideration of 
economic practicability should include more focus on individual 
manufacturers: GM stated that NHTSA must consider sales and employment 
impacts on individual manufacturers and not just industry in the 
aggregate, while Mitsubishi emphasized the difficulties of limited-line 
manufacturers in meeting standards that might be economically 
practicable for full-line manufacturers. CBD commented that a 
determination of economic practicability should not be tied to 
``differences between incremental improvements'' that ``fail to 
consider all relevant costs and benefits and fail to analyze the 
overall impact of the proposed standards.'' CBD pointed to the three-
to-one benefit-cost ratio of the proposed standards to argue that much 
more stringent standards would still be economically practicable. ACEEE 
also commented that standards set at the level at which net benefits 
are maximized should be considered a ``lower bound'' for determining 
economic practicability.
    While NHTSA agrees with AIAM in general that the agency has wide 
discretion to consider economic practicability concerns, we do not 
believe that economic practicability will always counsel setting 
standards lower than the point at which net benefits are maximized, 
given that it must be considered in the context of the overall 
balancing and EPCA's overarching purpose of energy conservation. 
Depending on the conditions of the industry and the assumptions used in 
the agency's analysis of alternative stringencies, NHTSA could well 
find that standards that maximize net benefits, or even higher 
standards, could be economically practicable. To that end, however, 
given the current conditions faced by the industry, which is perhaps 
just now passing the nadir of the economy-wide downturn and looking at 
a challenging road to recovery, and the relatively limited amount of 
lead time for MYs 2012-2016, we disagree with CBD's comment that the 
benefit-cost ratio of the final standards indicates that more stringent 
standards would be economically practicable during the rulemaking 
timeframe and with ACEEE's comment that standards higher than those 
that would maximize net benefits would be economically practicable at 
this time. These comments overlook the fact that nearly all 
manufacturers are capital-constrained at this time and may be for the 
next couple of model years; access to capital in a down market is 
crucial to making the investments in technology that the final 
standards will require, and requiring more technology will require 
significantly more capital, to which manufacturers would not likely 
have access. Moreover, economic practicability depends as well on 
manufacturers' ability to sell the vehicles that the standards require 
them to produce. If per-vehicle costs increase too much too soon, 
consumers may defer new vehicle purchases, which defeats the object of 
raising CAFE standards to get vehicles with better mileage on the road 
sooner and meet the need of the Nation to conserve energy. See Section 
IV.F below for further discussion of these issues.
    As for GM's and Mitsubishi's comments, while the agency does 
consider carefully the impacts on individual manufacturers in the 
agency's analysis, as shown in the FRIA, we reiterate that economic 
practicability is not keyed to any single manufacturer. One of the main 
benefits of attribute-based standards is greater regulatory fairness--
for all the manufacturers who build vehicles of a particular footprint, 
the target for that footprint is the same, yet each manufacturer has 
their own individual compliance obligation depending on the mix of 
vehicles they produce for sale. More manufacturers are required to 
improve their fuel economy, yet in a fairer way. And while some 
manufacturers may face difficulties under a given CAFE standard, others 
will find opportunities. The agency's consideration of economic 
practicability recognizes these difficulties and opportunities in the 
context of the industry as a whole, and in the context of balancing 
against the other statutory factors, as discussed further below.
(3) The Effect of Other Motor Vehicle Standards of the Government on 
Fuel Economy
    ``The effect of other motor vehicle standards of the Government on 
fuel economy,'' involves an analysis of the effects of compliance with 
emission,\666\ safety, noise, or damageability standards on fuel 
economy capability and thus on average fuel economy. In previous CAFE 
rulemakings, the agency has said that pursuant to this provision, it 
considers the adverse effects of other motor vehicle standards on fuel 
economy. It said so because, from the CAFE program's earliest years 
\667\ until present, the effects of such compliance on fuel economy 
capability over the history of the CAFE program have been negative 
ones. In those instances in which the effects are negative, NHTSA has 
said that it is called upon to ``mak[e] a straightforward adjustment to 
the fuel economy improvement projections to account for the impacts of 
other Federal standards, principally those in the areas of emission 
control, occupant safety, vehicle damageability, and vehicle noise. 
However, only the unavoidable consequences should be accounted for. The 
automobile manufacturers must be expected to adopt those feasible 
methods of achieving compliance with other Federal standards which 
minimize any adverse fuel economy effects of those standards.'' \668\ 
For example, safety standards that have the effect of increasing 
vehicle weight lower vehicle fuel economy capability and thus decrease 
the level of average fuel economy that the agency can determine to be 
feasible.
---------------------------------------------------------------------------

    \666\ In the case of emission standards, this includes standards 
adopted by the Federal government and can include standards adopted 
by the States as well, since in certain circumstances the Clean Air 
Act allows States to adopt and enforce State standards different 
from the Federal ones.
    \667\ 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 
33537 (Jun. 30, 1977).
    \668\ 42 FR 33534, 33537 (Jun. 30, 1977).
---------------------------------------------------------------------------

    The ``other motor vehicle standards'' consideration has thus in 
practice functioned in a fashion similar to the provision in EPCA, as 
originally enacted, for adjusting the statutorily-specified CAFE 
standards for MY 1978-1980 passengers cars.\669\ EPCA did not permit 
NHTSA to amend those standards based on a finding that the maximum 
feasible level of average fuel economy for any of those three years was 
greater or less than the standard specified for that year. Instead, it 
provided that the agency could only reduce the standards and only on 
one basis: If the agency found that there had been a Federal standards 
fuel economy reduction, i.e., a reduction in fuel economy due to 
changes in the Federal vehicle standards, e.g., emissions and safety, 
relative to the year of enactment, 1975.
---------------------------------------------------------------------------

    \669\ That provision was deleted as obsolete when EPCA was 
codified in 1994.
---------------------------------------------------------------------------

    The ``other motor vehicle standards'' provision is broader than the 
Federal standards fuel economy reduction provision. Although the 
effects analyzed to date under the ``other motor vehicle standards'' 
provision have been negative, there could be circumstances in which the 
effects are positive. In the event that the agency encountered such 
circumstances, it would be required to consider those positive effects. 
For example, if changes in vehicle safety technology led to NHTSA's 
amending a

[[Page 25607]]

safety standard in a way that permits manufacturers to reduce the 
weight added in complying with that standard, that weight reduction 
would increase vehicle fuel economy capability and thus increase the 
level of average fuel economy that could be determined to be feasible.
    In the wake of Massachusetts v. EPA and of EPA's endangerment 
finding, its granting of a waiver to California for its motor vehicle 
GHG standards, and its own GHG standards for light-duty vehicles, NHTSA 
is confronted with the issue of how to treat those standards under the 
``other motor vehicle standards'' provision. To the extent the GHG 
standards result in increases in fuel economy, they would do so almost 
exclusively as a result of inducing manufacturers to install the same 
types of technologies used by manufacturers in complying with the CAFE 
standards. The primary exception would involve increases in the 
efficiency of air conditioners.
    In the NPRM, NHTSA tentatively concluded that the effects of the 
EPA and California standards are neither positive nor negative because 
the proposed rule resulted in consistent standards among all components 
of the National Program, but sought comment on whether and in what way 
the effects of the California and EPA standards should be considered 
under the ``other motor vehicle standards'' provision or other 
provisions of EPCA in 49 U.S.C. 32902, consistent with NHTSA's 
independent obligation under EPCA/EISA to issue CAFE standards. NHTSA 
stated that it had already considered EPA's proposal and the 
harmonization benefits of the National Program in developing its own 
proposed maximum feasible standards.
    The Alliance commented that the extent to which the consideration 
of other motor vehicle standards of the government should affect 
NHTSA's standard-setting process was entirely within the agency's 
discretion. The Alliance agreed with NHTSA that the original intent of 
the factor was to ensure that NHTSA accounted for other government 
standards that might reduce fuel economy or inhibit fuel economy 
improvements, but stated that since GHG standards set by EPA and 
California overlap CAFE standards so extensively, and are thus 
functionally equivalent to CAFE standards (plus air conditioning), 
those standards should be ``basically irrelevant to NHTSA's mission to 
set fuel economy standards, unless some specific aspect of the GHG 
standards actually makes it harder for mfrs to improve fuel economy.'' 
The Alliance stated further that NHTSA must still determine what levels 
of CAFE standards would be maximum feasible regardless of the findings 
or standards set by EPA and California. Thus, the Alliance stated, for 
purposes of the MYs 2012-2016 CAFE standards, EPA's GHG standards could 
be sufficiently considered by NHTSA given the agency's decision to 
harmonize as part of the National Program,\670\ while California's GHG 
standards need not be considered because of the state's agreement under 
the National Program that compliance with EPA's standards would 
constitute compliance with its own. Ford concurred individually with 
the Alliance comments. NADA, in contrast, commented that EPA's GHG 
standards should not be considered as an ``other vehicle standard'' for 
purposes of this statutory factor, and argued that NHTSA need not and 
should not consider California's GHG standards due to preemption under 
EPCA.
---------------------------------------------------------------------------

    \670\ The University of Pennsylvania Environmental Law Project 
offered a similar comment.
---------------------------------------------------------------------------

    Commenters from the state of California (the Attorney General and 
the Air Resources Board), in contrast, stated that NHTSA must consider 
the effects of the California GHG standards on fuel economy as a 
baseline for NHTSA's analysis, to give credit to the state's leadership 
role in achieving the levels required by the National Program. CBD 
seconded this comment.\671\ The California Attorney General further 
stated that Congress discussed both positive and negative impacts of 
other standards on fuel economy in the 1975 Conference Reports 
preceding EPCA's enactment.\672\ CARB and the University of 
Pennsylvania Environmental Law Project both cited the Green Mountain 
Chrysler \673\ and Central Valley Chrysler \674\ cases as supporting 
NHTSA's consideration of CARB's GHG standards pursuant to this factor.
---------------------------------------------------------------------------

    \671\ NHTSA answered similar comments in the FEIS. See FEIS 
Section 10.2.4.2 for the agency's response.
    \672\ Citing HR Rep 94-340 at 86-87, 89-91 (1975 USCCAN 1762, 
1848-49, 1851-53).
    \673\ Green Mountain Chrysler Plymouth Dodge Jeep v. Crombie, 
508 F.Supp.2d 295 (D.Vt. 2007).
    \674\ Central Valley Chrysler Jeep, Inc. v. Goldstene, 529 
F.Supp.2d 1151 (E.D. Cal. 2007).
---------------------------------------------------------------------------

    NHTSA believes that these comments generally support the agency's 
interpretation of this factor as stated in the NPRM. While the agency 
may consider both positive and negative effects of other motor vehicle 
standards of the Government on fuel economy in determining what level 
of CAFE standards would be maximum feasible, given the fact that the 
final rule results in consistent standards among all components of the 
National Program, and given that NHTSA considered the harmonization 
benefits of the National Program in developing its own standards, the 
agency's obligation to balance this factor with the others may be 
considered accounted for.
(4) The Need of the United States To Conserve Energy
    ``The need of the United States to conserve energy'' means ``the 
consumer cost, national balance of payments, environmental, and foreign 
policy implications of our need for large quantities of petroleum, 
especially imported petroleum.'' \675\ Environmental implications 
principally include those associated with reductions in emissions of 
criteria pollutants and CO2. A prime example of foreign 
policy implications are energy independence and security concerns.
---------------------------------------------------------------------------

    \675\ 42 FR 63184, 63188 (1977).
---------------------------------------------------------------------------

    While a number of commenters cited the need of the nation to 
conserve energy in calling for the agency to set more stringent CAFE 
standards, none disagreed with the agency's interpretation of this 
factor and its influence on the statutory balancing required by EPCA. 
CBD, for example, commented that ``Increasing mileage standards for 
this vehicle fleet is the single most effective and quickest available 
step the U.S. can take to conserve energy and to reduce the U.S. 
dependence on foreign oil, and also has an immediate and highly 
significant effect on total U.S. GHG emissions,'' and that accordingly, 
NHTSA should consider the need of the nation to conserve energy as 
counseling the agency to raise standards at a faster rate. NHTSA agrees 
that this factor tends to influence stringency upwards, but reiterates 
that the need of the nation to conserve energy is still but one of four 
factors that must be balanced, as discussed below.

ii. Other Factors Considered by NHTSA

    The agency historically has considered the potential for adverse 
safety consequences in setting CAFE standards. This practice is 
recognized approvingly in case law. As the courts have recognized, 
``NHTSA has always examined the safety consequences of the CAFE 
standards in its overall consideration of relevant factors since its 
earliest rulemaking under the CAFE program.'' Competitive Enterprise 
Institute v. NHTSA, 901 F.2d 107, 120 n. 11 (DC Cir. 1990) (``CEI I'') 
(citing 42 FR 33534, 33551 (June 30, 1977)). The courts have 
consistently upheld NHTSA's implementation of EPCA in this manner. See, 
e.g., Competitive

[[Page 25608]]

Enterprise Institute v. NHTSA, 956 F.2d 321, 322 (DC Cir. 1992) (``CEI 
II'') (in determining the maximum feasible fuel economy standard, 
``NHTSA has always taken passenger safety into account.'') (citing CEI 
I, 901 F.2d at 120 n. 11); Competitive Enterprise Institute v. NHTSA, 
45 F.3d 481, 482-83 (DC Cir. 1995) (``CEI III'') (same); Center for 
Biological Diversity v. NHTSA, 538 F.3d 1172, 1203-04 (9th Cir. 2008) 
(upholding NHTSA's analysis of vehicle safety issues associated with 
weight in connection with the MY 2008-11 light truck CAFE rule). Thus, 
in evaluating what levels of stringency would result in maximum 
feasible standards, NHTSA assesses the potential safety impacts and 
considers them in balancing the statutory considerations and to 
determine the appropriate level of the standards.
    Under the universal or ``flat'' CAFE standards that NHTSA was 
previously authorized to establish, manufacturers were encouraged to 
respond to higher standards by building smaller, less safe vehicles in 
order to ``balance out'' the larger, safer vehicles that the public 
generally preferred to buy, which resulted in a higher mass 
differential between the smallest and the largest vehicles, with a 
correspondingly greater risk to safety. Under the attribute-based 
standards being finalized today, that risk is reduced because building 
smaller vehicles would tend to raise a manufacturer's overall CAFE 
obligation, rather than only raising its fleet average CAFE, and 
because all vehicles are required to continue improving their fuel 
economy. In prior rulemakings, NHTSA limited the application of mass 
reduction/material substitution in our modeling analysis to vehicles 
over 5,000 lbs GVWR,\676\ but for purposes of today's final standards, 
NHTSA has revised its modeling analysis to allow some application of 
mass reduction/material substitution for all vehicles, although it is 
concentrated in the largest and heaviest vehicles, because we believe 
that this is more consistent with how manufacturers will actually 
respond to the standards. However, as discussed above, NHTSA does not 
mandate the use of any particular technology by manufacturers in 
meeting the standards. More information on the new approach to modeling 
manufacturer use of downweighting/material substitution is available in 
Chapter 3 of the Joint TSD and in Section V of the FRIA; and the 
estimated safety impacts that may be due to the final standards are 
described below.
---------------------------------------------------------------------------

    \676\ See 74 FR 14396-14407 (Mar. 30, 2009).
---------------------------------------------------------------------------

iii. Factors that NHTSA is Prohibited from Considering
    EPCA also provides that in determining the level at which it should 
set CAFE standards for a particular model year, NHTSA may not consider 
the ability of manufacturers to take advantage of several EPCA 
provisions that facilitate compliance with the CAFE standards and 
thereby reduce the costs of compliance.\677\ As discussed further 
below, manufacturers can earn compliance credits by exceeding the CAFE 
standards and then use those credits to achieve compliance in years in 
which their measured average fuel economy falls below the standards. 
Manufacturers can also increase their CAFE levels through MY 2019 by 
producing alternative fuel vehicles. EPCA provides an incentive for 
producing these vehicles by specifying that their fuel economy is to be 
determined using a special calculation procedure that results in those 
vehicles being assigned a high fuel economy level.
---------------------------------------------------------------------------

    \677\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    The effect of the prohibitions against considering these 
flexibilities in setting the CAFE standards is that the flexibilities 
remain voluntarily-employed measures. If the agency were instead to 
assume manufacturer use of those flexibilities in setting new 
standards, that assumption would result in higher standards and thus 
tend to require manufacturers to use those flexibilities.
iv. Determining the Level of the Standards by Balancing the Factors
    NHTSA has broad discretion in balancing the above factors in 
determining the appropriate levels of average fuel economy at which to 
set the CAFE standards for each model year. Congress ``specifically 
delegated the process of setting * * * fuel economy standards with 
broad guidelines concerning the factors that the agency must 
consider.'' \678\ The breadth of those guidelines, the absence of any 
statutorily prescribed formula for balancing the factors, the fact that 
the relative weight to be given to the various factors may change from 
rulemaking to rulemaking as the underlying facts change, and the fact 
that the factors may often be conflicting with respect to whether they 
militate toward higher or lower standards give NHTSA broad discretion 
to decide what weight to give each of the competing policies and 
concerns and then determine how to balance them. The exercise of that 
discretion is subject to the necessity of ensuring that NHTSA's 
balancing does not undermine the fundamental purpose of the EPCA: 
Energy conservation,\679\ and as long as that balancing reasonably 
accommodates ``conflicting policies that were committed to the agency's 
care by the statute.'' \680\ The balancing of the factors in any given 
rulemaking is highly dependent on the factual and policy context of 
that rulemaking. Given the changes over time in facts bearing on 
assessment of the various factors, such as those relating to the 
economic conditions, fuel prices and the state of climate change 
science, the agency recognizes that what was a reasonable balancing of 
competing statutory priorities in one rulemaking may not be a 
reasonable balancing of those priorities in another rulemaking.\681\ 
Nevertheless, the agency retains substantial discretion under EPCA to 
choose among reasonable alternatives.
---------------------------------------------------------------------------

    \678\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1341 
(C.A.D.C. 1986).
    \679\ Center for Biological Diversity v. NHTSA, 538 F.3d 1172, 
1195 (9th Cir. 2008).
    \680\ CAS, 1338 (quoting Chevron U.S.A., Inc. v. Natural 
Resources Defense Council, Inc., 467 U.S. 837, 845).
    \681\ CBD v. NHTSA, 538 F.3d 1172, 1198 (9th Cir. 2008).
---------------------------------------------------------------------------

    EPCA neither requires nor precludes the use of any type of cost-
benefit analysis as a tool to help inform the balancing process. While 
NHTSA used marginal cost-benefit analysis in the first two rulemakings 
to establish attribute-based CAFE standards, as noted above, it was not 
required to do so and is not required to continue to do so. Regardless 
of what type of analysis is or is not used, considerations relating to 
costs and benefits remain an important part of CAFE standard setting.
    Because the relevant considerations and factors can reasonably be 
balanced in a variety of ways under EPCA, and because of uncertainties 
associated with the many technological and cost inputs, NHTSA considers 
a wide variety of alternative sets of standards, each reflecting 
different balancing of those policies and concerns, to aid it in 
discerning reasonable outcomes. Among the alternatives providing for an 
increase in the standards in this rulemaking, the alternatives range in 
stringency from a set of standards that increase, on average, 3 percent 
annually to a set of standards that increase, on average, 7 percent 
annually.
v. Other Standards--Minimum Domestic Passenger Car Standard
    The minimum domestic passenger car standard was added to the CAFE

[[Page 25609]]

program through EISA, when Congress gave NHTSA explicit authority to 
set universal standards for domestically-manufactured passenger cars at 
the level of 27.5 mpg or 92 percent of the average fuel economy of the 
combined domestic and import passenger car fleets in that model year, 
whichever was greater.\682\ This minimum standard was intended to act 
as a ``backstop,'' ensuring that domestically-manufactured passenger 
cars reached a given mpg level even if the market shifted in ways 
likely to reduce overall fleet mpg. Congress was silent as to whether 
the agency could or should develop similar backstop standards for 
imported passenger cars and light trucks. NHTSA has struggled with this 
question since EISA was enacted.
---------------------------------------------------------------------------

    \682\ 49 U.S.C. 32902(b)(4).
---------------------------------------------------------------------------

    In the MY 2011 final rule, facing comments split fairly evenly 
between support and opposition to additional backstop standards, NHTSA 
noted Congress' silence and ``accept[ed] at least the possibility that 
* * * [it] could be reasonably interpreted as permissive rather than 
restrictive,'' but concluded based on the record for that rulemaking as 
a whole that additional backstop standards were not necessary for MY 
2011, given the lack of leadtime for manufacturers to change their MY 
2011 vehicles, the apparently-growing public preference for smaller 
vehicles, and the anti-backsliding characteristics of the footprint-
based curves.\683\ NHTSA stated, however, that it would continue to 
monitor manufacturers' product plans and compliance, and would revisit 
the backstop issue if it became necessary in future rulemakings.\684\
---------------------------------------------------------------------------

    \683\ 74 FR at 14412 (Mar. 30, 2009).
    \684\ Id.
---------------------------------------------------------------------------

    Thus, in the MYs 2012-2016 NPRM, NHTSA again sought comment on the 
issue of additional backstop standards, recognizing the possibility 
that low fuel prices during the years that the MYs 2012-2016 vehicles 
are in service might lead to less than anticipated fuel savings.\685\ 
NHTSA asked commenters, in addressing this issue, to consider reviewing 
the agency's discussion in the MY 2011 final rule, which the agency 
described as concluding that its authority was likely limited by 
Congress' silence to setting only the backstop that Congress expressly 
provided for.\686\ EPA also sought comment on whether it should set 
backstop standards under the CAA for MYs 2012-2016.
---------------------------------------------------------------------------

    \685\ 74 FR at 49685 (Sept. 28, 2009).
    \686\ Id. at 49637, 49685 (Sept. 28, 2009).
---------------------------------------------------------------------------

    As discussed above in Section II, many commenters addressed the 
backstop issue, and again comments were fairly evenly split between 
support and opposition to additional backstop standards. While 
commenters opposed to additional backstops, such as the Alliance, 
largely reiterated NHTSA's previous statements with regard to its 
backstop authority, some commenters in favor of additional backstops 
provided more detailed legal arguments than have been previously 
presented for the agency's consideration. Section II provides NHTSA's 
and EPA's general response to comments on the backstop issue; this 
section provides NHTSA's specific response to the legal arguments by 
Sierra Club et al.\687\ on the agency's authority to set additional 
backstop standards.
---------------------------------------------------------------------------

    \687\ NHTSA refers to these commenters by the shorthand ``Sierra 
Club et al.,'' but the group consists of the Sierra Club, the Safe 
Climate Campaign, the Coalition for Clean Air, the Alliance for 
Climate Protection, and Environment America. Their comments may be 
found at Docket No. EPA-HQ-OAR-2009-0472-7278.1.
---------------------------------------------------------------------------

    The Sierra Club et al. commented that a more permissive reading of 
Congress' silence in EISA was appropriate given the context of the 
statute, the 9th Circuit's revised opinion in CBD v. NHTSA, and the 
assumptions employed in the NPRM analysis. The commenters stated that 
given that EISA includes the 35-in-2020 and ratable increase 
requirements, and given that CAFE standards were only just starting to 
rise for light trucks at the time of EISA's enactment and had remained 
at the statutory level of 27.5 mpg for passenger cars for many years, 
it appears that Congress' intent in EISA was to raise CAFE standards as 
rapidly as possible. Thus, the commenters stated, if the purpose of 
EISA was to promote the maximum feasible increase in fuel economy with 
ratable increases, then there was no reason to think that backstop 
standards would be inconsistent with that purpose--if they were 
inconsistent, Congress would not have included one for domestic 
passenger cars. Similarly, Congress could not have thought that 
additional backstops were inconsistent with attribute-based standards, 
or it would not have included one for domestic passenger cars.\688\ The 
commenters also cited D.C. Circuit case law stating that congressional 
silence leaves room for agency discretion; specifically, that ``[w]hen 
interpreting statutes that govern agency action, [the courts] have 
consistently recognized that a congressional mandate in one section and 
silence in another often `suggests not a prohibition but simply a 
decision not to mandate any solution in the second context, i.e., to 
leave the question to agency discretion.' '' \689\
---------------------------------------------------------------------------

    \688\ The commenters also suggested that NHTSA could set 
attribute-based backstop standards if it was concerned that 
Congress' mandate to set attribute-based standards generally 
precluded additional flat backstops.
    \689\ Citing Catawba County, N.C. v. EPA, 571 F.3d 20, 36 (DC 
Cir. 2009) (quoting Cheney R. Co. v. ICC, 902 F.2d 66, 69 (DC Cir. 
1990)).
---------------------------------------------------------------------------

    The Sierra Club et al. also commented that it appeared that the 9th 
Circuit's revised opinion in CBD v. NHTSA supported the agency's 
discretion to set additional backstops, since it was revised after the 
passage of EISA and did not change its earlier holding (pertaining to 
the original EPCA language) that backstop standards were within the 
agency's discretion.\690\
---------------------------------------------------------------------------

    \690\ Citing CBD v. NHTSA, 538 F.3d at 1204-06 (9th Cir. 2008).
---------------------------------------------------------------------------

    And finally, the commenters stated that NHTSA's rationale for not 
adopting additional backstops in the MY 2011 final rule should not be 
relied on for MYs 2012-2016, namely, that the agency's belief that 
backstop standards were unnecessary to ensure the expected levels of 
fuel savings given the short lead time between the promulgation of the 
final standards and the beginning of MY 2011, the apparent growing 
consumer preference for smaller vehicles, and the existing anti-
backsliding measures in the attribute-based curves. As described above 
in Section II, these commenters (and many others) expressed concern 
about the agencies' fleet mix assumptions and their potential effect on 
estimated fuel savings.
    In response, and given DC Circuit precedent as cited above, NHTSA 
agrees that whether to adopt additional minimum standards for imported 
passenger cars and light trucks is squarely within the agency's 
discretion, and that such discretion should be exercised as necessary 
to avoid undue losses in fuel savings due to market shifts or other 
forces while still respecting the statutorily-mandated manufacturer 
need for lead time in establishing CAFE standards. However, as 
discussed above in Section II.C, NHTSA remains confident that the 
projections of the future fleet mix are reliable, and that future 
changes in the fleet mix of footprints and sales are not likely to lead 
to more than modest changes in projected emissions reductions or fuel 
savings. There are only a relatively few model years at issue, and 
market trends today are consistent with the agencies' estimates, 
showing shifts from light trucks to passenger cars and increased 
emphasis on fuel economy from all vehicles. The shapes of the curves 
also tend to avoid

[[Page 25610]]

or minimize regulatory incentives for manufacturers to upsize their 
fleet to change their compliance burden, and the risk of vehicle 
upsizing or changing vehicle offerings to ``game'' the passenger car 
and light truck definitions to which commenters refer is not so great 
for the model years in question, because the changes that commenters 
suggest manufacturers might make are neither so simple nor so likely to 
be accepted by consumers, as discussed above.
    Thus, NHTSA is confident that the anticipated increases in average 
fuel economy and reductions in average CO2 emission rates 
can be achieved without backstops under EISA, as noted above. 
Nevertheless, we acknowledge that the MY 2016 fuel economy goal of 34.1 
mpg is an estimate and not a standard,\691\ and that changes in fuel 
prices, consumer preferences, and/or vehicle survival and mileage 
accumulation rates could result in either smaller or larger oil 
savings. However, as explained above and elsewhere in the rule, NHTSA 
believes that the possibility of not meeting (or, alternatively, 
exceeding) fuel economy goals exists, but is not likely to lead to more 
than modest changes in the currently-projected levels of fuel and GHG 
savings. NHTSA plans to conduct retrospective analysis to monitor 
progress, and has the authority to revise standards if warranted, as 
long as sufficient lead time is provided. Given this, and given the 
potential complexities in designing an appropriate backstop, NHTSA 
believes that the balance here points to not adopting additional 
backstops at this time for the MYs 2012-2016 standards other than 
NHTSA's issuing the ones required by EPCA/EISA for domestic passenger 
cars. If, during the timeframe of this rule, NHTSA observes a 
significant shift in the manufacturer's product mix resulting in a 
relaxation of their estimated targets, NHTSA and EPA will reconsider 
options, both for MYs 2012-2016 and future rulemakings.
---------------------------------------------------------------------------

    \691\ The MYs 2012-2016 passenger car and light truck curves are 
the actual standards.
---------------------------------------------------------------------------

2. Administrative Procedure Act
    To be upheld under the ``arbitrary and capricious'' standard of 
judicial review in the APA, an agency rule must be rational, based on 
consideration of the relevant factors, and within the scope of the 
authority delegated to the agency by the statute. The agency must 
examine the relevant data and articulate a satisfactory explanation for 
its action including a ``rational connection between the facts found 
and the choice made.'' Burlington Truck Lines, Inc. v. United States, 
371 U.S. 156, 168 (1962).
    Statutory interpretations included in an agency's rule are 
subjected to the two-step analysis of Chevron, U.S.A., Inc. v. Natural 
Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 
(1984). Under step one, where a statute ``has directly spoken to the 
precise question at issue,'' id. at 842, 104 S.Ct. 2778, the court and 
the agency ``must give effect to the unambiguously expressed intent of 
Congress,'' id. at 843, 104 S.Ct. 2778. If the statute is silent or 
ambiguous regarding the specific question, the court proceeds to step 
two and asks ``whether the agency's answer is based on a permissible 
construction of the statute.'' Id.
    If an agency's interpretation differs from the one that it has 
previously adopted, the agency need not demonstrate that the prior 
position was wrong or even less desirable. Rather, the agency would 
need only to demonstrate that its new position is consistent with the 
statute and supported by the record, and acknowledge that this is a 
departure from past positions. The Supreme Court emphasized this 
recently in FCC v. Fox Television, 129 S.Ct. 1800 (2009). When an 
agency changes course from earlier regulations, ``the requirement that 
an agency provide reasoned explanation for its action would ordinarily 
demand that it display awareness that it is changing position,'' but 
``need not demonstrate to a court's satisfaction that the reasons for 
the new policy are better than the reasons for the old one; it suffices 
that the new policy is permissible under the statute, that there are 
good reasons for it, and that the agency believes it to be better, 
which the conscious change of course adequately indicates.'' \692\
---------------------------------------------------------------------------

    \692\ Ibid., 1181.
---------------------------------------------------------------------------

    The APA also requires that agencies provide notice and comment to 
the public when proposing regulations.\693\ Two commenters, the 
American Chemistry Council and the American Petroleum Institute, argued 
that the agreements by auto manufacturers and California to support the 
National Program indicated that a ``deal'' had been struck between the 
agencies and these parties, which was not available as part of the 
administrative record and which the public had not been given the 
opportunity to comment on. The commenters argued that this violated the 
APA.
---------------------------------------------------------------------------

    \693\ 5 U.S.C. 553.
---------------------------------------------------------------------------

    In response, under the APA, agencies ``must justify their 
rulemakings solely on the basis of the record [they] compile[] and 
make[] public.'' \694\ Any informal contacts that occurred prior to the 
release of the NPRM may have been informative for the agencies and 
other parties involved in developing the NPRM, but they did not release 
the agencies of their obligation consider and respond to public 
comments on the NPRM and to justify the final standards based on the 
public record. The agencies believe that the record fully justifies the 
final standards, demonstrating analytically that they are the maximum 
feasible and reasonable for the model years covered. Thus, we disagree 
that there has been any violation of the APA.
---------------------------------------------------------------------------

    \694\ Sierra Club v. Costle, 657 F.2d 298, 401 (DC Cir. 1981).
---------------------------------------------------------------------------

3. National Environmental Policy Act
    As discussed above, EPCA requires the agency to determine what 
level at which to set the CAFE standards for each model year by 
considering the four factors of technological feasibility, economic 
practicability, the effect of other motor vehicle standards of the 
Government on fuel economy, and the need of the United States to 
conserve energy. NEPA directs that environmental considerations be 
integrated into that process. To accomplish that purpose, NEPA requires 
an agency to compare the potential environmental impacts of its 
proposed action to those of a reasonable range of alternatives.
    To explore the environmental consequences in depth, NHTSA has 
prepared both a draft and a final environmental impact statement. The 
purpose of an EIS is to ``provide full and fair discussion of 
significant environmental impacts and [to] inform decisionmakers and 
the public of the reasonable alternatives which would avoid or minimize 
adverse impacts or enhance the quality of the human environment.'' 40 
CFR 1502.1.
    NEPA is ``a procedural statute that mandates a process rather than 
a particular result.'' Stewart Park & Reserve Coal., Inc. v. Slater, 
352 F.3d at 557. The agency's overall EIS-related obligation is to 
``take a `hard look' at the environmental consequences before taking a 
major action.'' Baltimore Gas & Elec. Co. v. Natural Res. Def. Council, 
Inc., 462 U.S. 87, 97, 103 S.Ct. 2246, 76 L.Ed.2d 437 (1983). 
Significantly, ``[i]f the adverse environmental effects of the proposed 
action are adequately identified and evaluated, the agency is not 
constrained by NEPA from deciding that other values outweigh the 
environmental costs.'' Robertson v. Methow Valley Citizens Council, 490

[[Page 25611]]

U.S. 332, 350, 109 S.Ct. 1835, 104 L.Ed.2d 351 (1989).
    The agency must identify the ``environmentally preferable'' 
alternative, but need not adopt it. ``Congress in enacting NEPA * * * 
did not require agencies to elevate environmental concerns over other 
appropriate considerations.'' Baltimore Gas and Elec. Co. v. Natural 
Resources Defense Council, Inc., 462 U.S. 87, 97 (1983). Instead, NEPA 
requires an agency to develop alternatives to the proposed action in 
preparing an EIS. 42 U.S.C. 4332(2)(C)(iii). The statute does not 
command the agency to favor an environmentally preferable course of 
action, only that it make its decision to proceed with the action after 
taking a hard look at environmental consequences.
    This final rule also constitutes a Record of Decision for NHTSA 
under NEPA. Section IV.K below provides much more information on the 
agency's NEPA analysis for this rulemaking, and on how this final rule 
constitutes a Record of Decision.

E. What are the final CAFE standards?

1. Form of the Standards
    Each of the CAFE standards that NHTSA is finalizing today for 
passenger cars and light trucks is expressed as a mathematical function 
that defines a fuel economy target applicable to each vehicle model 
and, for each fleet, establishes a required CAFE level determined by 
computing the sales-weighted harmonic average of those targets.\695\
---------------------------------------------------------------------------

    \695\ Required CAFE levels shown here are estimated required 
levels based on NHTSA's current projection of manufacturers' vehicle 
fleets in MYs 2012-2016. Actual required levels are not determined 
until the end of each model year, when all of the vehicles produced 
by a manufacturer in that model year are known and their compliance 
obligation can be determined with certainty. The target curves, as 
defined by the constrained linear function, and as embedded in the 
function for the sales-weighted harmonic average, are the real 
``standards'' being established today.
---------------------------------------------------------------------------

    As discussed above in Section II.C, NHTSA has determined fuel 
economy targets using a constrained linear function defined according 
to the following formula:

[GRAPHIC] [TIFF OMITTED] TR07MY10.031

    Here, TARGET is the fuel economy target (in mpg) applicable to 
vehicles of a given footprint (FOOTPRINT, in square feet), b and a 
are the function's lower and upper asymptotes (also in mpg), 
respectively, c is the slope (in gpm per square foot) of the sloped 
portion of the function, and d is the intercept (in gpm) of the 
sloped portion of the function (that is, the value the sloped 
portion would take if extended to a footprint of 0 square feet. The 
MIN and MAX functions take the minimum and maximum, respectively of 
the included values.

    In the NPRM preceding today's final rule (as under the recently-
promulgated MY 2011 standards), NHTSA proposed that the CAFE level 
required of any given manufacturer be determined by calculating the 
production-weighted harmonic average of the fuel economy targets 
applicable to each vehicle model:

[GRAPHIC] [TIFF OMITTED] TR07MY10.032

    Here, CAFErequired is the required level for a given fleet, 
SALESi is the number of units of model i produced for sale in the 
United States, TARGETi is the fuel economy target applicable to 
model i (according to the equation shown in Chapter II and based on 
the footprint of model i), and the summations in the numerator and 
denominator are both performed over all models in the fleet in 
question.

    However, comments by Honda and Toyota indicate that the defined 
variables used in the equations could be interpreted differently by 
vehicle manufacturers. The term ``footprint of a vehicle model'' could 
be interpreted to mean that a manufacturer only has to use one 
representative footprint within a model type or that it is necessary to 
use all the unique footprints and corresponding fuel economy target 
standards within a model type when determining a fleet target standard.
    In the same NPRM, EPA proposed new regulations which also include 
the calculation of standards based on the attribute of footprint. The 
EPA regulation text is specific and states that standards will be 
derived using the target values ``for each unique combination of model 
type and footprint value'' (proposed regulation text 40 CFR 86.1818-
12(c)(2)(ii)(B) for passenger automobiles and (c)(3)(ii)(B) for light 
trucks). Also, in an EPA final rule issued November 25, 2009, the 
manufacturers are required to provide in their final model year reports 
to EPA data for ``each unique footprint within each model type'' used 
to calculate the new CAFE program fuel economy levels (40 CFR 600.512-
08(c)(8) and (9)). Using this term would be more definitive than using 
terms such as ``footprint of a vehicle model'' and would more fully 
harmonize the NHTSA and EPA regulations. Therefore, under the final 
CAFE standards promulgated today, a manufacturer's ``fleet target 
standard'' will be derived from the summation of the targets for all 
and every unique footprint within each model type for all model types 
that make up a fleet of vehicles. Also, to provide greater clarity, the 
equation will use the variable name PRODUCTION rather than SALES to 
refer to production of vehicles for sale in the United States. 
Otherwise, for purposes of the final rule the same equation will apply:

[[Page 25612]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.033

    However, PRODUCTIONi is the number of units produced for sale in 
the United States of each ith unique footprint within each model type, 
produced for sale in the United States, and TARGETi is the 
corresponding fuel economy target (according to the equation shown in 
Chapter II and based on the corresponding footprint), and the 
summations in the numerator and denominator are both performed over all 
unique footprint and model type combinations in the fleet in question. 
The equations and terms specified for calculating the required CAFE 
fleet values in Part 531.5(b) and (c) for MYs 2012-2016, and Part 
533.5(g), (h) and (i) for MYs 2008-2016 will be updated accordingly. 
Although the agency is not changing the equations for the MY 2011 
standards, we would expect manufacturers to follow the same procedures 
for calculating their required levels for that model year. Also, the 
Appendices in each of these parts will also be updated to provide 
corresponding examples of calculating the fleet standards.
    Corresponding changes to regulatory text defining CAFE standards 
are discussed below in Section IV.I.
    The final standards are, therefore, specified by the four 
coefficients defining fuel economy targets:

a = upper limit (mpg)
b = lower limit (mpg)
c = slope (gpm per square foot)
d = intercept (gpm)

The values of the coefficients are different for the passenger car 
standards and the light truck standards.
2. Passenger Car Standards for MYs 2012-2016
    For passenger cars, NHTSA proposed CAFE standards defined by the 
following coefficients during MYs 2012-2016:

       Table IV.E.2-1--Coefficients Defining Proposed MY 2012-2016 Fuel Economy Targets for Passenger Cars
----------------------------------------------------------------------------------------------------------------
           Coefficient                 2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
a (mpg).........................      36.23           37.15           38.08           39.55           41.38
b (mpg).........................      28.12           28.67           29.22           30.08           31.12
c (gpm/sf)......................       0.0005308       0.0005308       0.0005308       0.0005308       0.0005308
d (gpm).........................       0.005842        0.005153        0.004498        0.003520        0.002406
----------------------------------------------------------------------------------------------------------------

    After updating inputs to its analysis, and revisiting the form and 
stringency of both passenger cars and light truck standards, as 
discussed in Section II, NHTSA is finalizing passenger car CAFE 
standards defined by the following coefficients during MYs 2012-2016:

        Table IV.E.2-2--Coefficients Defining Final MY 2012-2016 Fuel Economy Targets for Passenger Cars
----------------------------------------------------------------------------------------------------------------
           Coefficient                 2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
a (mpg).........................      35.95           36.80           37.75           39.24           41.09
b (mpg).........................      27.95           28.46           29.03           29.90           30.96
c (gpm/sf)......................       0.0005308       0.0005308       0.0005308       0.0005308       0.0005308
d (gpm).........................       0.006057        0.005410        0.004725        0.003719        0.002573
----------------------------------------------------------------------------------------------------------------

    These coefficients reflect the agency's decision, discussed above 
in Section II, to leave the shapes of both the passenger car and light 
truck curves unchanged. They also reflect the agency's reevaluation of 
the ``gap'' in stringency between the passenger car and light truck 
standard, also discussed in Section II.
    These coefficients result in the footprint-dependent target curves 
shown graphically below. The MY 2011 final standard, which is specified 
by a constrained logistic function rather than a constrained linear 
function, is shown for comparison.

[[Page 25613]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.034

    As discussed, the CAFE levels required of individual manufacturers 
will depend on the mix of vehicles they produce for sale in the United 
States. Based on the market forecast of future sales that NHTSA has 
used to examine today's final CAFE standards, the agency estimates that 
the targets shown above will result in the following average required 
fuel economy levels for individual manufacturers during MYs 2012-2016 
(an updated estimate of the average required fuel economy level under 
the final MY 2011 standard is shown for comparison): \696\
---------------------------------------------------------------------------

    \696\ In the March 2009 final rule establishing MY 2011 
standards for passenger cars and light trucks, NHTSA estimated that 
the required fuel economy levels for passenger cars would average 
30.2 mpg under the MY 2011 passenger car standard. Based on the 
agency's current forecast of the MY 2011 passenger car market, which 
anticipates greater numbers of passenger cars than the forecast used 
in the MY 2011 final rule, NHTSA now estimates that the average 
required fuel economy level for passenger cars will be 30.4 mpg in 
MY 2011. This does not mean that the agency is making the standards 
more stringent for that model year, or that any manufacturer will 
necessarily face a more difficult CAFE standard, it simply reflects 
the change in assumptions about what vehicles will be produced for 
sale in that model year. The target curve remains the same, and each 
manufacturer's compliance obligation will still be determined at the 
end of the model year.

     Table IV.E.2-3--Estimated Average Fuel Economy Required Under Final MY 2011 and Final MY 2012-2016 CAFE
                                          Standards for Passenger Cars
----------------------------------------------------------------------------------------------------------------
           Manufacturer               MY 2011      MY 2012      MY 2013      MY 2014      MY 2015      MY 2016
----------------------------------------------------------------------------------------------------------------
BMW...............................         30.2         33.0         33.7         34.5         35.7         37.3
Chrysler..........................         29.4         32.6         33.3         34.1         35.2         36.7
Daimler...........................         29.2         32.0         32.7         33.3         34.4         35.8
Ford..............................         29.7         32.9         33.7         34.4         35.6         37.1
General Motors....................         30.3         32.7         33.5         34.2         35.4         36.9
Honda.............................         30.8         33.8         34.6         35.4         36.7         38.3
Hyundai...........................         30.9         33.8         34.3         35.1         36.6         38.2
Kia...............................         30.6         33.4         34.2         35.0         36.3         37.9
Mazda.............................         30.6         33.8         34.6         35.5         36.8         38.4
Mitsubishi........................         31.0         34.2         35.0         35.8         37.1         38.7
Nissan............................         30.7         33.3         34.1         34.9         36.1         37.7

[[Page 25614]]

Porsche...........................         31.2         35.9         36.8         37.8         39.2         41.1
Subaru............................         31.0         34.6         35.5         36.3         37.7         39.4
Suzuki............................         31.2         35.8         36.6         37.5         39.0         40.8
Tata..............................         28.0         30.7         31.4         32.1         33.3         34.7
Toyota............................         30.8         33.9         34.7         35.5         36.8         38.4
Volkswagen........................         30.8         34.3         35.0         35.9         37.2         38.8
Average...........................         30.4         33.3         34.2         34.9         36.2         37.8
----------------------------------------------------------------------------------------------------------------

    Because a manufacturer's required average fuel economy level for a 
model year under the final standards will be based on its actual 
production numbers in that model year, its official required fuel 
economy level will not be known until the end of that model year. 
However, because the targets for each vehicle footprint will be 
established in advance of the model year, a manufacturer should be able 
to estimate its required level accurately.
3. Minimum Domestic Passenger Car Standards
    EISA expressly requires each manufacturer to meet a minimum fuel 
economy standard for domestically manufactured passenger cars in 
addition to meeting the standards set by NHTSA. According to the 
statute (49 U.S.C. 32902(b)(4)) the minimum standard shall be the 
greater of (A) 27.5 miles per gallon; or (B) 92 percent of the average 
fuel economy projected by the Secretary for the combined domestic and 
non-domestic passenger automobile fleets manufactured for sale in the 
United States by all manufacturers in the model year. The agency must 
publish the projected minimum standards in the Federal Register when 
the passenger car standards for the model year in question are 
promulgated.
    As published in the MY 2011 final rule, the domestic minimum 
passenger car standard for MY 2011 was set at 27.8 mpg, which 
represented 92 percent of the final projected passenger car standards 
promulgated for that model year.\697\ NHTSA stated at the time that 
``The final calculated minimum standards will be updated to reflect any 
changes in the projected passenger car standards.'' \698\ Subsequently, 
in the NPRM proposing the MYs 2012-2016 standards, NHTSA noted that 
given changes in the projected estimated required passenger car 
standard for MY 2011,\699\ 92 percent of that standard would be 28.0 
mpg, not 27.8 mpg, and proposed to raise the minimum domestic passenger 
car standard accordingly.
---------------------------------------------------------------------------

    \697\ See 74 FR at 14410 (Mar. 30, 3009).
    \698\ Id.
    \699\ Readers should remember, of course, that the ``estimated 
required standard'' is not necessarily the ultimate mpg level with 
which manufacturers will have to comply, because the ultimate mpg 
level for each manufacturer is determined at the end of the model 
year based on the target curves and the mix of vehicles that each 
manufacturer has produced for sale. The mpg level designated as 
``estimated required' is exactly that, an estimate.
---------------------------------------------------------------------------

    The Alliance commented to the NPRM that the minimum domestic 
passenger car standard is subject to the 18-month lead time rule for 
standards per 49 U.S.C. per 49 U.S.C. 32902(a), and that NHTSA 
therefore cannot revise it at this time. Toyota individually offered 
identical comments.
    49 U.S.C. 32902(b)(4)(B) does state that the minimum domestic 
passenger car standard shall be 92 percent of the projected average 
fuel economy for the passenger car fleet, ``which projection shall be 
published in the Federal Register when the standard for that model year 
is promulgated in accordance with this section.'' In reviewing the 
statute, the agency concurs that the minimum domestic passenger car 
standard should be based on the agency's fleet assumptions when the 
passenger car standard for that year is promulgated, which would make 
it inappropriate to change the minimum standard for MY 2011 at this 
time. However, we note that we do not read this language to preclude 
any change in the minimum standard after it is first promulgated for a 
model year. As long as the 18-month lead-time requirement of 49 U.S.C. 
32902(a) is respected, NHTSA believes that the language of the statute 
suggests that the 92 percent should be determined anew any time the 
passenger car standards are revised.
    The Alliance also commented that the minimum domestic passenger car 
standard should be based on the projected ``actual'' (NHTSA refers to 
this as ``estimated achieved'') mpg level for the combined passenger 
car fleet, rather than based on the projected ``target'' mpg level 
(NHTSA refers to this as ``estimated required'') for the combined 
fleet. The Alliance argued that the plain language of the statute 
states that 92 percent should be taken of the ``average fuel economy 
projected * * * for the combined * * * fleets,'' which is different 
than the average fuel economy standard projected. The Alliance further 
argued that using the ``estimated achieved'' value to determine the 92 
percent will avoid inadvertently ``considering'' FFV credits in setting 
the minimum standard, since the ``estimated achieved'' value is 
determined by ignoring FFV credits. Toyota individually offered 
identical comments.
    NHTSA disagrees that the minimum standard should be based on the 
estimated achieved levels rather than the estimated required levels. 
NHTSA interprets Congress' reference in the second clause of 
32902(b)(4)(B) to the standard promulgated in that model year as 
indicating that Congress intended ``projected average fuel economy'' in 
the first clause to pertain to the estimated required level, not the 
estimated achieved level. The Alliance's concern that a minimum 
standard based on the estimated required level ``inadvertently 
considers'' FFV credits is misplaced, because NHTSA is statutorily 
prohibited from considering FFV credits in setting maximum feasible 
standards. Thus, NHTSA has continued to determine the minimum domestic 
passenger car standard based on the estimated required mpg levels 
projected for the model years covered by the rulemaking.
    Based on NHTSA's current market forecast, the agency's estimates of 
these minimum standards under the final MY 2012-2016 CAFE standards 
(and, for comparison, the final MY 2011 minimum domestic passenger car 
standard) are summarized below in Table IV.E.3-1.

[[Page 25615]]

 Table IV.E.3-1--Estimated Minimum Standard for Domestically Manufactured Passenger Cars Under Final MY 2011 and
                              Final MY 2012-2016 CAFE Standards for Passenger Cars
----------------------------------------------------------------------------------------------------------------
       2011               2012               2013               2014               2015               2016
----------------------------------------------------------------------------------------------------------------
           27.8               30.7               31.4               32.1               33.3               34.7
----------------------------------------------------------------------------------------------------------------

4. Light Truck Standards
    For light trucks, NHTSA proposed CAFE standards defined by the 
following coefficients during MYs 2012-2016:

        Table IV.E.4-1--Coefficients Defining Proposed MY 2012-2016 Fuel Economy Targets for Light Trucks
----------------------------------------------------------------------------------------------------------------
           Coefficient                 2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
a (mpg).........................      29.44           30.32           31.30           32.70           34.38
b (mpg).........................      22.06           22.55           23.09           23.84           24.72
c (gpm/sf)......................       0.0004546       0.0004546       0.0004546       0.0004546       0.0004546
d (gpm).........................       0.01533         0.01434         0.01331         0.01194         0.01045
----------------------------------------------------------------------------------------------------------------

    After updating inputs to its analysis, and revisiting the form and 
stringency of both passenger cars and light truck standards, as 
discussed in Section II, NHTSA is finalizing light truck CAFE standards 
defined by the following coefficients during MYs 2012-2016:

         Table IV.E.4-2--Coefficients Defining Final MY 2012-2016 Fuel Economy Targets for Light Trucks
----------------------------------------------------------------------------------------------------------------
           Coefficient                 2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
a (mpg).........................      29.82           30.67           31.38           32.72           34.42
b (mpg).........................      22.27           22.74           23.13           23.85           24.74
c (gpm/sf)......................       0.0004546       0.0004546       0.0004546       0.0004546       0.0004546
d (gpm).........................       0.014900        0.013968        0.013225        0.011920        0.010413
----------------------------------------------------------------------------------------------------------------

    As for passenger cars, these coefficients reflect the agency's 
decision, discussed above in Section II, to leave the shapes of both 
the passenger car and light truck curves unchanged. They also reflect 
the agency's reevaluation of the ``gap'' in stringency between the 
passenger car and light truck standard, also discussed in Section II.
    These coefficients result in the footprint-dependent targets shown 
graphically below. The MY 2011 final standard, which is specified by a 
constrained logistic function rather than a constrained linear 
function, is shown for comparison.

[[Page 25616]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.035

    Again, given these targets, the CAFE levels required of individual 
manufacturers will depend on the mix of vehicles they produce for sale 
in the United States. Based on the market forecast NHTSA has used to 
examine today's final CAFE standards, the agency estimates that the 
targets shown above will result in the following average required fuel 
economy levels for individual manufacturers during MYs 2012-2016 (an 
updated estimate of the average required fuel economy level under the 
final MY 2011 standard is shown for comparison): \700\
---------------------------------------------------------------------------

    \700\ In the March 2009 final rule establishing MY 2011 
standards for passenger cars and light trucks, NHTSA estimated that 
the required fuel economy levels for light trucks would average 24.1 
mpg under the MY 2011 light truck standard. Based on the agency's 
current forecast of the MY 2011 light truck market, NHTSA now 
estimates that the required fuel economy levels will average 24.4 
mpg in MY 2011. The increase in the estimate reflects a decrease in 
the size of the average light truck.

           Table IV.E.4-3--Estimated Average Fuel Economy Required Under Final MY 2011 and Final MY 2012-2016 CAFE Standards for Light Trucks
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      Manufacturer                            MY 2011         MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.....................................................            25.6            26.6            27.3            27.9            28.9            30.2
Chrysler................................................            24.5            25.7            26.2            26.8            27.8            29.0
Daimler.................................................            24.7            25.6            26.3            26.9            27.8            29.1
Ford....................................................            23.7            24.8            25.4            26.0            27.0            28.1
General Motors..........................................            23.3            24.2            24.8            25.2            26.1            27.2
Honda...................................................            25.7            26.9            27.5            28.0            29.1            30.4
Hyundai.................................................            25.9            27.0            27.6            28.2            29.3            30.7
Kia.....................................................            25.2            26.2            26.7            27.3            28.3            29.5
Mazda...................................................            26.2            27.6            28.4            28.9            30.1            31.5
Mitsubishi..............................................            26.4            27.8            28.5            29.1            30.2            31.7
Nissan..................................................            24.5            25.6            26.2            26.8            27.8            29.1
Porsche.................................................            25.5            26.3            26.9            27.5            28.5            29.8
Subaru..................................................            26.5            27.9            28.6            29.2            30.4            31.9
Suzuki..................................................            26.3            27.5            28.2            28.8            29.9            31.4
Tata....................................................            26.2            27.4            28.2            28.8            29.9            31.3
Toyota..................................................            24.6            25.7            26.2            26.8            27.8            29.1

[[Page 25617]]

Volkswagen..............................................            25.0            25.8            26.4            27.0            28.0            29.2
Average.................................................            24.4            25.4            26.0            26.6            27.5            28.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As discussed above with respect to the final passenger cars 
standards, we note that a manufacturer's required fuel economy level 
for a model year under the final standards will be based on its actual 
production numbers in that model year.

F. How do the final standards fulfill NHTSA's statutory obligations?

    In developing the proposed MY 2012-16 standards, the agency 
developed and considered a wide variety of alternatives. In response to 
comments received in the last round of rulemaking, in our March 2009 
notice of intent to prepare an environmental impact statement, the 
agency selected a range of candidate stringencies that increased 
annually, on average, 3% to 7%.\701\ That same approach has been 
carried over to this final rule and to the accompanying FEIS and FRIA. 
Thus, the majority of the alternatives considered in this rulemaking 
are defined as average percentage increases in stringency--3 percent 
per year, 4 percent per year, 5 percent per year, and so on. NHTSA 
believes that this approach clearly communicates the level of 
stringency of each alternative and allows us to identify alternatives 
that represent different ways to balance NHTSA's statutory requirements 
under EPCA/EISA.
---------------------------------------------------------------------------

    \701\ Notice of intent to prepare an EIS, 74 FR 14857, 14859-60, 
April 1, 2009.
---------------------------------------------------------------------------

    In the NPRM, we noted that each of the listed alternatives 
represents, in part, a different way in which NHTSA could conceivably 
balance different policies and considerations in setting the standards. 
We were mindful that the agency needs to weigh and balance many 
factors, such as technological feasibility, economic practicability, 
including lead time considerations for the introduction of technologies 
and impacts on the auto industry, the impacts of the standards on fuel 
savings and CO2 emissions, and fuel savings by consumers, as 
well as other relevant factors such as safety. For example, the 7% 
Alternative weighs energy conservation and climate change 
considerations more heavily and technological feasibility and economic 
practicability less heavily. In contrast, the 3% Alternative, the least 
stringent alternative, places more weight on technological feasibility 
and economic practicability. We recognized that the ``feasibility'' of 
the alternatives also may reflect differences and uncertainties in the 
way in which key economic (e.g., the price of fuel and the social cost 
of carbon) and technological inputs could be assessed and estimated or 
valued. We also recognized that some technologies (e.g., PHEVs and EVs) 
will not be available for more than limited commercial use through MY 
2016, and that even those technologies that could be more widely 
commercialized through MY 2016 cannot all be deployed on every vehicle 
model in MY 2012 but require a realistic schedule for more widespread 
commercialization to be within the realm of economically 
practicability.
    In addition to the alternatives that increase evenly at annual 
rates ranging from 3% to 7%, NHTSA also included alternatives developed 
using benefit-cost criteria. The agency emphasized benefit-cost-related 
alternatives in its rulemakings for MY 2008-2011 and, subsequently, MY 
2011 standards. By including such alternatives in its current analysis, 
the agency is providing a degree of analytical continuity between the 
two approaches to defining alternatives in an effort to illustrate the 
similarities and dissimilarities. To that end, we included and analyzed 
two additional alternatives, one that sets standards at the point where 
net benefits are maximized (labeled ``MNB'' in the table below), and 
another that sets standards at the point at which total costs are most 
nearly equal to total benefits (labeled ``TCTB'' in the table 
below).\702\ With respect to the first of those alternatives, we note 
that Executive Order 12866 focuses attention on an approach that 
maximizes net benefits. Further, since NHTSA has thus far set 
attribute-based CAFE standards at the point at which net benefits are 
maximized, we believed it would be useful and informative to consider 
the potential impacts of that approach as compared to the new approach 
for MYs 2012-2016.
---------------------------------------------------------------------------

    \702\ The stringency indicated by each of these alternatives 
depends on the value of inputs to NHTSA's analysis. Results 
presented here for these two alternatives are based on NHTSA's 
reference case inputs, which underlie the central analysis of the 
proposed standards. In the accompanying FRIA, the agency presents 
the results of that analysis to explore the sensitivity of results 
to changes in key economic inputs. Because of numerous changes in 
model inputs (e.g., discount rate, rebound effect, CO2 
value, technology cost estimates), our analysis often exhausts all 
available technologies before reaching the point at which total 
costs equal total benefits. In these cases, the stringency that 
exhausts all available technologies is considered.
---------------------------------------------------------------------------

    After working with EPA in thoroughly reviewing and in some cases 
reassessing the effectiveness and costs of technologies (most of which 
are already being incorporated in at least some vehicles), market 
forecasts and economic assumptions, NHTSA used the Volpe model 
extensively to assess the technologies that the manufacturers could 
apply in order to comply with each of the alternatives. This allowed us 
to assess the variety, amount and cost of the technologies that could 
be used to enable the manufacturers to comply with each of the 
alternatives. NHTSA estimated how the application of these and other 
technologies could increase vehicle costs, reduce fuel consumption, and 
reduce CO2 emissions.
    The agency then assessed which alternative would represent a 
reasonable balancing of the statutory criteria, given the difficulties 
confronting the industry and the economy, and other relevant goals and 
priorities. Those priorities and goals include maximizing energy 
conservation and achieving a nationally harmonized and coordinated 
program for regulating fuel economy and GHG emissions.
    Part of that assessment of alternatives entailed an evaluation of 
the stringencies necessary to achieve both Federal and State GHG 
emission reduction goals, especially those of California and the States 
that have adopted its GHG emission standard for motor vehicles. Given 
that EPCA requires attribute-based standards, NHTSA and EPA determined 
the level at which a national attribute-based GHG emissions standard 
would need to be set to achieve the same emission reductions in 
California as the California GHG program. This was done by evaluating a 
nationwide Clean Air Act standard for MY 2016 that would apply across 
the country and require the levels of emissions reduction which 
California standards would require for the subset

[[Page 25618]]

of vehicles sold in California under the California standards for MY 
2009-2016 (known as ``Pavley 1''). In essence, the stringency of the 
California Pavley 1 program was evaluated, but for a national standard. 
For a number of reasons discussed in Section III.D, an assessment was 
developed of national new vehicle fleet-wide CO2 performance 
standards for model year 2016 which would result in the new light-duty 
vehicle fleet in the State of California having CO2 
performance equal to the performance from the California Pavley 1 
standards. That level, 250 g/mi, is equivalent to 35.5 mpg if the GHG 
standard were met exclusively by fuel economy improvements--and the 
overall result is the model year 2016 goals of the National Program.
    However, the level of stringency for the National Program goal of 
250 g/mi CO2 can be met with both fuel economy ``tailpipe'' 
improvements as well as other GHG-reduction related improvements, such 
as A/C refrigerant leakage reductions. CAFE standards, as discussed 
elsewhere in this final rule, cannot be met by improvements that cannot 
be accounted for on the FTP/HFET tests. Thus, setting CAFE standards at 
35.5 mpg would require more tailpipe technology (at more expense to 
manufacturers) than would be required under such a CAA standard. To 
obtain an equivalent CAFE standard, we determined how much tailpipe 
technology would be necessary in order to meet an mpg level of 35.5 if 
manufacturers also employed what EPA deemed to be an average amount of 
A/C ``credits'' (leakage and efficiency) to reach the 250 g/mi 
equivalent. This results in a figure of 34.1 mpg as the appropriate 
counterpart CAFE standard. This differential gives manufacturers the 
opportunity to reach 35.5 mpg equivalent under the CAA in ways that 
would significantly reduce their costs. Were NHTSA instead to establish 
its standard at the same level, manufacturers would need to make 
substantially greater expenditures on fuel-saving technologies to reach 
35.5 mpg under EPCA.
    Thus, as part of the process of considering all of the factors 
relevant under EPCA for setting standards, in a context where achieving 
a harmonized National Program is important, for the proposal we created 
a new alternative whose annual percentage increases would achieve 34.1 
mpg by MY 2016. That alternative is one which increases on average at 
4.3% annually. This new alternative, like the seven alternatives 
presented above, represents a unique balancing of the statutory factors 
and other relevant considerations. For the reader's reference, the 
estimated required levels of stringency for each alternative in each 
model year are presented below:
---------------------------------------------------------------------------

    \703\ Also, the ``MNB'' and the ``TCTB'' alternatives depend on 
the inputs to the agencies' analysis. The sensitivity analysis 
presented in the FRIA documents the response of these alternatives 
to changes in key economic inputs. For example, the combined average 
required fuel economy under the ``MNB'' alternative is 36.9 mpg 
under the reference case economic inputs presented here, and ranges 
from 33.7 mpg to 37.2 mpg under the alternative economic inputs 
presented in the FRIA. See Table X-14 in the FRIA.

                                  Table IV.F-1--Estimated Required Fuel Economy Level for Regulatory Alternatives \703\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Alt. 1       Alt. 2       Alt. 3       Alt. 4       Alt. 5       Alt. 6       Alt. 7       Alt. 8       Alt. 9
                                    --------------------------------------------------------------------------------------------------------------------
                                                                                                       ~6.0%/year                             ~6.6%/year
                                      No action     3%/year      4%/year     ~4.3%/year    5%/year      increase     6%/year      7%/year      increase
                                                    increase     increase     increase     increase       MNB        increase     increase       TCTB
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012:
Passenger Cars.....................         30.5         31.7         32.1         33.3         32.4         33.0         32.7         33.0         33.4
Light Trucks.......................         24.4         24.1         24.4         25.4         24.6         26.3         24.9         25.1         26.3
                                    --------------------------------------------------------------------------------------------------------------------
    Combined.......................         27.8         28.3         28.6         29.7         28.8         30.0         29.1         29.4         30.3
2013:
Passenger Cars.....................         30.5         32.6         33.3         34.2         33.9         36.1         34.5         35.2         36.7
Light Trucks.......................         24.4         24.8         25.3         26.0         25.8         27.7         26.3         26.8         28.0
                                    --------------------------------------------------------------------------------------------------------------------
    Combined.......................         27.8         29.1         29.7         30.5         30.3         32.3         30.8         31.4         32.8
2014:
Passenger Cars.....................         30.5         33.5         34.5         34.9         35.5         38.1         36.5         37.6         39.2
Light Trucks.......................         24.5         25.5         26.3         26.6         27.0         29.1         27.8         28.6         29.7
                                    --------------------------------------------------------------------------------------------------------------------
    Combined.......................         28.0         30.0         30.9         31.3         31.8         34.2         32.7         33.7         35.0
2015:
Passenger Cars.....................         30.5         34.4         35.8         36.2         37.1         39.4         38.6         40.1         40.7
Light Trucks.......................         24.4         26.2         27.2         27.5         28.3         30.3         29.4         30.5         30.7
                                    --------------------------------------------------------------------------------------------------------------------
    Combined.......................         28.0         31.0         32.2         32.6         33.4         35.6         34.7         36.0         36.5
2016:
Passenger Cars.....................         30.5         35.4         37.2         37.8         39.0         40.9         40.9         42.9         42.3
Light Trucks.......................         24.4         27.0         28.3         28.8         29.7         31.1         31.1         32.6         31.8
                                    --------------------------------------------------------------------------------------------------------------------
    Combined.......................         28.1         32.0         33.6         34.1         35.2         36.9         36.9         38.7         38.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The following figure presents this same information but in a 
different way, comparing estimated average fuel economy levels required 
of manufacturers under the eight regulatory alternatives in MYs 2012, 
2014, and 2016. Required levels for MY 2013 and MY 2015 fall between 
those for MYs 2012 and 2014 and MYs 2014 and 2016, respectively. 
Although required levels for these interim years are not presented in 
the following figure to limit the complexity of the figure, they do 
appear in the accompanying FRIA.

[[Page 25619]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.036

    As this figure illustrates, the final standards involve a ``faster 
start'' toward increased stringency than do any of the alternatives 
that increase steadily (i.e., the 3%/y, 4%/y, 5%/y, 6%/y, and 7%/y 
alternatives). However, by MY 2016, the stringency of the final 
standards reflects an average annual increase of 4.3%/y. The final 
standards, therefore, represent an alternative that could be referred 
to as ``4.3% per year with a fast start'' or a ``front-loaded 4.3% 
average annual increase.''
    For each alternative, including today's final standards, NHTSA has 
estimated all corresponding effects for each model year, including fuel 
savings, CO2 reductions, and other effects, as well as the 
estimated societal benefits of these effects. The accompanying FRIA 
presents a detailed analysis of these results. Table IV.F-2 presents 
fuel savings, CO2 reductions, and total industry cost 
outlays for model year 2012--2016 for the eight alternatives.

          Table IV.F-2--Fuel Savings, CO2 Reductions, and Technology Costs for Regulatory Alternatives
----------------------------------------------------------------------------------------------------------------
                                                                                        CO2
                     Regulatory alternative                        Fuel savings     reductions       Cost ($b)
                                                                     (b. gal)          (mmt)
----------------------------------------------------------------------------------------------------------------
3% per Year.....................................................              34             373              23
4% per Year.....................................................              50             539              39
Final (4.3% per Year)...........................................              61             655              52
5% per Year.....................................................              68             709              63
6% per Year.....................................................              82             840              90
Maximum Net Benefit.............................................              90             925             103
7% per Year.....................................................              93             945             111
Total Cost = Total Benefit......................................              96             986             114
----------------------------------------------------------------------------------------------------------------

    As noted earlier, NHTSA has used the Volpe model to analyze each of 
these alternatives based on analytical inputs determined jointly with 
EPA. For a given regulatory alternative, the Volpe model estimates how 
each manufacturer could apply technology in response to the MY 2012 
standard (separately for cars and trucks), carries technologies

[[Page 25620]]

applied in MY 2012 forward to MY 2013, and then estimates how each 
manufacturer could apply technology in response to the MY 2013 
standard. When analyzing MY 2013, the model considers the potential to 
add ``extra'' technology in MY 2012 in order to carry that technology 
into MY 2013, thereby avoiding the use of more expensive technologies 
in MY 2013. The model continues in this fashion through MY 2016, and 
then performs calculations to estimate the costs, effects, and benefits 
of the applied technologies, and to estimate any civil penalties owed 
based on projected noncompliance. For each regulatory alternative, the 
model calculates incremental costs, effects, and benefits relative to 
the regulatory baseline (i.e., the no-action alternative), under which 
the MY 2011 CAFE standards continue through MY 2016. The model 
calculates results for each model year, because EPCA requires that 
NHTSA set its standards for each model year at the ``maximum feasible 
average fuel economy level that the Secretary decides the manufacturers 
can achieve in that model year'' considering four statutory factors. 
Pursuant to EPCA's requirement that NHTSA not consider statutory 
credits in establishing CAFE standards, NHTSA did not consider FFV 
credits, credits carried forward and backward, and transferred credits 
in this calculation 704, 705 In addition, the analysis 
incorporates fines for some manufacturers that have traditionally paid 
fines rather than comply with the standards. Because it entails year-
by-year examination of eight regulatory alternatives for, separately, 
passenger cars and light trucks, NHTSA's analysis involves a large 
amount of information. Detailed results of this analysis are presented 
separately in NHTSA's FRIA.
---------------------------------------------------------------------------

    \704\ NHTSA has conducted a separate analysis, discussed above 
in Section I, which accounts for EPCA's provisions regarding FFVs.
    \705\ For a number of reasons, the results of this modeling 
differ from EPA's for specific manufacturers, fleets, and model 
years. These reasons include representing every model year 
explicitly, accounting for estimates of when vehicle model redesigns 
will occur, and not considering those compliance flexibilities where 
EPCA forbids such consideration in setting CAFE standards. It should 
be noted, however, that these flexibilities in fact provide 
manufacturers significant latitude to manage their compliance 
obligations.
---------------------------------------------------------------------------

    In reviewing the results of the various alternatives, NHTSA 
confirmed that progressive increases in stringency require 
progressively greater deployment of fuel-saving technology and 
corresponding increases in technology outlays and related costs, fuel 
savings, and CO2 emission reductions. To begin, NHTSA 
estimated total incremental outlays for additional technology in each 
model year. The following figure shows cumulative results for MYs 2012-
2016 for industry as a whole and Chrysler, Ford, General Motors, Honda, 
Nissan, and Toyota. This figure focuses on these manufacturers as they 
currently (in MY 2010) represent three large U.S.-headquartered and 
three large foreign-headquartered full-line manufacturers.
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[GRAPHIC] [TIFF OMITTED] TR07MY10.037

[[Page 25621]]

    As part of the incremental technology outlays, NHTSA also analyzes 
which technologies manufacturers could apply to meet the standards. In 
NHTSA's analysis, manufacturers achieve compliance with the fuel 
economy levels through application of technology rather than through 
changes in the mix of vehicles produced for sale in the U.S. The 
accompanying FRIA presents detailed estimates of additional technology 
penetration into the NHTSA reference fleet associated with each 
regulatory alternative. The following four charts illustrate the 
results of this analysis, considering the application of four 
technologies by six manufacturers and by the industry as a whole. 
Technologies include gasoline direct injection (GDI), engine 
turbocharging and downsizing, diesel engines, and strong HEV systems 
(including CISG systems). GDI and turbocharging are presented because 
they are among the technologies that play an important role in 
achieving the fuel economy improvements shown in NHTSA's analysis, and 
diesels and strong HEVs are presented because they represent 
technologies involving significant cost and related lead time 
challenges for widespread use through MY 2016. These figures focus on 
Chrysler, Ford, General Motors, Honda, Nissan, and Toyota, as above. 
For each alternative, the figures show additional application of 
technology by MY 2016.\706\
---------------------------------------------------------------------------

    \706\ The FRIA presents results for all model years, 
technologies, and manufacturers, and NHTSA has considered these 
broader results when considering the eight regulatory alternatives.
---------------------------------------------------------------------------

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[GRAPHIC] [TIFF OMITTED] TR07MY10.038

[[Page 25622]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.039

[[Page 25623]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.040

[[Page 25624]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.041

    The modeling analysis demonstrates that applying these 
technologies, of course, results in fuel savings. Relevant to EPCA's 
requirement that NHTSA consider, among other factors, economic 
practicability and the need of the nation to conserve energy, the 
following figure compares the incremental technology outlays and 
related cost presented above for the industry to the corresponding 
cumulative fuel savings.

[[Page 25625]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.042

    These incremental technology outlays (and corresponding fuel 
savings) also result in corresponding increases in incremental cost per 
vehicle, as shown below. The following five figures show industry-wide 
average incremental (i.e., relative to the reference fleet) per-vehicle 
costs, for each model year, each fleet, and the combined fleet. 
Estimates specific to each manufacturer are shown in NHTSA's FRIA.

[[Page 25626]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.043

[[Page 25627]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.044

[[Page 25628]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.045

[[Page 25629]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.046

[[Page 25630]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.047

BILLING CODE 6560-50-C
    As discussed in the NPRM, the agency began the process of winnowing 
the alternatives by determining whether any of the lower stringency 
alternatives should be eliminated from consideration. To begin with, 
the agency needs to ensure that its standards are high enough to enable 
the combined fleet of passenger cars and light trucks to achieve at 
least 35 mpg not later than MY 2020, as required by EISA. Achieving 
that level makes it necessary for the chosen alternative to increase at 
over 3 percent annually. Additionally, given that CO2 and 
fuel savings are very closely correlated, the 3%/y and 4%/y alternative 
would not produce the reductions in fuel savings and CO2 
emissions that the Nation needs at this time. Picking either of those 
alternatives would unnecessarily result in foregoing substantial 
benefits, in terms of fuel savings and reduced CO2 
emissions, which would be achievable at reasonable cost. And finally, 
neither the 3%/y nor the 4%/y alternatives would lead to the regulatory 
harmonization that forms a vital core principle of the National Program 
that EPA and NHTSA are jointly striving to implement. These 
alternatives would give inadequate weight to other standards of the 
Government, specifically EPA's and CARB's. Thus, the agency concluded 
that alternatives less stringent than the proposed standards would not 
yield the emissions reductions required to produce a harmonized 
national program and would not produce corresponding fuel savings, and 
therefore would not place adequate emphasis on the nation's need to 
conserve energy. NHTSA has therefore concluded that it must reject the 
3%/y and 4%/y alternatives.
    NHTSA then considered the ``environmentally-preferable'' 
alternative. Based on the information provided in the FEIS, the 
environmentally-preferable alternative would be that involving 
stringencies that increase at 7% annually.\707\ NHTSA notes that NEPA 
does not require that agencies choose the environmentally-preferable 
alternative if doing so would be contrary to the choice that the agency 
would otherwise make under its governing statute. Given the levels of 
technology and cost required by the environmentally-preferable 
alternative and the lack of lead time to achieve such levels between 
now and MY 2016, as discussed further below, NHTSA concludes that the 
environmentally-preferable alternative would not be economically 
practicable or technologically feasible, and thus concludes that it 
would result in standards that would be beyond the level achievable for 
MYs 2012-2016.
---------------------------------------------------------------------------

    \707\ See, e.g., FEIS, figure S-12, p. 18, which shows that 7%/y 
alternative yields greatest cumulative effect on global mean 
temperature.
---------------------------------------------------------------------------

    For the other alternatives, NHTSA determined that it would be 
inappropriate to choose any of the other more stringent alternatives 
due to concerns over lead time and economic practicability. There are 
real-world technological and economic time constraints which must be 
considered due to the short lead time available for the early years of 
this program, in particular for MYs 2012 and 2013. The alternatives 
more stringent than the final standards begin to accrue costs 
considerably more rapidly than they accrue fuel savings and emissions 
reductions, and at levels that are increasingly economically 
burdensome, especially considering the need to make underlying 
investments (e.g., for

[[Page 25631]]

engineering and tooling) well in advance of actual production. As shown 
in Figures IV-2 to IV-6 above, while the final standards already 
require aggressive application of technologies, more stringent 
standards would require more widespread use (including more substantial 
implementation of advanced technologies such as stoichiometric gasoline 
direct injection engines, diesel engines, and strong hybrids), and 
would raise serious issues of adequacy of lead time, not only to meet 
the standards but to coordinate such significant changes with 
manufacturers' redesign cycles. The agency maintains, as it has 
historically, that there is an important distinction between 
considerations of technological feasibility and economic 
practicability, both of which enter into the agency's determination of 
the maximum feasible levels of stringency. A given level of performance 
may be technologically feasible (i.e., setting aside economic 
constraints) for a given vehicle model. However, it would not be 
economically practicable to require a level of fleet average 
performance that assumes every vehicle will immediately (i.e., within 
18 months of the rule's promulgation) perform at its highest 
technologically feasible level, because manufacturers do not have 
unlimited access to the financial resources or the time required to 
hire enough engineers, build enough facilities, and install enough 
tooling. The lead time reasonably needed to make capital investments 
and to devote the resources and time to design and prepare for 
commercial production of a more fuel efficient vehicle is an important 
element that NHTSA takes into consideration in establishing the 
standards.
    In addition, the figures presented above reveal that increasing 
stringency beyond the final standards would entail significant 
additional application of technology. Among the more stringent 
alternatives, the one closest in stringency to the standards being 
finalized today is the alternative under which combined CAFE stringency 
increases at 5% annually. As indicated above, this alternative would 
yield fuel savings and CO2 reductions about 11% and 8% 
higher, respectively, than the final standards. However, compared to 
the final standards, this alternative would increase outlays for new 
technologies during MY 2012-2016 by about 22%, or $12b. Average MY 2016 
cost increases would, in turn, rise from $903 under the final standards 
to $1,152 when stringency increases at 5% annually. This represents a 
28% increase in per-vehicle cost for only a 3% increase in average 
performance (on a gallon-per-mile basis to which fuel savings are 
proportional). Additionally, the 5%/y alternative disproportionally 
burdens the light truck fleet requiring a nearly $400 (42 percent) cost 
increase in MY 2016 compared to the final standards. The following 
three tables summarize estimated manufacturer-level average incremental 
costs for the 5%/y alternative and the average of the passenger and 
light truck fleets:

Table IV.F-3--Average Incremental Costs ($/Vehicle) Under the 5%/y Alternative CAFE Standards for Passenger Cars
----------------------------------------------------------------------------------------------------------------
        Manufacturer              MY 2012         MY 2013          MY 2014          MY 2015          MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.........................               3               4               24              184              585
Chrysler....................             734           1,303            1,462            1,653            1,727
Daimler.....................  ..............  ...............             410              801            1,109
Ford........................             743           1,245            1,261            1,583            1,923
General Motors..............             448             823            1,187            1,425            1,594
Honda.......................              50             109              271              375              606
Hyundai.....................             747             877            1,057            1,052            1,124
Kia.........................              49             128              197              261              369
Mazda.......................             555             718            1,166            1,407            1,427
Mitsubishi..................             534             507            2,534            3,213            3,141
Nissan......................             294             491              965            1,064            1,125
Porsche.....................              68             (52)             (51)             (50)             (49)
Subaru......................             292             324            1,372            1,723            1,679
Suzuki......................  ..............             959            1,267            1,316            1,540
Tata........................             111              93              183              306              710
Toyota......................              31              29               52              129              212
Volkswagen..................             145             428              477              492              783
                             -----------------------------------------------------------------------------------
    Average.................             337             540              726              886            1,053
----------------------------------------------------------------------------------------------------------------

 Table IV.F-4--Average Incremental Costs ($/Vehicle) Under the 5%/y Alternative CAFE Standards for Light Trucks
----------------------------------------------------------------------------------------------------------------
        Manufacturer              MY 2012         MY 2013          MY 2014          MY 2015          MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.........................             169             160              201              453              868
Chrysler....................             360             559            1,120            1,216            1,432
Daimler.....................              60              55               51               52               51
Ford........................           1,207           1,663            1,882            2,258            2,225
General Motors..............             292             628              866              968            1,136
Honda.......................             258             234              611              750            1,047
Hyundai.....................             711             685            1,923            1,909            1,862
Kia.........................              47             293              556              782            1,157
Mazda.......................             248             408              419              519              768
Mitsubishi..................  ..............  ...............           1,037            1,189            1,556
Nissan......................             613             723            2,142            2,148            2,315
Porsche.....................  ..............              (0)              (1)             469              469
Subaru......................           1,225           1,220            1,365            1,374            1,330
Suzuki......................  ..............           1,998            1,895            1,837            2,096

[[Page 25632]]

Tata........................  ..............  ...............  ...............  ...............             503
Toyota......................              63             187              594              734              991
Volkswagen..................  ..............  ...............             514              458              441
                             -----------------------------------------------------------------------------------
    Average.................             415             628            1,026            1,173            1,343
----------------------------------------------------------------------------------------------------------------

Table IV.F-5--Average Incremental Costs ($/Vehicle) Under the 5%/y Alternative CAFE Standards for Passenger Cars
                                            and Light Trucks Combined
----------------------------------------------------------------------------------------------------------------
        Manufacturer              MY 2012         MY 2013          MY 2014          MY 2015          MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.........................              72              64               84              265              666
Chrysler....................             499             870            1,272            1,414            1,569
Daimler.....................              20              20              281              554              773
Ford........................             914           1,407            1,498            1,838            2,034
General Motors..............             371             726            1,033            1,205            1,379
Honda.......................             135             157              396              518              769
Hyundai.....................             742             838            1,237            1,186            1,235
Kia.........................              49             168              273              355              506
Mazda.......................             500             667            1,053            1,272            1,330
Mitsubishi..................             371             352            1,973            2,386            2,506
Nissan......................             399             565            1,344            1,387            1,467
Porsche.....................              52             (39)             (35)             130              124
Subaru......................             617             628            1,369            1,597            1,553
Suzuki......................  ..............           1,134            1,381            1,404            1,630
Tata........................              61              56              101              182              629
Toyota......................              43              82              239              333              466
Volkswagen..................             117             333              486              486              723
                             -----------------------------------------------------------------------------------
    Average.................             367             573              836              987            1,152
----------------------------------------------------------------------------------------------------------------

    These cost increases derive from increased application of advanced 
technologies as stringency increases past the levels in the final 
standards. For example, under the final standards, additional diesel 
application rates average 1.6% for the industry and range from 0% to 3% 
among Chrysler, Ford, GM, Honda, Nissan, and Toyota. Under standards 
increasing in combined stringency at 5% annually, these rates more than 
triple, averaging 6.2% for the industry and ranging from 0% to 21% for 
the same six manufacturers.
    These technology and cost increases are significant, given the 
amount of lead-time between now and model years 2012-2016. In order to 
achieve the levels of technology penetration for the final standards, 
the industry needs to invest significant capital and product 
development resources right away, in particular for the 2012 and 2013 
model year, which is only 2-3 years from now. For the 2014-2016 time 
frame, significant product development and capital investments will 
need to occur over the next 2-3 year in order to be ready for launching 
these new products for those model years. Thus a major part of the 
required capital and resource investment will need to occur now and 
over the next few years, under the final standards. NHTSA believes that 
the final rule requires significant investment and product development 
costs for the industry, focused on the next few years.
    It is important to note, and as discussed later in this preamble, 
as well as in the Joint Technical Support Document and the agency's 
Regulatory Impact Analysis, the average model year 2016 per-vehicle 
cost increase of more than $900 includes an estimate of both the 
increase in capital investments by the auto companies and the suppliers 
as well as the increase in product development costs. These costs can 
be significant, especially as they must occur over the next 2-3 years. 
Both the domestic and transplant auto firms, as well as the domestic 
and world-wide automotive supplier base, are experiencing one of the 
most difficult markets in the U.S. and internationally that has been 
seen in the past 30 years. One major impact of the global downturn in 
the automotive industry and certainly in the U.S. is the significant 
reduction in product development engineers and staffs, as well as a 
tightening of the credit markets which allow auto firms and suppliers 
to make the near-term capital investments necessary to bring new 
technology into production.
    The agency concludes that the levels of technology penetration 
required by the final standards are reasonable. Increasing the 
standards beyond those levels would lead to rapidly increasing 
dependence on advanced technologies with higher costs--technology that, 
though perhaps technologically feasible for individual vehicle models, 
would, at the scales involved, pose too great an economic burden given 
the state of the industry, particularly in the early years of the 
rulemaking time frame.\708\
---------------------------------------------------------------------------

    \708\ Although the final standards are projected to be slightly 
more costly than the 5% alternative in MY 2012, that alternative 
standard becomes progressively more costly than the final standards 
in the remaining model years. See Figures IV.F.8 through IV.F.10 
above. Moreover, as discussed above, after MY 2012, the 5% 
alternative standard yields less incremental fuel economy benefits 
at increased cost (both industry-wide and per vehicle), 
directionally the less desirable result. These increased costs 
incurred to increase fuel economy through MY 2016 would impose 
significantly increased economic burden on the manufacturers in the 
next few calendar years to prepare for these future model years. In 
weighing the statutory factors, NHTSA accordingly rejected this 
alternative in favor of the final standard.
---------------------------------------------------------------------------

    Therefore, the agency concluded that these more stringent 
alternatives would give insufficient weight to economic practicability 
and related lead time

[[Page 25633]]

concerns, given the current state of the industry and the rate of 
increase in stringency that would be required. Overall, the agency 
concluded that among the alternatives considered by the agency, the 
proposed alternative contained the maximum feasible CAFE standards for 
MYs 2012-2016 as they were the most appropriate balance of the various 
statutory factors.
    Some commenters argued that the agency should select a more 
stringent alternative than that proposed in the NPRM. The Union of 
Concerned Scientists (UCS) commented that NHTSA should set standards to 
produce the ``maximum environmental benefit'' available at 
``reasonable'' cost, and at least at the stringency maximizing net 
benefits. Students from the University of California at Santa Barbara 
commented that the agency should have based standards not just on 
technologies known to be available, but also on technologies that may 
be available in the future--and should do so in order to force 
manufacturers to ``reach'' to greater levels of performance. Also, the 
Center for Biological Diversity (CBD) commented that, having conducted 
an unbiased cost-benefit analysis showing benefits three times the 
magnitude of costs for the proposed alternative, the agency should 
select a more stringent alternative. CBD also argued that the agency 
should have evaluated the extent to which manufacturers could deploy 
technology more rapidly than suggested by a five-year redesign cycle.
    Conversely, other commenters argued that NHTSA should select a less 
stringent alternative, either in all model years or at least in the 
earlier model years. Chrysler, VW, and the Alliance of Automobile 
Manufacturers commented that the stringency of NHTSA's CAFE standards 
should be further reduced relative to that of EPA's GHG emissions 
standards, so that manufacturers would not be required by CAFE to add 
any tailpipe technology beyond what they thought would be necessary to 
meet an mpg level of 35.5 minus the maximum possible A/C credits that 
could be obtained under the EPA program. Also, Chrysler, Daimler, 
Toyota, Volkswagen, and the Alliance argued that the agency should 
reduce the rate of increase in stringency to produce steadier and more 
``linear'' increases between MY 2011 and MY 2016. In addition, the 
Heritage Foundation commented that the proposed standards would, in 
effect, force accelerated progress toward EISA's ``35 mpg by 2020'' 
requirement, causing financially-stressed manufacturers to incur undue 
costs that would be passed along to consumers.
    However, most commenters supported the agency's selection of the 
proposed standards. The American Chemical Society, the New York 
Department of Environmental Conservation, the Washington State 
Department of Ecology, and several individuals all expressed general 
support for the levels of stringency proposed by NHTSA as part of the 
joint proposal. General Motors and Nissan both indicated that the 
proposed standards are consistent with the National Program announced 
by the President and supported in letters of commitment signed by these 
companies' executives. Finally, the California Air Resources Board 
(CARB) strongly supported the stringency of the proposed standards, as 
well as the agencies' underlying technical analysis and weighing of 
statutory factors. CARB further commented that the stringency increases 
in the earlier model years are essential to providing environmental 
benefits at least as great as would be achieved through state-level 
enforcement of CARB's GHG emissions standards.\709\
---------------------------------------------------------------------------

    \709\ Generally speaking, the cumulative benefits (in terms of 
fuel savings and GHG reductions) of front-loaded standards will be 
greater than standards that increase linearly.
---------------------------------------------------------------------------

    The agency has considered these comments and all others, and having 
considered those comments, believes the final standards best balance 
all relevant factors that the agency considers when determining maximum 
feasible CAFE standards. As discussed below, having updated inputs to 
its analysis and correspondingly updated its definition and analysis of 
these regulatory alternatives, the agency continues to conclude that 
manufacturers can respond to the proposed standards with technologies 
that will be available at reasonable cost. The agency finds that 
alternatives less stringent that the one adopted today would leave too 
much technology ``on the shelf'' unnecessarily, thereby failing to 
deliver the fuel savings that the nation needs or to yield 
environmental benefits necessary to support a harmonized national 
program. In response to some manufacturers' suggestion that NHTSA's 
CAFE standards should be made even less stringent compared to EPA's GHG 
emissions standards, NHTSA notes that the difference, consistent with 
the underlying Notice of Intent, is based on the agencies' estimate of 
the average amount of air conditioning credit earned, not the maximum 
theoretically available, and that NHTSA's analysis indicates that most 
manufacturers can achieve the CAFE standards by MY 2016 using tailpipe 
technologies. This is fully consistent with the agency's historical 
position. As NHTSA explained in the NPRM, the Conference Report for 
EPCA, as enacted in 1975, makes clear, and applicable law affirms, ``a 
determination of maximum feasible average fuel economy should not be 
keyed to the single manufacturer which might have the most difficulty 
achieving a given level of average fuel economy.'' CEI-I, 793 F.2d 
1322, 1352 (DC Cir. 1986). Instead, NHTSA is compelled ``to weigh the 
benefits to the nation of a higher fuel economy standard against the 
difficulties of individual automobile manufacturers.'' Id. Thus, the 
law permits CAFE standards exceeding the projected capability of any 
particular manufacturer as long as the standard is economically 
practicable for the industry as a whole.
    While some manufacturers may find greater A/C improvements to be a 
more cost-effective way of meeting the GHG standards, that does not 
mean those manufacturers will be unable to meet the CAFE standards with 
tailpipe technologies. NHTSA's analysis has demonstrated a feasible 
path to compliance with the CAFE standards for most manufacturers using 
those technologies. ``Economic practicability'' means just that, 
practicability, and need not always mean what is ``cheapest'' or ``most 
cost-effective'' for a specific manufacturer. Moreover, many of the A/C 
improvements on which manufacturers intend to rely for meeting the GHG 
standards will reduce GHG emissions, specifically HFC emissions, but 
they will not lead to greater fuel savings.\710\ The core purpose of 
the CAFE standards under EPCA is to reduce fuel consumption. NHTSA 
believes that less stringent standards would allow tailpipe fuel 
economy technologies to be left on the table that can be feasibly and 
economically applied, and failing to apply them would lead to a loss in 
fuel savings. This would not place appropriate emphasis on the core 
CAFE purpose of conserving fuel. For this reason, we decline to reduce 
the stringency of our standards as requested by some manufacturers. 
Similarly, we decline to pursue with EPA in this rulemaking the 
suggestion by one commenter that that

[[Page 25634]]

agency's calculation authority under EPCA be used to provide A/C 
credits.
---------------------------------------------------------------------------

    \710\ This is not to say that NHTSA means, in any way, to deter 
manufacturers from employing A/C technologies to meet EPA's 
standards, but simply to say that NHTSA's independent obligation to 
set maximum feasible CAFE standards to be met through application of 
tailpipe technologies alone must be fulfilled, while recognizing the 
flexibilities offered in another regulatory program.
---------------------------------------------------------------------------

    With respect to some manufacturers' concerns regarding the increase 
in stringency through MY 2013, the agency notes that stringency 
increases in these model years are especially important in terms of the 
accumulation of fuel savings and emission reductions over time. In 
addition, a weakening would risk failing to produce emission reductions 
at least as great as might be achieved through CARB's GHG standards. 
Therefore, the agency believes that alternatives less stringent than 
the one adopted today would not give sufficient emphasis to the 
nation's need to conserve energy. The requirement to set standards that 
increase ratably between MYs 2011 and 2020 must also be considered in 
the context of what levels of standards would be maximum feasible. The 
agency believes that the rate of increase of the final standards is 
reasonable.
    On the other hand, the agency disagrees with comments by UCS, CBD, 
and others indicating that more stringent standards would be 
appropriate. As discussed above, alternatives more stringent than the 
one adopted today would entail a rapidly increasing dependence on the 
most expensive technologies and those which are technically more 
demanding to implement, with commensurately rapid increases in costs. 
In the agency's considered judgment, these alternatives are not 
economically practicable, nor do they provide correspondingly 
sufficient lead time. The agency also disagrees with CBD's assertion 
that NHTSA and EPA have been overly conservative in assuming an average 
redesign cycle of 5 years. There are some manufacturers who apply 
longer cycles (such as smaller manufacturers described above), there 
are others who have shorter cycles for some of their products, and 
there are some products (e.g., cargo vans) that tend to be redesigned 
on longer cycles. NHTSA believes that there are no full line 
manufacturers who can maintain significant redesigns of vehicles (with 
relative large sales) in 1 or 2 years, and CBD has provided no evidence 
indicating this would be practicable. A complete redesign of the entire 
U.S. light-duty fleet by model year 2012 is clearly infeasible, and 
NHTSA and EPA believe that several model years additional lead time is 
necessary in order for the manufacturers to meet the most stringent 
standards. The graduated increase in the stringency of the standards 
from MYs 2012 through 2016 accounts for the economic necessity of 
timing the application of many major technologies to coincide with 
scheduled model redesigns.
    In contrast, through analysis of the illustrative results shown 
above, as well as the more complete and detailed results presented in 
the accompanying FRIA, NHTSA has concluded that the final standards are 
technologically feasible and economically practicable. The final 
standards will require manufacturers to apply considerable additional 
technology, starting with very significant investment in technology 
design, development and capital investment called for in the next few 
years. Although NHTSA cannot predict how manufacturers will respond to 
the final standards, the agency's analysis indicates that the standards 
could lead to significantly greater use of advanced engine and 
transmission technologies. As shown above, the agency's analysis shows 
considerable increases in the application of SGDI systems and engine 
turbocharging and downsizing. Though not presented above, the agency's 
analysis also shows similarly large increases in the use of dual-clutch 
automated manual transmissions (AMTs). However, the agency's analysis 
does not suggest that the additional application of these technologies 
in response to the final standards would extend beyond levels 
achievable by the industry. These technologies are likely to be applied 
to at least some extent even in the absence of new CAFE standards. In 
addition, the agency's analysis indicates that most manufacturers would 
rely only to a limited extent on the most costly technologies, such as 
diesel engines and advanced technologies, such as strong HEVs.
    As shown below, NHTSA estimates that the final standards could lead 
to average incremental costs ranging from $303 per vehicle (for light 
trucks in MY 2012) to $947 per vehicle (for light trucks in MY 2016), 
increasing steadily from $396 per vehicle for all light vehicles in MY 
2012 to $903 for all light vehicle in MY 2016. NHTSA estimates that 
these costs would vary considerably among manufacturers, but would 
rarely exceed $1,800 per vehicle. The following three tables summarize 
estimated manufacturer-level average incremental costs for the final 
standards and the average of the passenger and light truck fleets:

          Table IV.F-6--Average Incremental Costs ($/Vehicle) Under Final Passenger Car CAFE Standards
----------------------------------------------------------------------------------------------------------------
        Manufacturer              MY 2012         MY 2013          MY 2014          MY 2015          MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.........................               3               4               24              184              585
Chrysler....................             734           1,043            1,129            1,270            1,358
Daimler.....................  ..............  ...............             410              801            1,109
Ford........................           1,619           1,537            1,533            1,713            1,884
General Motors..............             448             896            1,127            1,302            1,323
Honda.......................              33              98              205              273              456
Hyundai.....................             559             591              768              744              838
Kia.........................             110             144              177              235              277
Mazda.......................             555             656              799              854              923
Mitsubishi..................             534             460            1,588            1,875            1,831
Nissan......................             119             323              707              723              832
Porsche.....................              68             (52)             (51)             (50)             (49)
Subaru......................             292             324              988            1,385            1,361
Suzuki......................  ..............             625              779              794            1,005
Tata........................             111              93              183              306              710
Toyota......................              31              29               41              121              126
Volkswagen..................             145             428              477              492              783
                             -----------------------------------------------------------------------------------
    Average.................             455             552              670              774              880
----------------------------------------------------------------------------------------------------------------

[[Page 25635]]

           Table IV.F-7--Average Incremental Costs ($/Vehicle) Under Final Light Truck CAFE Standards
----------------------------------------------------------------------------------------------------------------
        Manufacturer              MY 2012         MY 2013          MY 2014          MY 2015          MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.........................             252             239              277              281              701
Chrysler....................             360             527              876              931            1,170
Daimler.....................              60              51               51               52               51
Ford........................             465             633              673            1,074            1,174
General Motors..............             292             513              749              807              986
Honda.......................             233             217              370              457              806
Hyundai.....................             693             630            1,148            1,136            1,113
Kia.........................             400             467              582              780            1,137
Mazda.......................             144             241              250              354              480
Mitsubishi..................  ..............  ...............             553              686            1,371
Nissan......................             398             489              970            1,026            1,362
Porsche.....................  ..............              (1)              (1)             469              469
Subaru......................           1,036             995            1,016            1,060            1,049
Suzuki......................  ..............           1,797            1,744            1,689            1,732
Tata........................  ..............  ...............  ...............  ...............             503
Toyota......................             130             150              384              499              713
Volkswagen..................  ..............  ...............             514              458              441
                             -----------------------------------------------------------------------------------
    Average.................             303             411              615              741              947
----------------------------------------------------------------------------------------------------------------

                 Table IV.F-8--Average Incremental Costs ($/Vehicle) Under Final CAFE Standards
----------------------------------------------------------------------------------------------------------------
        Manufacturer              MY 2012         MY 2013          MY 2014          MY 2015          MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.........................             106              94              110              213              618
Chrysler....................             499             743              989            1,084            1,257
Daimler.....................              20              18              281              554              773
Ford........................           1,195           1,187            1,205            1,472            1,622
General Motors..............             371             705              946            1,064            1,165
Honda.......................             116             144              266              343              585
Hyundai.....................             577             599              847              805              879
Kia.........................             176             221              263              334              426
Mazda.......................             482             587              716              778              858
Mitsubishi..................             371             319            1,200            1,389            1,647
Nissan......................             211             376              792              813              984
Porsche.....................              52             (39)             (35)             130              124
Subaru......................             551             552              998            1,267            1,248
Suzuki......................  ..............             823              954              946            1,123
Tata........................              61              56              101              182              629
Toyota......................              67              70              159              248              317
Volkswagen..................             117             333              486              486              723
                             -----------------------------------------------------------------------------------
    Average.................             396             498              650              762              903
----------------------------------------------------------------------------------------------------------------

    In summary, NHTSA has considered eight regulatory alternatives, 
including the final standards, examining technologies that could be 
applied in response to each alternative, as well as corresponding 
costs, effects, and benefits. The agency has concluded that 
alternatives less stringent than the final standards would not produce 
the fuel savings and CO2 reductions necessary at this time 
to achieve either the overarching purpose of EPCA, i.e., energy 
conservation, or an important part of the regulatory harmonization 
underpinning the National Program, and would forego these benefits even 
though there is adequate lead time to implement reasonable and feasible 
technology for the vehicles. Conversely, the agency has concluded that 
more stringent standards would involve levels of additional technology 
and cost that would be economically impracticable and, correspondingly, 
would provide inadequate lead time, considering the economic state of 
the automotive industry, would not be economically practicable. 
Therefore, having considered these eight regulatory alternatives, and 
the statutorily-relevant factors of technological feasibility, economic 
practicability, the effect of other motor vehicle standards of the 
Government on fuel economy, and the need of the United States to 
conserve energy, along with other relevant factors such as the safety 
impacts of the final standards,\711\ NHTSA concludes that the final 
standards represent a reasonable balancing of all of these concerns, 
and are the maximum feasible average fuel economy levels that the 
manufacturers can achieve in MYs 2012-2016.
---------------------------------------------------------------------------

    \711\ See Section IV.G.7 below.
---------------------------------------------------------------------------

G. Impacts of the Final CAFE Standards

1. How will these standards improve fuel economy and reduce GHG 
emissions for MY 2012-2016 vehicles?
    As discussed above, the CAFE level required under an attribute-
based standard depends on the mix of vehicles produced for sale in the 
U.S. Based on the market forecast that NHTSA and EPA have used to 
develop and analyze new CAFE and CO2 emissions standards, 
NHTSA estimates that the new CAFE standards will require CAFE levels to 
increase by an average of 4.3 percent annually through MY 2016, 
reaching a combined average fuel

[[Page 25636]]

economy requirement of 34.1 mpg in that model year:

               Table IV.G.1-1--Estimated Average Required Fuel Economy (mpg) Under Final Standards
----------------------------------------------------------------------------------------------------------------
         Model year                2012             2013             2014             2015             2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..............            33.3            34.2             34.9             36.2             37.8
Light Trucks................            25.4            26.0             26.6             27.5             28.8
                             -----------------------------------------------------------------------------------
    Combined................            29.7            30.5             31.3             32.6             34.1
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that average achieved fuel economy levels will 
correspondingly increase through MY 2016, but that manufacturers will, 
on average, undercomply \712\ in some model years and overcomply \713\ 
in others, reaching a combined average fuel economy of 33.7 mpg in MY 
2016: \714\
---------------------------------------------------------------------------

    \712\ In NHTSA's analysis, ``undercompliance'' is mitigated 
either through use of FFV credits, use of existing or ``banked'' 
credits, or through fine payment. Because NHTSA cannot consider 
availability of credits in setting standards, the estimated achieved 
CAFE levels presented here do not account for their use. In 
contrast, because NHTSA is not prohibited from considering fine 
payment, the estimated achieved CAFE levels presented here include 
the assumption that BMW, Daimler (i.e., Mercedes), Porsche, and, 
Tata (i.e., Jaguar and Rover) will only apply technology up to the 
point that it would be less expensive to pay civil penalties.
    \713\ In NHTSA's analysis, ``overcompliance'' occurs through 
multi-year planning: manufacturers apply some ``extra'' technology 
in early model years (e.g., MY 2014) in order to carry that 
technology forward and thereby facilitate compliance in later model 
years (e.g., MY 2016).
    \714\ Consistent with EPCA, NHTSA has not accounted for 
manufacturers' ability to earn CAFE credits for selling FFVs, carry 
credits forward and back between model years, and transfer credits 
between the passenger car and light truck fleets.

               Table IV.G.1-2--Estimated Average Achieved Fuel Economy (mpg) Under Final Standards
----------------------------------------------------------------------------------------------------------------
         Model year                2012             2013             2014             2015             2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..............            32.8            34.4             35.3             36.3             37.2
Light Trucks................            25.1            26.0             27.0             27.6             28.5
                             -----------------------------------------------------------------------------------
    Combined................            29.3            30.6             31.7             32.6             33.7
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that these fuel economy increases will lead to fuel 
savings totaling 61 billion gallons during the useful lives of vehicles 
manufactured in MYs 2012-2016:

                                           Table IV.G.1-3--Fuel Saved (Billion Gallons) Under Final Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                       Model year                              2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             2.4             5.2             7.2             9.4            11.4            35.7
Light Trucks............................................             1.8             3.7             5.3             6.5             8.1            25.4
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             4.2             8.9            12.5            16.0            19.5            61.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The agency also estimates that these new CAFE standards will lead 
to corresponding reductions of CO2 emissions totaling 655 
million metric tons (mmt) during the useful lives of vehicles sold in 
MYs 2012-2016:

                                      Table IV.G.1-4--Carbon Dioxide Emissions (mmt) Avoided Under Final Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                       Model year                              2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................              25              54              77             101             123             380
Light Trucks............................................              19              40              57              71              88             275
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................              44              94             134             172             210             655
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. How will these standards improve fleet-wide fuel economy and reduce 
GHG emissions beyond MY 2016?
    Under the assumption that CAFE standards at least as stringent as 
those being finalized today for MY 2016 would be established for 
subsequent model years, the effects of the final standards on fuel 
consumption and GHG emissions will continue to increase for many years. 
This will occur because over time, a growing fraction of the U.S. 
light-duty vehicle fleet will be comprised of cars and light trucks 
that meet the MY 2016 standard. The impact of the new standards on fuel 
use and GHG emissions will continue to grow through approximately 2050, 
when virtually all cars and light trucks in service will have met 
standards as stringent as those established for MY 2016.
    As Table IV.G.2-1 shows, NHTSA estimates that the fuel economy

[[Page 25637]]

increases resulting from the final standards will lead to reductions in 
total fuel consumption by cars and light trucks of 10 billion gallons 
during 2020, increasing to 32 billion gallons by 2050. Over the period 
from 2012, when the final standards would begin to take effect, through 
2050, cumulative fuel savings would total 729 billion gallons, as Table 
IV.G.2-1 also indicates.

            Table IV.G.2-1--Reduction in Fleet-Wide Fuel Use (Billion Gallons) Under Final Standards
----------------------------------------------------------------------------------------------------------------
                                                                                                   Total, 2012-
          Calendar year                2020            2030            2040            2050            2050
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................               6              13              17              21             469
Light Trucks....................               4               7               9              11             260
                                 -------------------------------------------------------------------------------
    Combined....................              10              20              26              32             729
----------------------------------------------------------------------------------------------------------------

    The energy security analysis conducted for this rule estimates that 
the world price of oil will fall modestly in response to lower U.S. 
demand for refined fuel. One potential result of this decline in the 
world price of oil would be an increase in the consumption of petroleum 
products outside the U.S., which would in turn lead to a modest 
increase in emissions of greenhouse gases, criteria air pollutants, and 
airborne toxics from their refining and use. While additional 
information would be needed to analyze this ``leakage effect'' in 
detail, NHTSA provides a sample estimate of its potential magnitude in 
its Final EIS.\715\ This analysis indicates that the leakage effect is 
likely to offset only a modest fraction of the reductions in emissions 
projected to result from the rule.
---------------------------------------------------------------------------

    \715\ NHTSA Final Environmental Impact Statement: Corporate 
Average Fuel Economy Standards, Passenger Cars and Light Trucks, 
Model Years 2012-2016, February 2010, page 3-14.
---------------------------------------------------------------------------

    As a consequence of these reductions in fleet-wide fuel 
consumption, the agency also estimates that the new CAFE standards for 
MYs 2012-2016 will lead to corresponding reductions in CO2 
emissions from the U.S. light-duty vehicle fleet. Specifically, NHTSA 
estimates that total annual CO2 emissions associated with 
passenger car and light truck use in the U.S. use will decline by 116 
million metric tons (mmt) in 2020 as a consequence of the new 
standards, as Table IV.G.2-2 reports. The table also shows that the 
this annual reduction is estimated to grow to nearly 400 million metric 
tons by the year 2050, and will total nearly 9 billion metric tons over 
the period from 2012, when the final standards would take effect, 
through 2050.

  Table IV.G.2-2--Reduction in Fleet-Wide Carbon Dioxide Emissions (mmt) From Passenger Car and Light Truck Use
                                              Under Final Standards
----------------------------------------------------------------------------------------------------------------
                                                                                                   Total, 2012-
          Calendar year                2020            2030            2040            2050            2050
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................              69             153             205             255           5,607
Light Trucks....................              49              89             112             136           3,208
                                 -------------------------------------------------------------------------------
    Combined....................             117             242             316             391           8,815
----------------------------------------------------------------------------------------------------------------

    These reductions in fleet-wide CO2 emissions, together 
with corresponding reductions in other GHG emissions from fuel 
production and use, would lead to small but significant reductions in 
projected changes in the future global climate. These changes, based on 
analysis documented in the final Environmental Impact Statement (EIS) 
that informed the agency's decisions regarding this rule, are 
summarized in Table IV.G.2-3 below.

   Table IV.G.2-3--Effects of Reductions in Fleet-Wide Carbon Dioxide Emissions (mmt) on Projected Changes in
                                                 Global Climate
----------------------------------------------------------------------------------------------------------------
                                                                            Projected change in measure
                                                                 -----------------------------------------------
            Measure                   Units            Date                        With proposed
                                                                     No action       standards      Difference
----------------------------------------------------------------------------------------------------------------
Atmospheric CO2 Concentration.  ppm.............            2100           783.0           780.3            -2.7
Increase in Global Mean         [deg]C..........            2100           3.136           3.125          -0.011
 Surface Temperature.
Sea Level Rise................  cm..............            2100           38.00           37.91           -0.09
Global Mean Precipitation.....  % change from               2090           4.59%           4.57%          -0.02%
                                 1980-1999 avg.
----------------------------------------------------------------------------------------------------------------

[[Page 25638]]

3. How will these final standards impact non-GHG emissions and their 
associated effects?
    Under the assumption that CAFE standards at least as stringent as 
those proposed for MY 2016 would be established for subsequent model 
years, the effects of the new standards on air quality and its 
associated health effects will continue to be felt over the foreseeable 
future. This will occur because over time a growing fraction of the 
U.S. light-duty vehicle fleet will be comprised of cars and light 
trucks that meet the MY 2016 standard, and this growth will continue 
until approximately 2050.
    Increases in the fuel economy of light-duty vehicles required by 
the new CAFE standards will cause a slight increase in the number of 
miles they are driven, through the fuel economy ``rebound effect.'' In 
turn, this increase in vehicle use will lead to increases in emissions 
of criteria air pollutants and some airborne toxics, since these are 
products of the number of miles vehicles are driven.
    At the same time, however, the projected reductions in fuel 
production and use reported in Table IV.G.2-1 above will lead to 
corresponding reductions in emissions of these pollutants that occur 
during fuel production and distribution (``upstream'' emissions). For 
most of these pollutants, the reduction in upstream emissions resulting 
from lower fuel production and distribution will outweigh the increase 
in emissions from vehicle use, resulting in a net decline in their 
total emissions.\716\
---------------------------------------------------------------------------

    \716\ As stated elsewhere, while the agency's analysis assumes 
that all changes in upstream emissions result from a decrease in 
petroleum production and transport, the analysis of non-GHG 
emissions in future calendar years also assumes that retail gasoline 
composition is unaffected by this rule; as a result, the impacts of 
this rule on downstream non-GHG emissions (more specifically, on air 
toxics) may be underestimated. See also Section III.G above for more 
information.
---------------------------------------------------------------------------

    Tables IV.G.3-1a and 3-1b report estimated reductions in emissions 
of selected criteria air pollutants (or their chemical precursors) and 
airborne toxics expected to result from the final standards during 
calendar year 2030. By that date, the majority of light-duty vehicles 
in use will have met the MY 2016 CAFE standards, so these reductions 
provide a useful index of the long-term impact of the final standards 
on air pollution and its consequences for human health.

     Table IV.G.3-1a--Projected Changes in Emissions of Criteria Air Pollutants From Car and Light Truck Use
                                           [Calendar year 2030; tons]
----------------------------------------------------------------------------------------------------------------
                                                                      Criteria air pollutant
                                                 ---------------------------------------------------------------
                                    Source of                                                        Volatile
         Vehicle class              emissions        Nitrogen       Particulate    Sulfur oxides      organic
                                                   oxides  (NOX)      matter           (SOX)         compounds
                                                                      (PM2.5)                          (VOC)
----------------------------------------------------------------------------------------------------------------
Passenger Cars................  Vehicle use.....           2,718             465          -2,442           2,523
                                Fuel production          -20,970          -2,831         -12,698         -75,342
                                 and
                                 distribution.
                                All sources.....         -18,252          -2,366         -15,140         -72,820
                               ---------------------------------------------------------------------------------
Light Trucks..................  Vehicle use.....           3,544             176          -1,420           1,586
                                Fuel production          -12,252          -1,655          -7,424         -43,763
                                 and
                                 distribution.
                                All sources.....          -8,707          -1,479          -8,845         -42,177
                               ---------------------------------------------------------------------------------
    Total.....................  Vehicle use.....           6,263             642          -3,862           4,108
                                Fuel production          -33,222          -4,487         -20,122        -119,106
                                 and
                                 distribution.
                                All sources.....         -26,959          -3,845         -23,984        -114,997
----------------------------------------------------------------------------------------------------------------

         Table IV.G.3-1b--Projected Changes in Emissions of Airborne Toxics From Car and Light Truck Use
                                           [Calendar year 2030; tons]
----------------------------------------------------------------------------------------------------------------
                                                                              Toxic air pollutant
            Vehicle class               Source of emissions  ---------------------------------------------------
                                                                  Benzene     1,3[dash]Butadiene   Formaldehyde
----------------------------------------------------------------------------------------------------------------
Passenger Cars......................  Vehicle use...........              72                18                59
                                      Fuel production and               -161                -2               -58
                                       distribution.
                                      All sources...........             -89                16                 1
                                     ---------------------------------------------------------------------------
Light Trucks........................  Vehicle use...........              38                10                65
                                      Fuel production and                -94                -1               -34
                                       distribution.
                                      All sources...........             -55                 9                32
                                     ---------------------------------------------------------------------------
    Total...........................  Vehicle use...........             111                28               124
                                      Fuel production and               -254                -3               -91
                                       distribution.
                                      All sources...........            -144                25                33
----------------------------------------------------------------------------------------------------------------
Note: Positive values indicate increases in emissions; negative values indicate reductions.

    In turn, the reductions in emissions reported in Tables IV.G.3-1a 
and 3-1b are projected to result in significant declines in the health 
effects that result from population exposure to these pollutants. Table 
IV.G.3-2 reports the estimated reductions in selected PM2.5-
related human health impacts that are expected to result from reduced

[[Page 25639]]

population exposure to unhealthful atmospheric concentrations of 
PM2.5. The estimates reported in Table IV.G.3-2, based on 
analysis documented in the final Environmental Impact Statement (EIS) 
that informed the agency's decisions regarding this rule, are derived 
from PM2.5-related dollar-per-ton estimates that include 
only quantifiable reductions in health impacts likely to result from 
reduced population exposure to particular matter (PM). They do not 
include all health impacts related to reduced exposure to PM, nor do 
they include any reductions in health impacts resulting from lower 
population exposure to other criteria air pollutants (particularly 
ozone) and air toxics. However, emissions changes and dollar-per-ton 
estimates alone are not necessarily a good indication of local or 
regional air quality and health impacts, as there may be localized 
impacts associated with this rulemaking, because the atmospheric 
chemistry related to ambient concentrations of PM2.5, ozone, 
and air toxics is very complex. Full-scale photochemical modeling 
provides the necessary spatial and temporal detail to more completely 
and accurately estimate the changes in ambient levels of these 
pollutants and their associated health and welfare impacts. Although 
EPA conducted such modeling for purposes of the final rule, it was not 
available in time to be included in NHTSA's FEIS. See Section III.G 
above for EPA's description of the full-scale air quality modeling it 
conducted for the 2030 calendar year in an effort to capture this 
variability.

  Table IV.G.3-2--Projected Reductions in Health Impacts of Exposure to
              Criteria Air Pollutants From Final Standards
                          [Calendar year 2030]
------------------------------------------------------------------------
                                                     Projected reduction
        Health impact                Measure               (2030)
------------------------------------------------------------------------
Mortality (ages 30 and        premature deaths per  243 to 623.
 older).                       year.
Chronic Bronchitis..........  cases per year......  160.
Emergency Room Visits for     number per year.....  222.
 Asthma.
Work Loss...................  workdays per year...  28,705.
------------------------------------------------------------------------

4. What are the estimated costs and benefits of these final standards?
    NHTSA estimates that the final standards could entail significant 
additional technology beyond the levels reflected in the baseline 
market forecast used by NHTSA. This additional technology will lead to 
increases in costs to manufacturers and vehicle buyers, as well as fuel 
savings to vehicle buyers. The following three tables summarize the 
extent to which the agency estimates technologies could be added to the 
passenger car, light truck, and overall fleets in each model year in 
response to the proposed standards. Percentages reflect the 
technology's additional application in the market, and are negative in 
cases where one technology is superseded (i.e., displaced) by another. 
For example, the agency estimates that many automatic transmissions 
used in light trucks could be displaced by dual clutch transmissions.

              Table IV.G.4-1--Addition of Technologies to Passenger Car Fleet Under Final Standards
----------------------------------------------------------------------------------------------------------------
                                      MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
           Technology                (percent)       (percent)       (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Low Friction Lubricants.........              14              18              19              21              21
Engine Friction Reduction.......              15              37              41              43              52
VVT--Coupled Cam Phasing (CCP)                 2               3               3               5               7
 on SOHC........................
Discrete Variable Valve Lift                   0               1               1               4               4
 (DVVL) on SOHC.................
Cylinder Deactivation on SOHC...               0               0               0               0               0
VVT--Intake Cam Phasing (ICP)...               0               0               0               0               0
VVT--Dual Cam Phasing (DCP).....              11              15              16              17              24
Discrete Variable Valve Lift                   9              19              22              23              29
 (DVVL) on DOHC.................
Continuously Variable Valve Lift               0               0               0               0               0
 (CVVL).........................
Cylinder Deactivation on DOHC...               0               0               0               1               2
Cylinder Deactivation on OHV....               0               1               1               1               1
VVT--Coupled Cam Phasing (CCP)                 0               1               2               2               2
 on OHV.........................
Discrete Variable Valve Lift                   0               1               1               2               3
 (DVVL) on OHV..................
Conversion to DOHC with DCP.....               0               0               0               0               0
Stoichiometric Gasoline Direct                 9              18              21              24              28
 Injection (GDI)................
Combustion Restart..............               0               0               1               4               9
Turbocharging and Downsizing....               8              14              16              19              21
Exhaust Gas Recirculation (EGR)                0               8              10              13              17
 Boost..........................
Conversion to Diesel following                 2               2               2               2               2
 TRBDS..........................
Conversion to Diesel following                 0               0               0               0               0
 CBRST..........................
6-Speed Manual/Improved                        1               1               1               1               1
 Internals......................
Improved Auto. Trans. Controls/                0               3               4               1              -3
 Externals......................
Continuously Variable                          0               0               0               0               0
 Transmission...................
6/7/8-Speed Auto. Trans with                   0               0               1               1               2
 Improved Internals.............
Dual Clutch or Automated Manual               12              26              34              47              54
 Transmission...................
Electric Power Steering.........               9              22              25              26              38
Improved Accessories............              18              25              27              31              41
12V Micro-Hybrid................               0               0               0               0               0
Belt mounted Integrated Starter                4              11              19              24              25
 Generator......................

[[Page 25640]]

Crank mounted Integrated Starter               3               3               3               3               3
 Generator......................
Power Split Hybrid..............               2               2               2               2               2
2-Mode Hybrid...................               0               0               0               0               0
Plug-in Hybrid..................               0               0               0               0               0
Mass Reduction (1.5)............              18              26              32              39              46
Mass Reduction (3.5 to 8.5).....               0               0              17              31              40
Low Rolling Resistance Tires....               4              16              23              32              35
Low Drag Brakes.................               2               3               4               4               6
Secondary Axle Disconnect--                    0               0               0               0               0
 Unibody........................
Secondary Axle Disconnect--                    1               2               2               2               2
 Ladder Frame...................
Aero Drag Reduction.............               6              20              29              34              38
----------------------------------------------------------------------------------------------------------------

               Table IV.G.4-2--Addition of Technologies to Light Truck Fleet Under Final Standards
----------------------------------------------------------------------------------------------------------------
                                      MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
           Technology                (percent)       (percent)       (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Low Friction Lubricants.........              18              20              22              23              23
Engine Friction Reduction.......              14              34              35              40              51
VVT--Coupled Cam Phasing (CCP)                 2               3               3               2               2
 on SOHC........................
Discrete Variable Valve Lift                   1               2               2               2               3
 (DVVL) on SOHC.................
Cylinder Deactivation on SOHC...               6               6               6               6               5
VVT--Intake Cam Phasing (ICP)...               0               0               0               1               1
VVT--Dual Cam Phasing (DCP).....               6               8              13              13              17
Discrete Variable Valve Lift                   9              12              17              17              18
 (DVVL) on DOHC.................
Continuously Variable Valve Lift               0               0               0               0               0
 (CVVL).........................
Cylinder Deactivation on DOHC...               1               1               1               1               0
Cylinder Deactivation on OHV....               0               1               1               2               7
VVT--Coupled Cam Phasing (CCP)                 0               0               0               0              13
 on OHV.........................
Discrete Variable Valve Lift                   0              13              14              19              19
 (DVVL) on OHV..................
Conversion to DOHC with DCP.....               0               0               0               0               0
Stoichiometric Gasoline Direct                12              17              23              24              31
 Injection (GDI)................
Combustion Restart..............               0               0               3               5              18
Turbocharging and Downsizing....               3               6              10              10              14
Exhaust Gas Recirculation (EGR)                0               2               6               6               9
 Boost..........................
Conversion to Diesel following                 1               1               1               1               1
 TRBDS..........................
Conversion to Diesel following                 0               0               0               0               0
 CBRST..........................
6-Speed Manual/Improved                        0               0               0               0               0
 Internals......................
Improved Auto. Trans. Controls/                0             -11             -17             -28             -32
 Externals......................
Continuously Variable                          0               0               0               0               0
 Transmission...................
6/7/8-Speed Auto. Trans with                  -2              -2              -2              -2              -1
 Improved Internals.............
Dual Clutch or Automated Manual               10              32              46              58              65
 Transmission...................
Electric Power Steering.........               7              11              11              20              27
Improved Accessories............               7               9              10              15              23
12V Micro-Hybrid................               0               0               0               0               0
Belt mounted Integrated Starter                5              10              19              20              21
 Generator......................
Crank mounted Integrated Starter               0               0               0               0               0
 Generator......................
Power Split Hybrid..............               1               1               1               1               1
2-Mode Hybrid...................               0               0               0               0               0
Plug-in Hybrid..................               0               0               0               0               0
Mass Reduction (1.5)............               4               5              21              35              48
Mass Reduction (3.5 to 8.5).....               0               0              19              33              54
Low Rolling Resistance Tires....              11              12              13              16              17
Low Drag Brakes.................              14              32              30              31              40
Secondary Axle Disconnect--                    0               0               0               0               0
 Unibody........................
Secondary Axle Disconnect--                   17              19              20              21              28
 Ladder Frame...................
Aero Drag Reduction.............              13              15              20              22              25
----------------------------------------------------------------------------------------------------------------

                 Table IV.G.4-3--Addition of Technologies to Overall Fleet Under Final Standards
----------------------------------------------------------------------------------------------------------------
                                      MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
           Technology                (percent)       (percent)       (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Low Friction Lubricants.........              16              18              20              22              22
Engine Friction Reduction.......              15              36              39              42              51
VVT--Coupled Cam Phasing (CCP)                 2               3               3               4               5
 on SOHC........................
Discrete Variable Valve Lift                   0               1               2               3               3
 (DVVL) on SOHC.................
Cylinder Deactivation on SOHC...               2               3               2               2               2
VVT--Intake Cam Phasing (ICP)...               0               0               0               0               0

[[Page 25641]]

VVT--Dual Cam Phasing (DCP).....               9              13              15              16              22
Discrete Variable Valve Lift                   9              16              20              21              25
 (DVVL) on DOHC.................
Continuously Variable Valve Lift               0               0               0               0               0
 (CVVL).........................
Cylinder Deactivation on DOHC...               0               1               0               1               1
Cylinder Deactivation on OHV....               0               1               1               1               3
VVT--Coupled Cam Phasing (CCP)                 0               1               1               1               6
 on OHV.........................
Discrete Variable Valve Lift                   0               6               6               8               8
 (DVVL) on OHV..................
Conversion to DOHC with DCP.....               0               0               0               0               0
Stoichiometric Gasoline Direct                10              17              22              24              29
 Injection (GDI)................
Combustion Restart..............               0               0               1               4              12
Turbocharging and Downsizing....               6              11              14              16              19
Exhaust Gas Recirculation (EGR)                0               6               8              11              14
 Boost..........................
Conversion to Diesel following                 1               2               2               2               2
 TRBDS..........................
Conversion to Diesel following                 0               0               0               0               0
 CBRST..........................
6-Speed Manual/Improved                        0               0               0               0               1
 Internals......................
Improved Auto. Trans. Controls/                0              -2              -4             -10             -13
 Externals......................
Continuously Variable                          0               0               0               0               0
 Transmission...................
6/7/8-Speed Auto. Trans with                  -1               0               0               0               1
 Improved Internals.............
Dual Clutch or Automated Manual               11              28              38              51              58
 Transmission...................
Electric Power Steering.........               8              18              20              24              34
Improved Accessories............              13              19              21              25              35
12V Micro-Hybrid................               0               0               0               0               0
Belt mounted Integrated Starter                5              11              19              23              23
 Generator......................
Crank mounted Integrated Starter               2               2               2               2               2
 Generator......................
Power Split Hybrid..............               2               2               2               1               1
2-Mode Hybrid...................               0               0               0               0               0
Plug-in Hybrid..................               0               0               0               0               0
Mass Reduction (1.5)............              13              18              28              37              47
Mass Reduction (3.5 to 8.5).....               0               0              18              32              45
Low Rolling Resistance Tires....               7              14              19              26              29
Low Drag Brakes.................               6              14              14              14              18
Secondary Axle Disconnect--                    0               0               0               0               0
 Unibody........................
Secondary Axle Disconnect--                    7               8               8               8              11
 Ladder Frame...................
Aero Drag Reduction.............               9              18              26              30              34
----------------------------------------------------------------------------------------------------------------

    In order to pay for this additional technology (and, for some 
manufacturers, civil penalties), NHTSA estimates that the cost of an 
average passenger car and light truck will, relative to levels 
resulting from compliance with baseline (MY 2011) standards, increase 
by $505-$907 and $322-$961, respectively, during MYs 2011-2016. The 
following tables summarize the agency's estimates of average cost 
increases for each manufacturer's passenger car, light truck, and 
overall fleets (with corresponding averages for the industry):

           Table IV.G.4-4--Average Passenger Car Incremental Cost Increases ($) Under Final Standards
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             157             196             255             443             855
Chrysler........................             794           1,043           1,129           1,270           1,358
Daimler.........................             160             198             564             944           1,252
Ford............................           1,641           1,537           1,533           1,713           1,884
General Motors..................             552             896           1,127           1,302           1,323
Honda...........................              33              98             205             273             456
Hyundai.........................             559             591             768             744             838
Kia.............................             110             144             177             235             277
Mazda...........................             632             656             799             854             923
Mitsubishi......................             644             620           1,588           1,875           1,831
Nissan..........................             119             323             707             723             832
Porsche.........................             316             251             307             390             496
Subaru..........................             413             472             988           1,385           1,361
Suzuki..........................             242             625             779             794           1,005
Tata............................             243             258             370             532             924
Toyota..........................              31              29              41             121             126
Volkswagen......................             293             505             587             668             964
                                 -------------------------------------------------------------------------------
    Total/Average...............             505             573             690             799             907
----------------------------------------------------------------------------------------------------------------

[[Page 25642]]

            Table IV.G.4-5--Average Light Truck Incremental Cost Increases ($) Under Final Standards
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             252             272             338             402             827
Chrysler........................             409             527             876             931           1,170
Daimler.........................              98             123             155             189             260
Ford............................             465             633             673           1,074           1,174
General Motors..................             336             513             749             807             986
Honda...........................             233             217             370             457             806
Hyundai.........................             693             630           1,148           1,136           1,113
Kia.............................             406             467             582             780           1,137
Mazda...........................             144             241             250             354             480
Mitsubishi......................              39              77             553             686           1,371
Nissan..........................             398             489             970           1,026           1,362
Porsche.........................              44              76             109             568             640
Subaru..........................           1,036             995           1,016           1,060           1,049
Suzuki..........................              66           1,797           1,744           1,689           1,732
Tata............................              66             110             137             198             690
Toyota..........................             130             150             384             499             713
Volkswagen......................              44              77             552             557             606
                                 -------------------------------------------------------------------------------
    Total/Average...............             322             416             621             752             961
----------------------------------------------------------------------------------------------------------------

          Table IV.G.4-6--Average Incremental Cost Increases ($) by Manufacturer Under Final Standards
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             196             225             283             430             847
Chrysler........................             553             743             989           1,084           1,257
Daimler.........................             139             171             417             695             937
Ford............................           1,209           1,187           1,205           1,472           1,622
General Motors..................             446             705             946           1,064           1,165
Honda...........................             116             144             266             343             585
Hyundai.........................             577             599             847             805             879
Kia.............................             177             221             263             334             426
Mazda...........................             545             587             716             778             858
Mitsubishi......................             459             453           1,200           1,389           1,647
Nissan..........................             211             376             792             813             984
Porsche.........................             250             207             243             452             544
Subaru..........................             630             650             998           1,267           1,248
Suzuki..........................             231             823             954             946           1,123
Tata............................             164             199             265             396             832
Toyota..........................              67              70             159             248             317
Volkswagen......................             245             410             579             648             901
                                 -------------------------------------------------------------------------------
    Total/Average...............             434             513             665             782             926
----------------------------------------------------------------------------------------------------------------

    Based on the agencies' estimates of manufacturers' future sales 
volumes, these cost increases will lead to a total of $51.7 billion in 
incremental outlays during MYs 2012-2016 for additional technology 
attributable to the final standards:

                                        Table IV.G.4-7--Incremental Technology Outlays ($b) Under Final Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             4.1             5.4             6.9             8.2             9.5            34.2
Light Trucks............................................             1.8             2.5             3.7             4.3             5.4            17.6
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             5.9             7.9            10.5            12.5            14.9            51.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    NHTSA notes that these estimates of the economic costs for meeting 
higher CAFE standards omit certain potentially important categories of 
costs, and may also reflect underestimation (or possibly 
overestimation) of some costs that are included. For example, although 
the agency's analysis is intended to hold vehicle performance, 
capacity, and utility constant in estimating the costs of applying 
fuel-saving technologies to vehicles, the analysis imputes no cost to 
any actual reductions in vehicle performance, capacity, and utility 
that may result from manufacturers' efforts to comply with the final 
CAFE standards. Although these costs are difficult to estimate 
accurately, they nonetheless represent a notable category of omitted 
costs if they have not been adequately accounted for in the cost 
estimates. Similarly, the agency's estimates of net benefits for 
meeting higher CAFE standards does not estimate the economic value of 
potential changes in motor vehicle fatalities and injuries that could 
result from

[[Page 25643]]

reductions in the size or weight of vehicles. While NHTSA reports a 
range of estimates of these potential safety effects below and in the 
FRIA (ranging from a net negative monetary impact to a net positive 
benefits for society), no estimate of their economic value is included 
in the agency's estimates of the net benefits resulting from the final 
standards.
    Finally, while NHTSA is confident that the cost estimates are the 
best available and appropriate for purposes of this final rule, it is 
possible that the agency may have underestimated or overestimated 
manufacturers' direct costs for applying some fuel economy 
technologies, or the increases in manufacturer's indirect costs 
associated with higher vehicle manufacturing costs. In either case, the 
technology outlays reported here will not correctly represent the costs 
of meeting higher CAFE standards. Similarly, NHTSA's estimates of 
increased costs of congestion, accidents, and noise associated with 
added vehicle use are drawn from a 1997 study, and the correct 
magnitude of these values may have changed since they were developed. 
If this is the case, the costs of increased vehicle use associated with 
the fuel economy rebound effect will differ from the agency's estimates 
in this analysis. Thus, like the agency's estimates of economic 
benefits, estimates of total compliance costs reported here may 
underestimate or overestimate the true economic costs of the final 
standards.
    However, offsetting these costs, the achieved increases in fuel 
economy will also produce significant benefits to society. NHTSA 
attributes most of these benefits to reductions in fuel consumption, 
valuing fuel savings at future pretax prices in EIA's reference case 
forecast from AEO 2010. The total benefits also include other benefits 
and dis-benefits, examples of which include the social values of 
reductions in CO2 and criteria pollutant emissions, the 
value of additional travel (induced by the rebound effect), and the 
social cost of additional congestion, accidents, and noise attributable 
to that additional travel. The FRIA accompanying today's final rule 
presents a detailed analysis of the rule's specific benefits.
    As Table IV.G.4-8 shows, NHTSA estimates that at the discount rate 
of 3 percent prescribed in OMB guidance for regulatory analysis, the 
present value of total benefits from the final CAFE standards over the 
lifetimes of MY 2012-2016 passenger cars and light trucks will be 
$182.5 billion.

                     Table IV.G.4-8--Present Value of Benefits ($Billion) Under Final Standards Using 3 Percent Discount Rate \717\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             6.8            15.2            21.6            28.7            35.2           107.5
Light Trucks............................................             5.1            10.7            15.5            19.4            24.3            75.0
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................            11.9            25.8            37.1            48.0            59.5           182.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table IV.G.4-9 reports that the present value of total benefits 
from requiring cars and light trucks to achieve the fuel economy levels 
specified in the final CAFE standards for MYs 2012-16 will be $146.2 
billion when discounted at the 7 percent rate also required by OMB 
guidance. Thus the present value of fuel savings and other benefits 
over the lifetimes of the vehicles covered by the final standards is 
$36.3 billion--or about 20 percent--lower when discounted at a 7 
percent annual rate than when discounted using the 3 percent annual 
rate.\718\
---------------------------------------------------------------------------

    \717\ Unless otherwise indicated, all tables in Section IV 
report benefits calculated using the Reference Case input 
assumptions, with future benefits resulting from reductions in 
carbon dioxide emissions discounted at the 3 percent rate prescribed 
in the interagency guidance on the social cost of carbon.
    \718\ For tables that report total or net benefits using a 7 
percent discount rate, future benefits from reducing carbon dioxide 
emissions are discounted at 3 percent, in order to maintain 
consistency with the discount rate used to develop the reference 
case estimate of the social cost of carbon. All other future 
benefits reported in these tables are discounted using the 7 percent 
rate.

                        Table IV.G.4-9--Present Value of Benefits ($Billion) Under Final Standards Using 7 Percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             5.5            12.3            17.5            23.2            28.6            87.0
Light Trucks............................................             4.0             8.4            12.2            15.3            19.2            59.2
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             9.5            20.7            29.7            38.5            47.8           146.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For both the passenger car and light truck fleets, NHTSA estimates 
that the benefits of today's final standards will exceed the 
corresponding costs in every model year, so that the net social 
benefits from requiring higher fuel economy--the difference between the 
total benefits that result from higher fuel economy and the technology 
outlays required to achieve it--will be substantial. Because the 
technology outlays required to achieve the fuel economy levels required 
by the final standards are incurred during the model years when 
vehicles are produced and sold, however, they are not subject to 
discounting, so that their present value does not depend on the 
discount rate used.\719\ Thus the net benefits of the final standards 
differ depending on whether the 3 percent or 7 percent discount rate is 
used, but only because the choice of discount rates affects the present 
value of total benefits, and not that of technology costs.
---------------------------------------------------------------------------

    \719\ Although technology costs are incurred at the beginning of 
each model year's lifetime and thus are not subject to discounting, 
the discount rate does influence the effective cost of some 
technologies. Because NHTSA assumes some manufacturers will be 
willing to pay civil penalties when compliance costs become 
sufficiently high, It is still possible for the discount rate to 
affect the agency's estimate of total technology outlays. However, 
this does not occur under the alternative NHTSA has adopted for its 
final MY 2012-16 CAFE standards.
---------------------------------------------------------------------------

    As Table IV.G.4-10 shows, over the lifetimes of the affected (MY 
2012-2016)

[[Page 25644]]

vehicles, the agency estimates that when the benefits of the final 
standards are discounted at a 3 percent rate, they will exceed the 
costs of the final standards by $130.7 billion:

                      Table IV.G.4-10--Present Value of Net Benefits ($Billion) Under Final Standards Using 3 Percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             2.7             9.7            14.8            20.5            25.7            73.3
Light Trucks............................................             3.4             8.2            11.8            15.0            18.9            57.4
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             6.0            18.0            26.6            35.5            44.6           130.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As indicated previously, when fuel savings and other future 
benefits resulting from the final standards are discounted at the 7 
percent rate prescribed in OMB guidance, they are $36.3 billion lower 
than when the 3 percent discount rate is applied. Because technology 
costs are not subject to discounting, using the higher 7 percent 
discount rate reduces net benefits by exactly this same amount. 
Nevertheless, Table IV.G.4-11 shows that the net benefits from 
requiring passenger cars and light trucks to achieve higher fuel 
economy are still substantial even when future benefits are discounted 
at the higher rate, totaling $94.5 billion over MYs 2012-16. Net 
benefits are thus about 28 percent lower when future benefits are 
discounted at a 7 percent annual rate than at a 3 percent rate.

                      Table IV.G.4-11--Present Value of Net Benefits ($Billion) Under Final Standards Using 7 Percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             1.3             6.8            10.6            15.0            19.0            52.9
Light Trucks............................................             2.3             5.9             8.6            11.0            13.9            41.6
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             3.6            12.8            19.2            26.0            32.9            94.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    NHTSA's estimates of economic benefits from establishing higher 
CAFE standards are subject to considerable uncertainty. Most important, 
the agency's estimates of the fuel savings likely to result from 
adopting higher CAFE standards depend critically on the accuracy of the 
estimated fuel economy levels that will be achieved under both the 
baseline scenario, which assumes that manufacturers will continue to 
comply with the MY 2011 CAFE standards, and under alternative increases 
in the standards that apply to MYs 2012-16 passenger cars and light 
trucks. Specifically, if the agency has underestimated the fuel economy 
levels that manufacturers would have achieved under the baseline 
scenario--or is too optimistic about the fuel economy levels that 
manufacturers will actually achieve under the final standards--its 
estimates of fuel savings and the resulting economic benefits 
attributable to this rule will be too large.
    Another major source of potential overestimation in the agency's 
estimates of benefits from requiring higher fuel economy stems from its 
reliance on the Reference Case fuel price forecasts reported in AEO 
2010. Although NHTSA believes that these forecasts are the most 
reliable that are available, they are nevertheless significantly higher 
than the fuel price projections reported in most previous editions of 
EIA's Annual Energy Outlook, and reflect projections of world oil 
prices that are well above forecasts issued by other firms and 
government agencies. If the future fuel prices projected in AEO 2010 
prove to be too high, the agency's estimates of the value of future 
fuel savings--the major component of benefits from this rule--will also 
be too high.
    In addition, it is possible that NHTSA's estimates of economic 
benefits from the effects of saving fuel on U.S. petroleum consumption 
and imports are too high. The estimated ``energy security premium'' the 
agency uses to value reductions in U.S. petroleum imports includes both 
increased payments for petroleum imports that occur when world oil 
prices increase rapidly, and losses in U.S. GDP losses and adjustment 
costs that result from oil price shocks. One commenter suggested 
increased import costs associated with rapid increases in petroleum 
prices represent transfers from U.S. oil consumers to petroleum 
suppliers rather than real economic costs, so any reduction in their 
potential magnitude should be excluded when calculating benefits from 
lower U.S. petroleum imports. If this view is correct, then the 
agency's estimates of benefits from the effect of reduced fuel 
consumption on U.S. petroleum imports would indeed be too high.\720\
---------------------------------------------------------------------------

    \720\ Doing so, however, would represent a significant departure 
from how disruption costs associated with oil price shocks have been 
quantified in research on the value of energy security, and NHTSA 
believes this issue should be analyzed in more detail before these 
costs are excluded. Moreover, the agency believes that increases in 
import costs during oil supply disruptions differ from transfers due 
to the existence of U.S. monopsony power in the world oil market, 
since they reflect real resource shortages and costly short-run 
shifts in demand by energy users, rather than losses to consumers of 
petroleum products that that are matched by offsetting gains to 
suppliers. Thus the agency believes that reducing their expected 
value provides real economic benefits, and they do not represent 
pure transfers.
---------------------------------------------------------------------------

    However, it is also possible that NHTSA's estimates of economic 
benefits from establishing higher CAFE standards underestimate the true 
economic benefits of the fuel savings those standards would produce. If 
the AEO 2010 forecast of fuel prices proves to be too low, for example, 
NHTSA will have underestimated the value of fuel savings that will 
result from adopting higher CAFE standards for MY 2012-16. As another 
example, the agency's estimate of benefits from reducing the threat of 
economic damages from disruptions in the supply of imported petroleum 
to the U.S. applies to

[[Page 25645]]

calendar year 2015. If the magnitude of this estimate would be expected 
to grow after 2015 in response to increases in U.S. petroleum imports, 
growth in the level of U.S. economic activity, or increases in the 
likelihood of disruptions in the supply of imported petroleum, the 
agency may have underestimated the benefits from the reduction in 
petroleum imports expected to result from adopting higher CAFE 
standards.
    NHTSA's benefit estimates could also be too low because they 
exclude or understate the economic value of certain potentially 
significant categories of benefits from reducing fuel consumption. As 
one example, EPA's estimates of the economic value of reduced damages 
to human health resulting from lower exposure to criteria air 
pollutants includes only the effects of reducing population exposure to 
PM2.5 emissions. Although this is likely to be the most 
significant component of health benefits from reduced emissions of 
criteria air pollutants, it excludes the value of reduced damages to 
human health and other impacts resulting from lower emissions and 
reduced population exposure to other criteria air pollutants, including 
ozone and nitrous oxide (N2O), as well as airborne toxics. 
EPA's estimates exclude these benefits because no reliable dollar-per-
ton estimates of the health impacts of criteria pollutants other than 
PM2.5 or of the health impacts of airborne toxics were 
available to use in developing estimates of these benefits.
    Similarly, the agency's estimate of the value of reduced climate-
related economic damages from lower emissions of GHGs excludes many 
sources of potential benefits from reducing the pace and extent of 
global climate change.\721\ For example, none of the three models used 
to value climate-related economic damages includes ocean acidification 
or loss of species and wildlife. The models also may not adequately 
capture certain other impacts, such as potentially abrupt changes in 
climate associated with thresholds that govern climate system 
responses, inter-sectoral and inter-regional interactions, including 
global security impacts of high-end extreme warming, or limited near-
term substitutability between damage to natural systems and increased 
consumption. Including monetized estimates of benefits from reducing 
the extent of climate change and these associated impacts would 
increase the agency's estimates of benefits from adopting higher CAFE 
standards.
---------------------------------------------------------------------------

    \721\ Social Cost of Carbon for Regulatory Impact Analysis Under 
Executive Order 12866, Interagency Working Group on Social Cost of 
Carbon, United States Government, February 2010. Available in Docket 
No. NHTSA-2009-0059.
---------------------------------------------------------------------------

    The following tables present itemized costs and benefits for the 
combined passenger car and light truck fleets for each model year 
affected by the final standards as well as for all model years 
combined, using both discount rates prescribed by OMB regulatory 
guidance. Table IV.G.4-12 reports technology outlays, each separate 
component of benefits (including costs associated with additional 
driving due to the rebound effect, labeled ``dis-benefits''), the total 
value of benefits, and net benefits, using the 3 percent discount rate. 
(Numbers in parentheses represent negative values.)
---------------------------------------------------------------------------

    \722\ Using the central value of $21 per metric ton for the SCC, 
and discounting future benefits from reduced CO2 
emissions at a 3 percent annual rate. Additionally, we note that the 
$21 per metric ton value for the SCC applies to calendar year 2010, 
and increases over time. See the interagency guidance on SCC for 
more information.

                 Table IV.G.4-12--Itemized Cost and Benefit Estimates for the Combined Vehicle Fleet Using 3 Percent Discount Rate ($M)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        MY 2012          MY 2013          MY 2014          MY 2015          MY 2016           Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Technology Costs..................................           5,903            7,890           10,512           12,539           14,904           51,748
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Savings in Lifetime Fuel Expenditures.............           9,265           20,178           29,083           37,700           46,823          143,048
Consumer Surplus from Additional Driving..........             696            1,504            2,150            2,754            3,387           10,491
Value of Savings in Refueling Time................             706            1,383            1,939            2,464            2,950            9,443
Reduction in Petroleum Market Externalities.......             545            1,154            1,630            2,080            2,543            7,952
Reduction in Climate-Related Damages from Lower                921            2,025            2,940            3,840            4,804           14,528
 CO2 Emissions \722\..............................
Reduction in Health Damage Costs from Lower
 Emissions of Criteria Air Pollutants:
    CO............................................               0                0                0                0                0                0
    VOC...........................................              42               76              102              125              149              494
    NOX...........................................              70              104              126              146              166              612
    PM............................................             205              434              612              776              946            2,974
    SOX...........................................             158              332              469              598              731            2,288
Dis-Benefits from Increased Driving:
    Congestion Costs..............................            (447)            (902)          (1,282)          (1,633)          (2,000)          (6,264)
    Noise Costs...................................              (9)             (18)             (25)             (32)             (39)            (122)
    Crash Costs...................................            (217)            (430)            (614)            (778)            (950)          (2,989)
                                                   -----------------------------------------------------------------------------------------------------
        Total Benefits............................          11,936           25,840           37,132           48,040           59,509          182,457
                                                   -----------------------------------------------------------------------------------------------------

[[Page 25646]]

        Net Benefits..............................           6,033           17,950           26,619           35,501           44,606          130,709
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Similarly, Table IV.G.4-13 below reports technology outlays, the 
individual components of benefits (including ``dis-benefits'' resulting 
from additional driving) and their total, and net benefits, using the 7 
percent discount rate. (Again, numbers in parentheses represent 
negative values.)

                 Table IV.G.4-13--Itemized Cost and Benefit Estimates for the Combined Vehicle Fleet Using 7 Percent Discount Rate ($M)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        MY 2012          MY 2013          MY 2014          MY 2015          MY 2016           Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Technology Costs..................................           5,903            7,890           10,512           12,539           14,904           51,748
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Savings in Lifetime Fuel Expenditures.............           7,197           15,781           22,757           29,542           36,727          112,004
Consumer Surplus from Additional Driving..........             542            1,179            1,686            2,163            2,663            8,233
Value of Savings in Refueling Time................             567            1,114            1,562            1,986            2,379            7,608
Reduction in Petroleum Market Externalities.......             432              917            1,296            1,654            2,023            6,322
Reduction in Climate-Related Damages from Lower                921            2,025            2,940            3,840            4,804           14,530
 CO2 Emissions \723\..............................
Reduction in Health Damage Costs from Lower
 Emissions of Criteria Air Pollutants:
    CO............................................               0                0                0                0                0                0
    VOC...........................................              32               60               80               99              119              390
    NOX...........................................              53               80               98              114              131              476
    PM............................................             154              336              480              611              748            2,329
    SOX...........................................             125              265              373              475              581            1,819
Dis-Benefits from Increased Driving:
    Congestion Costs..............................            (355)            (719)          (1,021)          (1,302)          (1,595)          (4,992)
    Noise Costs...................................              (7)             (14)             (20)             (26)             (31)             (98)
    Crash Costs...................................            (173)            (342)            (488)            (619)            (756)          (2,378)
                                                   -----------------------------------------------------------------------------------------------------
        Total Benefits............................           9,488           20,682           29,743           38,537           47,793          146,243
                                                   -----------------------------------------------------------------------------------------------------
        Net Benefits..............................           3,586           12,792           19,231           25,998           32,890           94,497
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The above benefit and cost estimates did not reflect the 
availability and use of flexibility mechanisms, such as compliance 
credits and credit trading, because EPCA prohibits NHTSA from 
considering the effects of those mechanisms in setting CAFE standards. 
However, the agency noted that, in reality, manufacturers were likely 
to rely to some extent on flexibility mechanisms provided by EPCA and 
would thereby reduce the cost of complying with the final standards to 
a meaningful extent.
---------------------------------------------------------------------------

    \723\ Using the central value of $21 per metric ton for the SCC, 
and discounting future benefits from reduced CO2 
emissions at a 3 percent annual rate. Additionally, we note that the 
$21 per metric ton value for the SCC applies to calendar year 2010, 
and increases over time. See the interagency guidance on SCC for 
more information.
---------------------------------------------------------------------------

    As discussed in the FRIA, NHTSA has performed an analysis to 
estimate the costs and benefits if EPCA's provisions regarding FFVs are 
accounted for. The agency considered also attempting to account for 
other EPCA flexibility mechanisms, in particular credit transfers 
between the passenger and nonpassenger fleets, but has concluded that, 
at least within a context in which each model year is represented 
explicitly, technologies carry forward between model years, and multi-
year planning effects are represented, there is no basis to estimate 
reliably how manufacturers might use these mechanisms. Accounting for 
the FFV provisions indicates that achieved fuel economies would be 0.5-
1.3 mpg lower than when these provisions are not considered (for 
comparison see Table IV.G.1-2 above):

[[Page 25647]]

          Table IV.G.4-14--Average Achieved Fuel Economy (mpg) Under Final Standards (With FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................            32.3            33.5            34.2            35.0            36.2
Light Trucks....................            24.5            25.1            25.9            26.7            27.5
                                 -------------------------------------------------------------------------------
    Combined....................            28.7            29.7            30.6            31.5            32.7
----------------------------------------------------------------------------------------------------------------

    As a result, NHTSA estimates that, when FFV credits are taken into 
account, fuel savings will total 58.6 billion gallons--about 3.9 
percent less than the 61.0 billion gallons estimated when these credits 
are not considered:

                                 Table IV.G.4-15--Fuel Saved (Billion Gallons) Under Final Standards (With FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             2.7             4.7             6.4             8.4            11.0            33.1
Light Trucks............................................             2.3             3.6             5.0             6.6             8.1            25.5
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             4.9             8.2            11.3            15.0            19.1            58.6
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The agency similarly estimates CO2 emissions reductions 
will total 636 million metric tons (mmt), about 2.9 percent less than 
the 655 mmt estimated when these credits are not considered: \724\
---------------------------------------------------------------------------

    \724\ Differences in the application of diesel engines lead to 
differences in the incremental percentage changes in fuel 
consumption and carbon dioxide emissions.

                            Table IV.G.4-16--Avoided Carbon Dioxide Emissions (mmt) Under Final Standards (With FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................              28              50              69              91             119             357
Light Trucks............................................              25              39              54              72              88             279
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................              53              89             123             163             208             636
--------------------------------------------------------------------------------------------------------------------------------------------------------

    This analysis further indicates that significant reductions in 
outlays for additional technology will result when FFV provisions are 
taken into account. Table IV.G.4-17 below shows that as a result, total 
technology costs are estimated to decline to $37.5 billion, or about 27 
percent less than the $51.7 billion estimated when excluding these 
provisions:

                               Table IV.G.4-17--Incremental Technology Outlays ($B) Under Final Standards With FFV Credits
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             2.6             3.6             4.8             6.1             7.5            24.6
Light Trucks............................................             1.1             1.5             2.5             3.4             4.4            12.9
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             3.7             5.1             7.3             9.5            11.9            37.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Because NHTSA's analysis indicated that FFV provisions will not 
significantly reduce fuel savings, the agency's estimate of the present 
value of total benefits will be $175.6 billion when discounted at a 3 
percent annual rate, as Table IV.G.4-18 following reports. This 
estimate of total benefits is $6.9 billion, or about 3.8 percent, lower 
than the $182.5 billion reported previously for the analysis that 
excluded these provisions:

               Table IV.G.4-18--Present Value of Benefits ($Billion) Under Final Standards With FFV Credits Using 3 Percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             7.6            13.7            19.1            25.6            34.0           100.0
Light Trucks............................................             6.4            10.4            14.6            19.8            24.4            75.6
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................            14.0            24.1            33.7            45.4            58.4           175.6
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 25648]]

    Similarly, because the FFV are not expected to reduce fuel savings 
significantly, NHTSA estimates that the present value of total benefits 
will decline only slightly from its previous estimate when future fuel 
savings and other benefits are discounted at the higher 7 percent rate. 
Table IV.G.4-19 reports that the present value of benefits from 
requiring higher fuel economy for MY 2012-16 cars and light trucks will 
total $140.7 billion when discounted using a 7 percent rate, about $5.5 
billion (or again, 3.8 percent) below the previous $146.2 billion 
estimate of total benefits when FFV credits were not permitted:

               Table IV.G.4-19--Present Value of Benefits ($Billion) Under Final Standards With FFV Credits Using 7 Percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             6.1            11.1            15.5            20.7            27.6            80.9
Light Trucks............................................             5.0             8.2            11.5            15.6            19.3            59.7
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................            11.2            19.3            27.0            36.4            46.9           140.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Although the discounted present value of total benefits will be 
slightly lower when FFV provisions are taken into account, the agency 
estimates that these provisions will slightly increase net benefits. 
This occurs because the flexibility these provisions provide to 
manufacturers will allow them to reduce technology costs for meeting 
the new standards by considerably more than the reduction in the value 
of fuel savings and other benefits. As Table IV.G.4-20 shows, the 
agency estimates that the availability of FFV credits will increase net 
benefits from the final CAFE standards to $138.2 billion from the 
previously-reported estimate of $130.7 billion without those credits, 
or by about 5.7 percent.

                 Table IV.G.4-20--Present Value of Net Benefits ($Billion) Under Final Standards With FFV Credits Using 3% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             5.1            10.1            14.3            19.5            26.5            75.4
Light Trucks............................................             5.3             8.8            12.1            16.4            20.0            62.7
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................            10.4            19.0            26.5            35.9            46.5           138.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Similarly, Table IV.G.4-21 immediately below shows that NHTSA 
estimates manufacturers' use of FFV credits will raise net benefits 
from requiring higher fuel economy for MY 2012-16 cars and light trucks 
to $103.2 billion if a 7 percent discount rate is applied to future 
benefits. This estimate is $8.7 billion--or about 9.2%--higher than the 
previously-reported $94.5 billion estimate of net benefits without the 
availability of FFV credits using that same discount rate.

                 Table IV.G.4-21--Present Value of Net Benefits ($Billion) Under Final Standards With FFV Credits Using 7% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             3.6             7.5            10.7            14.6            20.0            56.4
Light Trucks............................................             3.9             6.6             9.1            12.3            14.9            46.8
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             7.5            14.1            19.7            26.9            35.0           103.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The agency has also performed several sensitivity analyses to 
examine the effects of varying important assumptions that affect its 
estimates of benefits and costs from higher CAFE standards for MY 2012-
16 cars and light trucks. We examine the sensitivity of fuel savings, 
total economic benefits, and technology costs with respect to the 
following five economic parameters:
    (1) The price of gasoline: The Reference Case uses the AEO 2010 
reference case estimate for the price of gasoline. In this sensitivity 
analysis we examine the effect of instead using the AEO 2009 high and 
low price forecasts.
    (2) The rebound effect: The Reference Case uses a rebound effect of 
10 percent to project increased miles traveled as the cost per mile 
driven decreases. In the sensitivity analysis, we examine the effect of 
instead using a 5 percent or 15 percent rebound effect.
    (3) The values of CO2 benefits: The Reference Case uses 
$21 per ton (in 2010 in 2007$, rising over time to $45 in 2030) to 
quantify the benefits of reducing CO2 emissions and $0.17 
per gallon to quantify the energy security benefits from reducing fuel 
consumption. In the sensitivity analysis, we examine the effect of 
using values of $5, and $65 per ton instead of the reference value of 
$21 per ton to value CO2 benefits. These values can be 
translated into cents per gallon by multiplying by 0.0089,\725\ giving 
the following values:

    \725\ The molecular weight of Carbon (C) is 12, the molecular 
weight of Oxygen (O) is 16, thus the molecular weight of 
CO2 is 44. One ton of C = 44/12 tons CO2 = 
3.67 tons CO2. 1 gallon of gas weighs 2,819 grams, of 
that 2,433 grams are carbon. $1.00 CO2 = $3.67 C and 
$3.67/ton * ton/1,000kg * kg/1,000g * 2,433g/gallon = (3.67 * 
2,433)/1,000 * 1,000 = $0.0089/gallon.
---------------------------------------------------------------------------

($5 per ton CO2) x 0.0089 = $0.045 per gallon

[[Page 25649]]

($21 per ton CO2) x 0.0089 = $0.187 per gallon
($35 per ton CO2) x 0.0089 = $0.312 per gallon
($67 per ton CO2) x 0.0089 = $0.596 per gallon

    (4) Military security: The Reference Case uses $0 per gallon to 
quantify the military security benefits of reducing fuel consumption. 
In the sensitivity analysis, we examine the impact of instead using a 
value of 5 cents per gallon.
    Varying each of these four parameters in isolation results in 9 
additional economic scenarios, in addition to the Reference case. These 
are listed in Table IV.G.4-22 below, together with two additional 
scenarios that use combinations of these parameters that together 
produce the lowest and highest benefits.

                         Table IV.G.4-22--Sensitivity Analyses Evaluated in NHTSA's FRIA
----------------------------------------------------------------------------------------------------------------
                                                            Discount     Rebound
               Name                      Fuel price           rate        effect        SCC          Military
                                                           (percent)    (percent)                    security
----------------------------------------------------------------------------------------------------------------
Reference.........................  AEO 20210 Reference             3           10          $21  0[cent]/gal.
                                     Case.
High Fuel Price...................  AEO 2009 High Price             3           10           21  0[cent]/gal.
                                     Case.
Low Fuel Price....................  AEO 2009 Low Price              3           10           21  0[cent]/gal.
                                     Case.
5% Rebound Effect.................  AEO 20210 Reference             3            5           21  0[cent]/gal.
                                     Case.
15% Rebound Effect................  AEO 20210 Reference             3           15           21  0[cent]/gal.
                                     Case.
$67/ton CO2 Value.................  AEO 20210 Reference             3           10           67  0[cent]/gal.
                                     Case.
$35/ton CO2 Value.................  AEO 20210 Reference             3           10           35  0[cent]/gal.
                                     Case.
$5/ton CO2 Value..................  AEO 20210 Reference             3           10            5  0[cent]/gal.
                                     Case.
$5/ton CO2........................  AEO 20210 Reference             3           10            5  0[cent]/gal.
                                     Case.
5[cent]/gal Military Security       AEO 20210 Reference             3           10           21  5[cent]/gal.
 Value.                              Case.
Lowest Discounted Benefits........  AEO 2009 Low Price              7           15            5  0[cent]/gal.
                                     Case.
Highest Discounted Benefits.......  AEO 2009 High Price             3            5           67  5[cent]/gal.
                                     Case.
----------------------------------------------------------------------------------------------------------------

    The basic results of the sensitivity analyses were as follows:
    (1) The various economic assumptions have no effect on the final 
passenger car and light truck standards established by this rule, 
because these are determined without reference to economic benefits.
    (2) Varying the economic assumptions individually has comparatively 
modest impacts on fuel savings resulting from the adopted standards. 
The range of variation in fuel savings in response to changes in 
individual assumptions extends from a reduction of nearly 5 percent to 
an increase of that same percentage.
    (3) The economic parameter with the greatest impacts on fuel 
savings is the magnitude of the rebound effect. Varying the rebound 
effect from 5 percent to 15 percent is responsible for a 4.6 percent 
increase and 4.6 percent reduction in fuel savings compared to the 
Reference results.
    (4) The only other parameter that has a significant effect on fuel 
savings is forecast fuel prices, although its effect is complex because 
changes in fuel prices affect vehicle use and fuel consumption in both 
the baseline and under the final standards.
    (5) Variation in forecast fuel prices and in the value of reducing 
CO2 emissions have significant effects on the total economic 
benefits resulting from the final standards. Changing the fuel price 
forecast to AEO's High Price forecast raises estimated economic 
benefits by almost 40 percent, while using AEO's Low Price forecast 
reduces total economic benefits by only about 5 percent. Raising the 
value of eliminating each ton of CO2 emissions to $67 
increases total benefits by 15 percent.
    (6) Varying all economic parameters simultaneously has a 
significant effect on total economic benefits. The combination of 
parameter values producing the highest benefits increases their total 
by slightly more than 50 percent, while that producing the lowest 
benefits reduces their value by almost 55 percent. However, varying 
these parameters in combination has less significant effects on other 
measures; for example, the high- and low-benefit combinations of 
parameter values raise or lower fuel savings and technology costs by 
only about 5 percent.

For more detailed information regarding NHTSA's sensitivity analyses 
for this final rule, please see Chapter X of NHTSA's FRIA.
5. How would these final standards impact vehicle sales?
    The effect of this rule on sales of new vehicles depends partly on 
how potential buyers evaluate and respond to its effects on vehicle 
prices and fuel economy. The rule will make new cars and light trucks 
more expensive, as manufacturers attempt to recover their costs for 
complying with the rule by raising vehicle prices, which by itself 
would discourage sales. At the same time, the rule will require 
manufacturers to improve the fuel economy of at least some of their 
models, which will lower their operating costs.
    However, this rule will not change the way that potential buyers 
evaluate improved fuel economy. If some consumers find it difficult to 
estimate the value of future fuel savings and correctly compare it with 
the increased cost of purchasing higher fuel economy (possibilities 
discussed below in Section IV.G.6)--or if they simply have low values 
of saving fuel--this rule will not change that situation, and they are 
unlikely to purchase the more fuel-efficient models that manufacturers 
offer. To the extent that other consumers more completely or correctly 
account for the value of fuel savings and the costs of acquiring higher 
fuel economy in their purchasing decisions, they will also continue to 
do so, and they are likely to view models with improved fuel economy as 
more attractive purchases than currently available models. The effect 
of the rule on sales of new vehicles will depend on which form of 
behavior is more widespread.
    In general we would expect that the net effect of this rule would 
be to reduce sales of new vehicles or leave them unchanged. If 
consumers are satisfied with the combinations of fuel economy levels 
and prices that current models offer, we would expect some to decide 
that the higher prices of those models no longer justify purchasing 
them, even though they offer higher fuel economy. Other potential 
buyers may decide to purchase the same vehicle they would have before 
the rule took effect, or to adjust their purchases in favor of models 
offering other attributes. Thus sales of new models would decline,

[[Page 25650]]

regardless of whether ``consumer-side'' failures in the market for fuel 
economy currently lead buyers to under-invest in fuel economy. However, 
if there is some market failure on the producer or supply side that 
currently inhibits manufacturers from offering increases in fuel 
economy that would increase their profits--for example, if producers 
have underestimated the demand for fuel economy, or do not compete 
vigorously to provide as much as buyers would prefer--then the new 
standards would make vehicles more attractive to many buyers, and their 
sales should increase (potential explanations for such producer market 
failures are discussed in Section IV.G.6 below).
    NHTSA examined the potential impact of higher vehicle prices on 
sales on an industry-wide basis for passenger cars and light trucks 
separately. We note that the analysis conducted for this rule does not 
have the precision to examine effects on individual manufacturers or 
different vehicle classes. The methodology NHTSA used for estimating 
the impact on vehicle sales in effect assumes that the latter situation 
will prevail; although it is relatively straightforward, it relies on a 
number of simplifying assumptions.
    There is a broad consensus in the economic literature that the 
price elasticity for demand for automobiles is approximately -1.0.\726\ 
Thus, every one percent increase in the price of the vehicle would 
reduce sales by one percent. Elasticity estimates assume no perceived 
change in the quality of the product. However, in this case, vehicle 
price increases result from adding technologies that improve fuel 
economy. If consumers did not value improved fuel economy at all, and 
considered nothing but the increase in price in their purchase 
decisions, then the estimated impact on sales from price elasticity 
could be applied directly. However, NHTSA believes that consumers do 
value improved fuel economy, because it reduces the operating cost of 
the vehicles. NHTSA also believes that consumers consider other factors 
that affect their costs and have included these in the analysis.
---------------------------------------------------------------------------

    \726\ Kleit, A.N. (1990). ``The Effect of Annual Changes in 
Automobile Fuel Economy Standards,'' Journal of Regulatory 
Economics, vol. 2, pp 151-172 (Docket EPA-HQ-OAR-2009-0472-0015); 
Bordley, R. (1994). ``An Overlapping Choice Set Model of Automotive 
Price Elasticities,'' Transportation Research B, vol 28B, no 6, pp 
401-408 (Docket NHTSA-2009-0059-0153); McCarthy, P.S. (1996). 
``Market Price and Income Elasticities of New Vehicle Demands,'' The 
Review of Economics and Statistics, vol. LXXVII, no. 3, pp. 543-547 
(Docket NHTSA-2009-0059-0039).
---------------------------------------------------------------------------

    The main question, however, is how much of the retail price needed 
to cover the technology investments to meet higher fuel economy 
standards will manufacturers be able to pass on to consumers. The 
ability of manufacturers to pass the compliance costs on to consumers 
depends upon how consumers value the fuel economy improvements.\727\ 
The estimates reported below as part of NHTSA's analysis on sales 
impacts assume that manufacturers will be able to pass all of their 
costs to improve fuel economy on to consumers. To the extent that NHTSA 
has accurately predicted the price of gasoline and consumers reactions, 
and manufacturers can pass on all of the costs to consumers, then the 
sales and employment impact analyses are reasonable. On the other hand, 
if manufacturers only increase retail prices to the extent that 
consumers value these fuel economy improvements (i.e., to the extent 
that they value fuel savings), then there would be no impact on sales, 
although manufacturers' profit levels would fall. Sales losses are 
predicted to occur only if consumers fail to value fuel economy 
improvements at least as much as they pay in higher vehicle prices. 
Likewise, if fuel prices rise beyond levels used in this analysis, 
consumer valuation of improved fuel economy could potentially increase 
beyond that estimated here, which could result in an increase in sales 
levels.
---------------------------------------------------------------------------

    \727\ Gron, Ann and Swenson, Deborah, 2000, ``Cost Pass-Through 
in the U.S. Automobile Market,'' The Review of Economics and 
Statistics, 82: 316-324. (Docket EPA-HQ-OAR-2009-0472-0007).
---------------------------------------------------------------------------

    To estimate the average value consumers place on fuel savings at 
the time of purchase, NHTSA assumes that the average purchaser 
considers the fuel savings they would receive over a 5 year time frame. 
NHTSA chose 5 years because this is the average length of time of a 
financing agreement.\728\ The present values of these savings were 
calculated using a 3 percent discount rate. NHTSA used a fuel price 
forecast that included taxes, because this is what consumers must pay. 
Fuel savings were calculated over the first 5 years and discounted back 
to a present value.
---------------------------------------------------------------------------

    \728\ National average financing terms for automobile loans are 
available from the Board of Governors of the Federal Reserve System 
G.19 ``Consumer Finance'' release. See http://
www.federalreserve.gov/releases/g19/ (last accessed February 26, 
2010).
---------------------------------------------------------------------------

    NHTSA believes that consumers may consider several other factors 
over the 5 year horizon when contemplating the purchase of a new 
vehicle. NHTSA added these factors into the calculation to represent 
how an increase in technology costs might affect consumers' buying 
considerations.
    First, consumers might consider the sales taxes they have to pay at 
the time of purchasing the vehicle. NHTSA took sales taxes in 2007 by 
state and weighted them by population by state to determine a national 
weighted-average sales tax of 5.5 percent.
    Second, NHTSA considered insurance costs over the 5 year period. 
More expensive vehicles will require more expensive collision and 
comprehensive (e.g., theft) car insurance. The increase in insurance 
costs is estimated from the average value of collision plus 
comprehensive insurance as a proportion of average new vehicle price. 
Collision plus comprehensive insurance is the portion of insurance 
costs that depend on vehicle value. The Insurance Information Institute 
provides the average value of collision plus comprehensive insurance in 
2006 as $448.\729\ This is compared to an average price for light 
vehicles of $24,033 for 2006.\730\ Average prices and estimated sales 
volumes are needed because price elasticity is an estimate of how a 
percent increase in price affects the percent decrease in sales.
---------------------------------------------------------------------------

    \729\ Insurance Information Institute, 2008, ``Average 
Expenditures for Auto Insurance By State, 2005-2006.'' Available at 
http://www.iii.org/media/facts/statsbyissue/auto/ (last accessed 
March 15, 2010).
    \730\ $29,678/$26,201 = 1.1327 * $22,651 = $25,657 average price 
for light trucks. In 2006, passenger cars were 54 percent of the on-
road fleet and light trucks were 46 percent of the on-road fleet, 
resulting in an average light vehicle price for 2006 of $24,033.
---------------------------------------------------------------------------

    Dividing the insurance cost by the average price of a new vehicle 
gives the proportion of comprehensive plus collision insurance as 1.86 
percent of the price of a vehicle. If we assume that this premium is 
proportional to the new vehicle price, it represents about 1.86 percent 
of the new vehicle price and insurance is paid each year for the five 
year period we are considering for payback. Discounting that stream of 
insurance costs back to present value indicates that the present value 
of the component of insurance costs that vary with vehicle price is 
equal to 8.5 percent of the vehicle's price at a 3 percent discount 
rate.
    Third, NHTSA considered that 70 percent of new vehicle purchasers 
take out loans to finance their purchase. The average new vehicle loan 
is for 5 years at a 6 percent rate.\731\ At these terms, the average 
person taking a loan will pay 16 percent more for their vehicle over 
the 5 years than a consumer paying cash for

[[Page 25651]]

the vehicle at the time of purchase.\732\ Discounting the additional 
3.2 percent (16 percent/5 years) per year over the 5 years using a 3 
percent mid-year discount rate \733\ results in a discounted present 
value of 14.87 percent higher for those taking a loan. Multiplying that 
by the 70 percent of consumers who take out a loan means that the 
average consumer would pay 10.2 percent more than the retail price for 
loans the consumer discounted at a 3 percent discount rate.
---------------------------------------------------------------------------

    \731\ New car loan rates in 2007 averaged about 7.8 percent at 
commercial banks and 4.5 percent at auto finance companies, so their 
average is close to 7 percent.
    \732\ Based on http://www.bankrate.com auto loan calculator for 
a 5 year loan at 6 percent.
    \733\ For a 3 percent discount rate, the summation of 3.2 
percent x 0.9853 in year one, 3.2 x 0.9566 in year two, 3.2 x 0.9288 
in year three, 3.2 x 0.9017 in year 4, and 3.2 x 0.8755 in year 
five.
---------------------------------------------------------------------------

    Fourth, NHTSA considered the residual value (or resale value) of 
the vehicle after 5 years and expressed this as a percentage of the new 
vehicle price. In other words, if the price of the vehicle increases 
due to fuel economy technologies, the resale value of the vehicle will 
go up proportionately. The average resale price of a vehicle after 5 
years is about 35 percent of the original purchase price.\734\ 
Discounting the residual value back 5 years using a 3 percent discount 
rate (35 percent * .8755) gives an effective residual value at new of 
30.6 percent.
---------------------------------------------------------------------------

    \734\ Consumer Reports, August 2008, ``What That Car Really 
Costs to Own.'' Available at http://www.consumerreports.org/cro/
cars/pricing/what-that-car-really-costs-to-own-4-08/overview/what-
that-car-really-costs-to-own-ov.htm (last accessed February 26, 
2010).
---------------------------------------------------------------------------

    NHTSA then adds these four factors together. At a 3 percent 
discount rate, the consumer considers she could get 30.6 percent back 
upon resale in 5 years, but will pay 5.5 percent more for taxes, 8.5 
percent more in insurance, and 10.2 percent more for loans, results in 
a 6.48 percent return on the increase in price for fuel economy 
technology. Thus, the increase in price per vehicle is multiplied by 
0.9352 (1-0.0648) before subtracting the fuel savings to determine the 
overall net consumer valuation of the increase of costs on her purchase 
decision.
    The following table shows the estimated impact on sales for 
passenger cars, light trucks, and both combined for the final 
standards. For all model years except MY 2012, NHTSA anticipates an 
increase in sales, based on consumers valuing the improvement in fuel 
economy more than the increase in price.

            Table IV.G.5-1--Potential Impact on Sales, Passenger Cars and Light Trucks, and Combined
----------------------------------------------------------------------------------------------------------------
                                      MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................         -65,202          46,801         103,422         168,334         227,039
Light Trucks....................          48,561         106,658         139,893         171,920         213,868
                                 -------------------------------------------------------------------------------
    Combined....................         -16,641         153,459         243,315         340,255         440,907
----------------------------------------------------------------------------------------------------------------

    The estimates provided in the tables above are meant to be 
illustrative rather than a definitive prediction. When viewed at the 
industry-wide level, they give a general indication of the potential 
impact on vehicle sales. As shown below, the overall impact is positive 
and growing over time for both cars and trucks. Because the fuel 
savings associated with this rule are expected to exceed the technology 
costs, the effective prices of vehicles (the adjusted increase in 
technology cost less the fuel savings over five years) to consumers 
will fall, and consumers will buy more new vehicles. As a result, the 
lower net cost of the vehicles is projected to lead to an increase in 
sales for both cars and trucks.
    As discussed above, this result depends on the assumption that more 
fuel efficient vehicles yielding net consumer benefits over their first 
five years would not otherwise be offered, due to market failures on 
the part of vehicle manufacturers. However, vehicle models that achieve 
the fuel economy targets prescribed by today's rulemaking are already 
available, and consumers do not currently purchase a combination of 
them that meets the fuel economy levels this rule requires. This 
suggests that the rule may not result in an increase in vehicle sales, 
because it does not alter how consumers currently make decisions about 
which models to purchase. In addition, this analysis has not accounted 
for a number of factors that might affect consumer vehicle purchases, 
such as changing market conditions, changes in vehicle characteristics 
that might accompany improvements in fuel economy, or consumers 
considering a different ``payback period'' for their fuel economy 
purchases. If consumers use a shorter payback period, sales will 
increase by less than estimated here, and might even decline, while if 
consumers use longer payback periods, the increase in sales is likely 
to be larger than reported. In addition, because this is an aggregate 
analysis some individual consumers (including those who drive less than 
estimated here) will receive lower net benefits from the increase n 
fuel economy this rule requires, while others (who drive more than 
estimated here) will realize even greater savings. These 
complications--which have not been taken into account in our analysis--
add considerable uncertainty to our estimates of changes in vehicle 
sales resulting from this rule.
6. Potential Unquantified Consumer Welfare Impacts of the Final 
Standards
    The underlying goal of the CAFE and GHG standards is to increase 
social welfare, in the broadest sense, and as shown in earlier 
sections, NHTSA projects that the MY 2012-2016 CAFE standards will 
yield large net social benefits. In its net benefits analysis, NHTSA 
made every attempt to include all of the costs and benefits that could 
be identified and quantified.
    It is important to highlight several features of the rulemaking 
analysis that NHTSA believes gives high confidence to its conclusion 
that there are large net social benefits from these standards. First, 
the agencies adopted footprint-based standards in large part so that 
the full range of vehicle choices in the marketplace could be 
maintained. Second, the agencies performed a rigorous technological 
feasibility, cost, and leadtime analysis that showed that the standards 
could be met while maintaining current levels of other vehicle 
attributes such as safety, utility, and performance. Third, widespread 
automaker support for the standards, in conjunction with the future 
product plans that have been provided by automakers to the agencies and 
recent industry announcements on new product offerings, provides 
further indication that the standards can be met while retaining the 
full spectrum of vehicle choices.
    Notwithstanding these points, and its high degree of confidence 
that the benefits amply justify the costs, NHTSA recognizes the 
possibility of consumer welfare impacts that are not accounted for in 
its analysis of benefits and costs

[[Page 25652]]

from higher CAFE standards. The agencies received public comments 
expressing diverging views on this issue. The majority of commenters 
suggested that potential losses in welfare from requiring higher fuel 
economy were unlikely to be a significant concern, because of the many 
imperfections in the market for fuel economy. In contrast, other 
comments suggested that potential unidentified and unquantified 
consumer welfare losses could be large. Acknowledging the comments, the 
FRIA provides a sensitivity analysis showing how various levels of 
unidentified consumer welfare losses would affect the projected net 
social benefits from the CAFE standards established by this final rule.
    There are two viewpoints for evaluating the costs and benefits of 
the increase in CAFE standards: The private perspective of vehicle 
buyers themselves on the higher fuel economy levels that the rule would 
require, and the economy-wide or ``social'' perspective on the costs 
and benefits of requiring higher fuel economy. It is important, in 
short, to distinguish between costs and benefits that are ``private'' 
and costs and benefits that are ``social.'' The agency's analysis of 
benefits and costs from requiring higher fuel efficiency, presented 
above, includes several categories of benefits (``social benefits'') 
that are not limited to automobile purchasers and that extend 
throughout the U.S. economy, such as reductions in the energy security 
costs associated with U.S. petroleum imports and in the economic 
damages expected to result from climate change. In contrast, other 
categories of benefits--principally the economic value of future fuel 
savings projected to result from higher fuel economy--will be 
experienced exclusively by the initial purchasers and subsequent owners 
of vehicle models whose fuel economy manufacturers elect to improve as 
part of their strategies for complying with higher CAFE standards 
(``private benefits'').
    Although the economy-wide or ``social'' benefits from requiring 
higher fuel economy represent an important share of the total economic 
benefits from raising CAFE standards, NHTSA estimates that benefits to 
vehicle buyers themselves will significantly exceed the costs of 
complying with the stricter fuel economy standards this rule 
establishes, as shown above. Since the agency also assumes that the 
costs of new technologies manufacturers will employ to improve fuel 
economy will ultimately be shifted to vehicle buyers in the form of 
higher purchase prices, NHTSA concludes that the benefits to vehicle 
buyers from requiring higher fuel efficiency will far outweigh the 
costs they will be required to pay to obtain it. However, this raises 
the question of why current purchasing patterns do not already result 
in higher average fuel economy, and why stricter fuel efficiency 
standards should be necessary to achieve that goal.
    As an illustration, Table IV.G.6-1 reports the agency's estimates 
of the average lifetime values of fuel savings for MY 2012-2016 
passenger cars and light trucks calculated using future retail fuel 
prices, which are those likely to be used by vehicle buyers to project 
the value of fuel savings they expect from higher fuel economy. The 
table compares NHTSA's estimates of the average lifetime value of fuel 
savings for cars and light trucks to the price increases it projects to 
result as manufacturers attempt to recover their costs for complying 
with increased CAFE standards for those model years by increasing 
vehicle sales prices. As the table shows, the agency's estimates of the 
present value of lifetime fuel savings (discounted using the OMB-
recommended 3% rate) substantially outweigh projected vehicle price 
increases for both cars and light trucks in every model year, even 
under the assumption that all of manufacturers' technology outlays are 
passed on to buyers in the form of higher selling prices for new cars 
and light trucks. By model year 2016, NHTSA projects that average 
lifetime fuel savings will exceed the average price increase by more 
than $2,000 for cars, and by more than $2,700 for light trucks.

                                       Table IV.G.6-1--Value of Lifetime Fuel Savings vs. Vehicle Price Increases
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Model year
                 Fleet                               Measure             -------------------------------------------------------------------------------
                                                                               2012            2013            2014            2015            2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars........................  Value of Fuel Savings...........            $759          $1,349          $1,914          $2,480          $2,932
                                        Average Price Increase..........             505             573             690             799             907
                                                                         -------------------------------------------------------------------------------
                                           Difference...................             255             897           1,264           1,680           2,025
Light Trucks..........................  Value of Fuel Savings...........             828           1,634           2,277           2,887           3,700
                                        Average Price Increase..........             322             416             621             752             961
                                                                         -------------------------------------------------------------------------------
                                           Difference...................             506           1,218           1,656           2,135           2,739
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The comparisons above immediately raise the question of why current 
vehicle purchasing patterns do not already result in average fuel 
economy levels approaching those that this rule would require, and why 
stricter CAFE standards should be necessary to increase the fuel 
economy of new cars and light trucks. They also raise the question of 
why manufacturers do not elect to provide higher fuel economy even in 
the absence of increases in CAFE standards, since the comparisons in 
Table IV.G.6-1 suggest that doing so would increase the value of many 
new vehicle models by far more than it would raise the cost of 
producing them (and thus raise their purchase prices), thus presumably 
increasing sales of new vehicles. More specifically, why would 
potential buyers of new vehicles hesitate to make investments in higher 
fuel economy that would produce the substantial economic returns 
illustrated by the comparisons presented in Table IV.G.6-1? And why 
would manufacturers voluntarily forego opportunities to increase the 
attractiveness, value, and competitive positioning of their car and 
light truck models by improving their fuel economy?
    The majority of comments received on this topic answered these 
questions by pointing out many reasons why the market for vehicle fuel 
economy does not appear to work perfectly, and accordingly, that 
properly designed CAFE standards would be expected to increase consumer 
welfare. Some of these imperfections might stem from standard market 
failures (such as an absence of adequate information on the part of 
consumers); some of them might involve findings in behavioral

[[Page 25653]]

economics (including, for example, a lack of sufficient consumer 
attention to long-term savings, or a lack of salience, to consumers at 
the time of purchase, of relevant benefits, including fuel and time 
savings). Both theoretical and empirical research suggests that many 
consumers do not make energy-efficient investments even when those 
investments would pay off in the relatively short-term.\735\ This 
research is in line with related findings that consumers may underweigh 
benefits and costs that are less salient or that will be realized only 
in the future.\736\
---------------------------------------------------------------------------

    \735\ Jaffe, A. B., and Stavins, R. N. (1994). The Energy 
Paradox and the Diffusion of Conservation Technology. Resource and 
Energy Economics, 16(2); see Hunt Alcott and Nathan Wozny, Gasoline 
Prices, Fuel Economy, and the Energy Paradox (2010, available at 
http://web.mit.edu/allcott/www/Allcott%20and%20Wozny%202010%20-
%20Gasoline%20Prices,%20Fuel%20Economy,%20and%20the%20Energy%20Parado
x.pdf.
    \736\ Hossain, Janjim, and John Morgan (2009). `` * * * Plus 
Shipping and Handling: Revenue (Non)Equivalence in Field Experiments 
on eBay,'' Advances in Economic Analysis and Policy vol. 6; Barber, 
Brad, Terrence Odean, and Lu Zheng (2005). ``Out of Sight, Out of 
Mind: The Effects of Expenses on Mutual Fund Flows,'' Journal of 
Business vol. 78, no. 6, pp. 2095-2020.
---------------------------------------------------------------------------

    Existing work provides support for the agency's conclusion that the 
benefits buyers will receive from requiring manufacturers to increase 
fuel economy far outweigh the costs they will pay to acquire those 
benefits, by identifying aspects of normal behavior that may explain 
buyers' current reluctance to purchase vehicles whose higher fuel 
economy appears to offer an attractive economic return. For example, 
consumers' understandable aversion to the prospect of losses (``loss 
aversion'') may produce an exaggerated sense of uncertainty about the 
value of future fuel savings, making consumers reluctant to purchase a 
more fuel-efficient vehicle seem unattractive, even when doing so is 
likely to be a sound economic decision. Compare the finding in Greene 
et al. (2009) to the effect that the expected net present value of 
increasing the fuel economy of a passenger car from 28 to 35 miles per 
gallon falls from $405 when calculated using standard net present value 
calculations, to nearly zero when uncertainty regarding future cost 
savings is taken into account.\737\
---------------------------------------------------------------------------

    \737\ Greene, D., J. German, and M. Delucchi (2009). ``Fuel 
Economy: The Case for Market Failure'' in Reducing Climate Impacts 
in the Transportation Sector, Sperling, D., and J. Cannon, eds. 
Springer Science. Surprisingly, the authors find that uncertainty 
regarding the future price of gasoline appears to be less important 
than uncertainty surrounding the expected lifetimes of new vehicles. 
(Docket NHTSA-2009-0059-0154).
---------------------------------------------------------------------------

    The well-known finding that as gas prices rise, consumers show more 
willingness to pay for fuel-efficient vehicles is not inconsistent with 
the possibility that many consumers undervalue gasoline costs and fuel 
economy at the time of purchase. In ordinary circumstances, such costs 
may be a relatively ``shrouded'' attribute in consumers' decisions, in 
part because the savings are cumulative and extend over a significant 
period of time. This claim fits well with recent findings to the effect 
that many consumers are willing to pay less than $1 upfront to obtain a 
$1 benefit reduction in discounted gasoline costs.\738\
---------------------------------------------------------------------------

    \738\ See Alcott and Wozny.
---------------------------------------------------------------------------

    Some research suggests that the consumers' apparent unwillingness 
to purchase more fuel efficient vehicles stems from their inability to 
value future fuel savings correctly. For example, Larrick and Soll 
(2008) find evidence that consumers do not understand how to translate 
changes in fuel economy, which is denominated in miles per gallon, into 
resulting changes in fuel consumption, measured in gallons per time 
period.\739\ Sanstad and Howarth (1994) argue that consumers resort to 
imprecise but convenient rules of thumb to compare vehicles that offer 
different fuel economy ratings, and that this behavior can cause many 
buyers to underestimate the value of fuel savings, particularly from 
significant increases in fuel economy.\740\ If the behavior identified 
in these studies is widespread, then the agency's estimates suggesting 
that the benefits to vehicle owners from requiring higher fuel economy 
significantly exceed the costs of providing it are indeed likely to be 
correct.
---------------------------------------------------------------------------

    \739\ Larrick, R. P., and J.B. Soll (2008). ``The MPG 
illusion.'' Science 320: 1593-1594.
    \740\ Sanstad, A., and R. Howarth (1994). `` `Normal' Markets, 
Market Imperfections, and Energy Efficiency.'' Energy Policy 22(10): 
811-818.
---------------------------------------------------------------------------

    Another possible reconciliation of the agency's claim that the 
average vehicle buyer will experience large fuel savings from the 
higher CAFE standards this rule establishes with the fact that the 
average fuel economy of vehicles currently purchased falls well short 
of the new standards is that the values of future savings from higher 
fuel economy vary widely across consumers. As an illustration, one 
recent review of consumers' willingness to pay for improved fuel 
economy found estimates that varied from less than 1% to almost ten 
times the present value of the resulting fuel savings when those are 
discounted at 7% over the vehicle's expected lifetime.\741\ The wide 
variation in these estimates undoubtedly reflects methodological and 
measurement differences among the studies surveyed. However, it may 
also reveal that the expected savings from purchasing a vehicle with 
higher fuel economy vary widely among individuals, because they travel 
different amounts, have different driving styles, or simply have 
varying expectations about future fuel prices.
---------------------------------------------------------------------------

    \741\ Greene, David L., ``How Consumers Value Fuel Economy: A 
Literature Review,'' Draft report to U.S. Environmental Protection 
Agency, Oak Ridge National Laboratory, December 29, 2009; see Table 
10, p. 37.
    See also David Greene and Jin-Tan Liu (1988). ``Automotive Fuel 
Economy Improvements and Consumers' Surplus.'' Transportation 
Research Part A 22A(3): 203-218 (Docket EPA-HQ-OAR-2009-0472-0045). 
The study actually calculated the willingness to pay for reduced 
vehicle operating costs, of which vehicle fuel economy is a major 
component.
---------------------------------------------------------------------------

    These differences reflect the possibility that many buyers with 
high valuations of increased fuel economy already purchase vehicle 
models that offer it, while those with lower values of fuel economy 
emphasize other vehicle attributes in their purchasing decisions. A 
related possibility is that because the effects of differing fuel 
economy levels are relatively modest when compared to those provided by 
other, more prominent features of new vehicles--passenger and cargo-
carrying capacity, performance, safety, etc.--it is simply not in many 
shoppers' interest to spend the time and effort necessary to determine 
the economic value of higher fuel economy, attempt to isolate the 
component of a new vehicle's selling price that is related to its fuel 
economy, and compare these two. (This possibility is consistent with 
the view that fuel economy is a relatively ``shrouded'' attribute.) In 
either case, the agency's estimates of the average value of fuel 
savings that will result from requiring cars and light trucks to 
achieve higher fuel economy may be correct, but those savings may not 
be large enough to lead a sufficient number of buyers to push for 
vehicles with higher fuel economy to increase average fuel economy from 
its current levels.
    Defects in the market for cars and light trucks could also lead 
manufacturers to undersupply fuel economy, even in cases where many 
buyers were willing to pay the increased prices necessary to provide 
it.
    To be sure, the relevant market, taken as a whole, has a great deal 
of competition. But even in those circumstances, there may not such 
competition with respect to all vehicle attributes. Incomplete or 
``asymmetric'' access to information on vehicle attributes such as fuel 
economy--whereby manufacturers of new vehicles or sellers of used cars 
and light trucks

[[Page 25654]]

have more complete knowledge of the value of purchasing higher fuel 
economy, than do potential buyers--may also prevents sellers of new or 
used vehicles from capturing its full value. In this situation, the 
level of fuel efficiency provided in the markets for new or used 
vehicles might remain persistently lower than that demanded by 
potential buyers (at least if they are well-informed).
    It is also possible that deliberate decisions by manufacturers of 
cars and light trucks, rather than constraints on the combinations of 
fuel economy, carrying capacity, and performance that manufacturers can 
offer using current technologies, limit the range of fuel economy 
available to buyers within individual vehicle market segments, such as 
full-size automobiles, small SUVs, or minivans. As an illustration, 
once a potential buyer has decided to purchase a minivan, the range of 
fuel economy among current models extends only from 18 to 24 mpg.\742\ 
Manufacturers might make such decisions if they underestimate the 
premiums that shoppers in certain market segments are willing to pay 
for more fuel-efficient versions of the vehicle models they currently 
offer to prospective buyers within those segments. If this occurs, 
manufacturers may fail to supply levels of fuel efficiency as high as 
those buyers are willing to pay for, and the average fuel efficiency of 
their entire new vehicle fleets could remain below the levels that 
potential buyers demand and are willing to pay for. (Of course this 
possibility is most realistic if it is also assumed that buyers are 
imperfectly informed or if fuel economy savings are not sufficiently 
salient.) However, other commenters suggested that, if one assumes a 
perfectly functioning market, there must be unidentified consumer 
welfare losses that could offset the private fuel savings that 
consumers are currently foregoing.
---------------------------------------------------------------------------

    \742\ This is the range of combined city and highway fuel 
economy levels from lowest (Toyota Siena 4WD) to highest (Mazda 5) 
available for model year 2010; http://www.fueleconomy.gov/feg/
bestworstEPAtrucks.htm (last accessed February 15, 2010).
---------------------------------------------------------------------------

    One explanation for this apparent paradox is that NHTSA's estimates 
of benefits and costs from requiring manufacturers to improve the fuel 
efficiency of their vehicle models do not match potential vehicle 
buyers' assessment of the likely benefits and costs from requiring 
higher fuel efficiency. This could occur because the agency's 
underlying assumptions about some of the factors that affect the value 
of fuel savings differ from those made by potential buyers, because 
NHTSA has used different estimates for some components of the benefits 
from saving fuel than do buyers, or because the agency has failed to 
account for some potential costs of achieving higher fuel economy.
    For example, buyers may not value increased fuel economy as highly 
as the agencies' calculations suggest, because they have shorter time 
horizons than the full vehicle lifetimes assumed by NHTSA and EPA, or 
because, when buying vehicles, they discount future fuel future savings 
using higher rates than those prescribed by OMB for evaluating Federal 
regulations. Potential buyers may also anticipate lower fuel prices in 
the future than those forecast by the Energy Information 
Administration, or may expect larger differences between vehicles rated 
and actual on-road MPG levels than the agencies' estimate.
    To illustrate the first of these possibilities, Table IV.G.6-2 
shows the effect of differing assumptions about vehicle buyers' time 
horizons for assessing the value of future fuel savings. Specifically, 
the table compares the average value of fuel savings from purchasing a 
MY 2016 car or light truck when fuel savings are evaluated over 
different time horizons to the estimated increase in its price. This 
table shows that as reported previously in Table IV.G.6-2, when fuel 
savings are evaluated over the entire expected lifetime of a MY 2016 
car (approximately 14 years) or light truck (about 16 years), their 
discounted present value (using the OMB-recommended 3% discount rate) 
lifetime fuel savings exceeds the estimated average price increase by 
more than $2,000 for cars and by more than $2,700 for light trucks.
    If buyers are instead assumed to consider fuel savings over a 10-
year time horizon, however, the present value of fuel savings exceeds 
the projected price increase for a MY 2016 car by about $1,300, and by 
somewhat more than $1,500 for a MY 2016 light truck. Finally, Table 
VI.G.6-2 shows that under the assumption that buyers consider fuel 
savings only over the length of time for which they typically finance 
new car purchases (slightly more than 5 years during 2009), the value 
of fuel savings exceeds the estimated increase in the price of a MY 
2016 car by only about $350, and the corresponding difference is 
reduced to slightly more than $500 for a MY 2016 light truck.
---------------------------------------------------------------------------

    \743\ Expected lifetimes are approximately 14 years for cars and 
16 years for light trucks.
    \744\ Average term on new vehicle loans made by auto finance 
companies during 2009 was 62 months; See Board of Governors of the 
Federal Reserve System, Federal Reserve Statistical Release G.19, 
Consumer Credit. Available at http://www.federalreserve.gov/
releases/g19/Current (last accessed March 1, 2010).

  Table IV.G.6-2--Value of Fuel Savings vs. Vehicle Price Increases With Alternative Assumptions About Vehicle
                                               Buyer Time Horizons
----------------------------------------------------------------------------------------------------------------
                                                                       Value over alternative time horizons
                                                                 -----------------------------------------------
                Vehicle                          Measure             Expected                      Average loan
                                                                  lifetime \743\     10 years       term \744\
----------------------------------------------------------------------------------------------------------------
MY 2016 Passenger Car.................  Fuel Savings............          $2,932          $2,180          $1,254
                                        Price Increase..........             907             907             907
                                                                 -----------------------------------------------
                                           Difference...........           2,025           1,273             347
MY 2016 Light Truck...................  Fuel Savings............           3,700           2,508           1,484
                                        Price Increase..........             961             961             961
                                                                 -----------------------------------------------
                                           Difference...........           2,739           1,547             523
----------------------------------------------------------------------------------------------------------------

    Potential vehicle buyers may also discount future fuel future 
savings using higher rates than those typically used to evaluate 
Federal regulations. OMB guidance prescribes that future benefits and 
costs of regulations that mainly

[[Page 25655]]

affect private consumption decisions, as will be the case if 
manufacturers' costs for complying with higher fuel economy standards 
are passed on to vehicle buyers, should be discounted using a 
consumption rate of time preference.\745\ OMB estimates that savers 
currently discount future consumption at an average real or inflation-
adjusted rate of about 3 percent when they face little risk about its 
likely level, which makes it a reasonable estimate of the consumption 
rate of time preference. However, vehicle buyers may view the value of 
future fuel savings that results from purchasing a vehicle with higher 
fuel economy as risky or uncertain, or they may instead discount future 
consumption at rates reflecting their costs for financing the higher 
capital outlays required to purchase more fuel-efficient models. In 
either case, they may discount future fuel savings at rates well above 
the 3% assumed in NHTSA's evaluation in their purchase decisions.
---------------------------------------------------------------------------

    \745\ Office of Management and Budget, Circular A-4, 
``Regulatory Analysis,'' September 17, 2003, 33. Available at http:/
/www.whitehouse.gov/omb/assets/regulatory_matters_pdf/a-4.pdf 
(last accessed March 1, 2010).
---------------------------------------------------------------------------

    Table IV.G.6-3 shows the effects of higher discount rates on 
vehicle buyers' evaluation of the fuel savings projected to result from 
the CAFE standards established by this rule, again using MY 2016 
passenger cars and light trucks as an example. As Table IV.G.6-1 showed 
previously, average future fuel savings discounted at the OMB 3% 
consumer rate exceed the agency's estimated price increases by more 
than $2,000 for MY 2016 passenger cars and by more than $2,700 for MY 
2016 light trucks. If vehicle buyers instead discount future fuel 
savings at the average new-car loan rate during 2009 (6.7%), however, 
these differences decline to slightly more than $1,400 for cars and 
$1,900 for light trucks, as Table IV.G.6-3 illustrates.
    This is a potentially plausible alternative assumption, because 
buyers are likely to finance the increases in purchase prices resulting 
from compliance with higher CAFE standards as part of the process of 
financing the vehicle purchase itself. Finally, as the table also 
shows, discounting future fuel savings using a consumer credit card 
rate (which averaged 13.4% during 2009) reduces these differences to 
less than $800 for a MY 2016 passenger car and less than $1,100 for the 
typical MY 2016 light truck. Note, however, that even at these higher 
discount rates, the table shows that the private net benefits from 
purchasing a vehicle with the average level of fuel economy this rule 
requires remains large.

  Table IV.G.6-3--Value of Fuel Savings vs. Vehicle Price Increases With Alternative Assumptions About Consumer
                                                 Discount Rates
----------------------------------------------------------------------------------------------------------------
                                                               Value over alternative time horizons
                                                 ---------------------------------------------------------------
                                                                                                     Consumer
            Vehicle                  Measure       OMB consumer    New car loan   OMB investment    credit card
                                                    rate  (3%)     rate  (6.7%)     rate  (7%)     rate  (13.4%)
                                                                       \746\                           \747\
----------------------------------------------------------------------------------------------------------------
MY 2016 Passenger Car.........  Fuel Savings....          $2,932          $2,336          $2,300          $1,669
                                Price Increase..             907             907             907             907
                                                 ---------------------------------------------------------------
                                   Difference...           2,025           1,429           1,393             762
MY 2016 Light Truck...........  Fuel Savings....           3,700           2,884           2,836           2,030
                                Price Increase..             961             961             961             961
                                                 ---------------------------------------------------------------
                                   Difference...           2,739           1,923           1,875           1,069
----------------------------------------------------------------------------------------------------------------

    Combinations of a shorter time horizon and a higher discount rate 
could further reduce or even eliminate the difference between the value 
of fuel savings and the agency's estimates of increases in vehicle 
prices. One plausible combination would be for buyers to discount fuel 
savings over the term of a new car loan, using the interest rate on 
that loan as a discount rate. Doing so would reduce the amount by which 
future fuel savings exceed the estimated increase in the prices of MY 
2016 vehicles to about $340 for passenger cars and $570 for light 
trucks. Some evidence also suggests directly that vehicle buyers may 
employ combinations of higher discount rates and shorter time horizons 
for their purchase decisions; for example, consumers surveyed by Kubik 
(2006) reported that fuel savings would have to be adequate to pay back 
the additional purchase price of a more fuel-efficient vehicle in less 
than 3 years to persuade a typical buyer to purchase it.\748\ As these 
comparisons and evidence illustrate, reasonable alternative assumptions 
about how consumers might evaluate the major benefit from requiring 
higher fuel economy can significantly affect the benefits they expect 
to receive when they decide to purchase a new vehicle.
---------------------------------------------------------------------------

    \746\ Average rate on 48-month new vehicle loans made by 
commercial banks during 2009 was 6.72%; See Board of Governors of 
the Federal Reserve System, Federal Reserve Statistical Release 
G.19, Consumer Credit. Available at http://www.federalreserve.gov/
releases/g19/Current (last accessed March 1, 2010).
    \747\ Average rate on consumer credit card accounts at 
commercial banks during 2009 was 13.4%; See Board of Governors of 
the Federal Reserve System, Federal Reserve Statistical Release 
G.19, Consumer Credit. Available at http://www.federalreserve.gov/
releases/g19/Current (last accessed March 1, 2010).
    \748\ Kubik, M. (2006). Consumer Views on Transportation and 
Energy. Second Edition. Technical Report: National Renewable Energy 
Laboratory. Available at Docket No. NHTSA-2009-0059-0038.
---------------------------------------------------------------------------

    Imaginable combinations of shorter time horizons, higher discount 
rates, and lower expectations about future fuel prices or annual 
vehicle use and fuel savings could make potential buyers hesitant or 
even unwilling to purchase vehicles offering the increased fuel economy 
levels this rule will require manufacturers to produce. At the same 
time, they might cause vehicle buyers' collective assessment of the 
aggregate benefits and costs of this rule to differ from NHTSA's 
estimates. If consumers' views about critical variables such as future 
fuel prices or the appropriate discount rate differ sufficiently from 
the assumptions used by the agency, some or perhaps many potential 
vehicle buyers might conclude that the value of fuel savings and other 
benefits they will experience from higher fuel economy are not 
sufficient to justify the increase in purchase prices they expect to 
pay. This would explain why their current choices among available 
models do not result in average fuel economy levels

[[Page 25656]]

approaching those this rule would require.
    Another possibility is that achieving the fuel economy improvements 
required by stricter fuel economy standards might mean that 
manufacturers will forego planned future improvements in performance, 
carrying capacity, safety, or other features of their vehicle models 
that represent important sources of utility to vehicle owners. Although 
the specific economic values that vehicle buyers attach to individual 
vehicle attributes such as fuel economy, performance, passenger- and 
cargo-carrying capacity, and other sources of vehicles' utility are 
difficult to infer from their purchasing decisions and vehicle prices, 
changes in vehicle attributes can significantly affect the overall 
utility that vehicles offer to potential buyers. Foregoing future 
improvements in these or other highly-valued attributes could be viewed 
by potential buyers as an additional cost of improving fuel economy.
    As indicated in its previous discussion of technology costs, NHTSA 
has approached this potential problem by developing cost estimates for 
fuel economy-improving technologies that include allowances for any 
additional manufacturing costs that would be necessary to maintain the 
reference fleet (or baseline) levels of performance, comfort, capacity, 
or safety of light-duty vehicle models to which those technologies are 
applied. In doing so, the agency followed the precedent established by 
the 2002 NAS Report on improving fuel economy, which estimated 
``constant performance and utility'' costs for technologies that 
manufacturers could employ to increase the fuel efficiency of cars or 
light trucks. Although NHTSA has revised its estimates of 
manufacturers' costs for some technologies significantly for use in 
this rulemaking, these revised estimates are still intended to 
represent costs that would allow manufacturers to maintain the 
performance, safety, carrying capacity, and utility of vehicle models 
while improving their fuel economy. The adoption of the footprint-based 
standards also addresses this concern.
    Finally, vehicle buyers may simply prefer the choices of vehicle 
models they now have available to the combinations of price, fuel 
economy, and other attributes that manufacturers are likely to offer 
when required to achieve higher overall fuel economy. If this is the 
case, their choices among models--and even some buyers' decisions about 
whether to purchase a new vehicle--will respond accordingly, and their 
responses to these new choices will reduce their overall welfare. Some 
may buy models with combinations of price, fuel efficiency, and other 
attributes that they consider less desirable than those they would 
otherwise have purchased, while others may simply postpone buying a new 
vehicle. The use of the footprint-based standards, the level of 
stringency, and the lead time this rule allows manufacturers are all 
intended to ensure that this does not occur. Although the potential 
losses in buyers' welfare associated with these responses cannot be 
large enough to offset the estimated value of fuel savings reported in 
the agencies' analyses, they might reduce the benefits from requiring 
manufacturers to achieve higher fuel efficiency, particularly in 
combination with the other possibilities outlined previously.
    As the foregoing discussion suggests, the agency does not have a 
complete answer to the question of why the apparently large differences 
between its estimates of benefits from requiring higher fuel economy 
and the costs of supplying it do not result in higher average fuel 
economy for new cars and light trucks in the absence of this rule. One 
explanation is that NHTSA's estimates are reasonable, and that for the 
reasons outlined above, the market for fuel economy is not operating 
efficiently. NHTSA believes that the existing literature gives support 
for the view that because of various market failures (including 
behavioral factors, such as emphasis on the short-term and a lack of 
salience), there are likely to be substantial private gains, on net, 
from the rule, but it will continue to investigate new empirical 
literature as it becomes available.
    NHTSA acknowledges the possibility that it has incorrectly 
characterized the impact of the CAFE standards this rule establishes on 
consumers. To recognize this possibility, this section presents an 
alternative accounting of the benefits and costs of CAFE standards for 
MYs 2012-2016 passenger cars and light trucks and discusses its 
implications. Table IV.G.6-4 displays the economic impacts of the rule 
as viewed from the perspective of potential buyers, and also reconciles 
the estimated net benefits of the rule as they are likely to be viewed 
by vehicle buyers with its net benefits to the economy as a whole.
    As the table shows, the total benefits to vehicle buyers (line 4) 
consist of the value of fuel savings at retail fuel prices (line 1), 
the economic value of vehicle occupants' savings in refueling time 
(line 2), and the economic benefits from added rebound-effect driving 
(line 3). As the zero entries in line 5 of the table suggest, the 
agency's estimate of the retail value of fuel savings reported in line 
1 is assumed to be correct, and no losses in consumer welfare from 
changes in vehicle attributes (other than those from increases in 
vehicle prices) are assumed to occur. Thus there is no reduction in the 
total private benefits to vehicle owners, so that net private benefits 
to vehicle buyers (line 6) are equal to total private benefits 
(reported previously in line 4).
    As Table IV.G.6-4 also shows, the decline in fuel tax revenues 
(line 7) that results from reduced fuel purchases is in effect a social 
cost that offsets part of the benefits of fuel savings to vehicle 
buyers (line 1).\749\ Thus the sum of lines 1 and 7 is the savings in 
fuel production costs that was reported previously as the value of fuel 
savings at pre-tax prices in the agency's usual accounting of benefits 
and costs. Lines 8 and 9 of Table IV.G.6-4 report the value of 
reductions in air pollution and climate-related externalities resulting 
from lower emissions during fuel production and consumption, while line 
10 reports the savings in energy security externalities to the U.S. 
economy from reduced consumption and imports of crude petroleum and 
refined fuel. Line 12 reports the costs of increased congestion delays, 
accidents, and noise that result from additional driving due to the 
fuel economy rebound effect; net social benefits (line 13) is thus the 
sum of the change in fuel tax revenues, the reduction in environmental 
and energy security externalities, and increased costs from added 
driving.
---------------------------------------------------------------------------

    \749\ Strictly speaking, fuel taxes represent a transfer of 
resources from consumers of fuel to government agencies and not a 
use of economic resources. Reducing the volume of fuel purchases 
simply reduces the value of this transfer, and thus cannot produce a 
real economic cost or benefit. Representing the change in fuel tax 
revenues in effect as an economy-wide cost is necessary to offset 
the portion of fuel savings included in line 1 that represents 
savings in fuel tax payments by consumers. This prevents the savings 
in tax revenues from being counted as a benefit from the economy-
wide perspective.
---------------------------------------------------------------------------

    Line 14 of Table IV.G.6-4 shows manufacturers' technology outlays 
for meeting higher CAFE standards for passenger cars and light trucks, 
which represent the principal cost of requiring higher fuel economy. 
The net total benefits (line 15 of the table) resulting from the rule 
consist of the sum of private (line 6) and external (line 13) benefits, 
minus technology costs (line 14); as expected, the figures reported in 
line 15 of the table are identical to those reported previously in the 
agency's customary format.
    Table IV.G.6-4 highlights several important features of this rule's

[[Page 25657]]

economic impacts. First, comparing the rule's net private (line 6) and 
external (line 13) benefits makes it clear that a substantial majority 
of the benefits from requiring higher fuel economy are experienced by 
vehicle buyers, with only a small share distributed throughout the 
remainder of the U.S. economy. In turn, the vast majority of private 
benefits stem from fuel savings. External benefits are small because 
the value of reductions in environmental and energy security 
externalities is almost exactly offset by the decline in fuel tax 
revenues and the increased costs associated with added vehicle use via 
the rebound effect of higher fuel economy. As a consequence, the net 
economic benefits of the rule mirror closely its benefits to private 
vehicle buyers and the technology costs for achieving higher fuel 
economy, again highlighting the importance of accounting for any other 
effects of the rule on the economic welfare of vehicle buyers.

 Table IV.G.6-4--Private, Social, and Total Benefits and Costs of MY 2012-16 CAFE Standards: Passenger Cars Plus
                                                  Light Trucks
----------------------------------------------------------------------------------------------------------------
                                                                     Model year
                                   -----------------------------------------------------------------------------
               Entry                                                                                    Total,
                                        2012         2013         2014         2015         2016      2012-2016
----------------------------------------------------------------------------------------------------------------
 1. Value of Fuel Savings (at             $10.5        $22.9        $32.9        $42.5        $52.7       $161.6
 Retail Fuel Prices)..............
 2. Savings in Refueling Time.....          0.7          1.4          1.9          2.5          3.0          9.4
 3. Consumer Surplus from Added             0.7          1.5          2.2          2.8          3.4         10.5
 Driving..........................
 4. Total Private Benefits (= 1+ 2         11.9         25.8         37.0         47.8         59.0        181.5
 + 3).............................
 5. Reduction in Private Benefits.          0.0          0.0          0.0          0.0          0.0          0.0
 6. Net Private Benefits (= 1 + 2)         11.9         25.8         37.0         47.8         59.0        181.5
 7. Change in Fuel Tax Revenues...         -1.3         -2.7         -3.8         -4.8         -5.9        -18.5
 8. Reduced Health Damages from             0.5          0.9          1.3          1.6          2.0          6.4
 Criteria Emissions...............
 9. Reduced Climate Damages from            0.9          2.0          2.9          3.8          4.8         14.5
 CO2 Emissions....................
10. Reduced Energy Security                 0.5          1.2          1.6          2.1          2.5          8.0
 Externalities....................
11. Reduction in Externalities (=           1.9          4.1          5.9          7.6          9.3         28.8
 8 + 9 + 10)......................
12. Increased Costs of Congestion,         -0.7         -1.3         -1.9         -2.4         -3.0         -9.4
 etc..............................
13. Net Social Benefits (= 7 + 11           0.0          0.1          0.1          0.3          0.5          1.0
 + 12)............................
14. Technology Costs..............          5.9          7.9         10.5         12.5         14.9         51.7
15. Net Social Benefits (= 6 + 12 -         6.0         17.9         26.6         35.5         44.6        130.7
  14).............................
----------------------------------------------------------------------------------------------------------------

    As discussed in detail previously, NHTSA believes that the 
aggregate benefits from this rule amply justify its aggregate costs, 
but it remains possible that the agency has overestimated the value of 
fuel savings to buyers and subsequent owners of the cars and light 
trucks to which higher CAFE standards will apply. It is also possible 
that the agency has failed to identify and value reductions in consumer 
welfare that could result from buyers' responses to changes in vehicle 
attributes that manufacturers make as part of their efforts to achieve 
higher fuel economy. To acknowledge these possibilities, NHTSA examines 
their potential impact on the rule's benefits and costs, showing the 
rule's economic impacts for MY 2012-16 passenger cars and light trucks 
under varying theoretical assumptions about the agency's potential 
overestimation of private benefits from higher fuel economy and the 
value of potential changes in other vehicle attributes. See Chapter 
VIII of the FRIA.
7. What other impacts (quantitative and unquantifiable) will these 
final standards have?
    In addition to the quantified benefits and costs of fuel economy 
standards, the final standards will have other impacts that we have not 
quantified in monetary terms. The decision on whether or not to 
quantify a particular impact depends on several considerations:
     Does the impact exist, and can the magnitude of the impact 
reasonably be attributed to the outcome of this rulemaking?
     Would quantification help NHTSA and the public evaluate 
standards that may be set in rulemaking?
     Is the impact readily quantifiable in monetary terms? Do 
we know how to quantify a particular impact?
     If quantified, would the monetary impact likely be 
material?
     Can a quantification be derived with a sufficiently narrow 
range of uncertainty so that the estimate is useful?
    NHTSA expects that this rulemaking will have a number of genuine, 
material impacts that have not been quantified due to one or more of 
the considerations listed above. In some cases, further research may 
yield estimates for future rulemakings.
Technology Forcing
    The final rule will improve the fuel economy of the U.S. new 
vehicle fleet, but it will also increase the cost (and presumably, the 
price) of new passenger cars and light trucks built during MYs 2012-
2016. We anticipate that the cost, scope, and duration of this rule, as 
well as the steadily rising standards it requires, will cause 
automakers and suppliers to devote increased attention to methods of 
improving vehicle fuel economy.
    This increased attention will stimulate additional research and 
engineering, and we anticipate that, over time, innovative approaches 
to reducing the fuel consumption of light duty vehicles will emerge. 
Several commenters agreed. These innovative approaches may reduce the 
cost of the final rule in its later years, and also increase the set of 
feasible technologies in future years.
    We have attempted to estimate the effect of learning on known 
technologies within the period of the rulemaking. We have not attempted 
to estimate the extent to which not-yet-invented technologies will 
appear, either within the time period of the current rulemaking or that 
might be available after MY 2016.
Effects on Vehicle Maintenance, Operation, and Insurance Costs
    Any action that increases the cost of new vehicles will 
subsequently make such vehicles more costly to maintain, repair, and 
insure. In general, this effect can be expected to be a positive linear 
function of vehicle costs. The final rule raises vehicle costs by over 
$900 by 2016, and for some manufacturers costs will increase by $1,000-
$1,800. Depending on the retail price of the

[[Page 25658]]

vehicle, this could represent a significant increase in the overall 
vehicle cost and subsequently increase insurance rates, operation 
costs, and maintenance costs. Comprehensive insurance costs are likely 
to be directly related to price increases, but liability premiums will 
go up by a smaller proportion because the bulk of liability coverage 
reflects the cost of personal injury. The impact on operation and 
maintenance costs is less clear, because the maintenance burden and 
useful life of each technology are not known. However, one of the 
common consequences of using more complex or innovative technologies is 
a decline in vehicle reliability and an increase in maintenance costs, 
borne, in part, by the manufacturer (through warranty costs, which are 
included in the indirect costs of production) and, in part by the 
vehicle owner. NHTSA believes that this effect is difficult to quantify 
for purposes of this final rule. The agency will analyze this issue 
further for future rulemakings to attempt to gauge its impact more 
completely.
Effects on Vehicle Miles Traveled (VMT)
    While NHTSA has estimated the impact of the rebound effect on VMT, 
we have not estimated how a change in vehicle sales could impact VMT. 
Since the value of the fuel savings to consumers outweighs the 
technology costs, new vehicle sales are predicted to increase. A change 
in vehicle sales will have complicated and a hard-to-quantify effect on 
vehicle miles traveled given the rebound effect, the trade-in of older 
vehicles, etc. In general, overall VMT should not be significantly 
affected.
Effect on Composition of Passenger Car and Light Truck Sales
    In addition, manufacturers, to the extent that they pass on costs 
to customers, may distribute these costs across their motor vehicle 
fleets in ways that affect the composition of sales by model. To the 
extent that changes in the composition of sales occur, this could 
affect fuel savings to some degree. However, NHTSA's view is that the 
scope for compositional effects is relatively small, since most 
vehicles will to some extent be impacted by the standards. 
Compositional effects might be important with respect to compliance 
costs for individual manufacturers, but are unlikely to be material for 
the rule as a whole.
    NHTSA is continuing to study methods of estimating compositional 
effects and may be able to develop methods for use in future 
rulemakings.
Effects on the Used Vehicle Market
    The effect of this rule on the use and scrappage of older vehicles 
will be related to its effects on new vehicle prices, the fuel 
efficiency of new vehicle models, and the total sales of new vehicles. 
Elsewhere in this analysis, NHTSA estimates that vehicle sales will 
increase. This would occur because the value of fuel savings resulting 
from improved fuel efficiency to the typical potential buyer of a new 
vehicle outweighs the average increase in new models' costs. Under 
these circumstances, sales of new vehicles will rise, while scrappage 
rates of used vehicles will increase slightly. This will cause the 
``turnover'' of the vehicle fleet--that is, the retirement of used 
vehicles and their replacement by new models--to accelerate slightly, 
thus accentuating the anticipated effect of the rule on fleet-wide fuel 
consumption and CO2 emissions. However, if potential buyers 
value future fuel savings resulting from the increased fuel efficiency 
of new models at less than the increase in their average selling price, 
sales of new vehicles would decline, as would the rate at which used 
vehicles are retired from service. This effect will slow the 
replacement of used vehicles by new models, and thus partly offset the 
anticipated effects of the proposed rules on fuel use and emissions.
Impacts of Changing Fuel Composition on Costs, Benefits, and Emissions
    EPAct, as amended by EISA, creates a Renewable Fuels Standard that 
sets targets for greatly increased usage of renewable fuels over the 
next decade. The law requires fixed volumes of renewable fuels to be 
used--volumes that are not linked to actual usage of transportation 
fuels.
    Ethanol and biodiesel (in the required volumes) may increase or 
decrease the cost of blended gasoline and diesel depending on crude oil 
prices and tax subsidies. The potential extra cost of renewable fuels 
would be borne through a cross-subsidy: The price of every gallon of 
blended gasoline could rise sufficiently to pay for any extra cost of 
renewable fuels. However, if the price of fuel increases enough, the 
consumer could actually realize a savings through the increased usage 
of renewable fuels. The final CAFE rule, by reducing total fuel 
consumption, could tend to increase any necessary cross-subsidy per 
gallon of fuel, and hence raise the market price of transportation 
fuels, while there would be no change in the volume or cost of 
renewable fuels used.
    These effects are indirectly incorporated in NHTSA's analysis of 
the proposed CAFE rule because they are directly incorporated in EIA's 
projections of future gasoline and diesel prices in the Annual Energy 
Outlook, which incorporates in its baseline both a Renewable Fuel 
Standard and an increasing CAFE standard.
    The net effect of incorporating an RFS then might be to slightly 
reduce the benefits of the rule because affected vehicles might be 
driven slightly less, and because they emit slightly fewer greenhouse 
gas emissions per gallon. In addition there might be corresponding 
losses from the induced reduction in VMT. All of these effects are 
difficult to estimate, because of uncertainty in future crude oil 
prices, uncertainty in future tax policy, and uncertainty about how 
petroleum marketers will actually comply with the RFS, but they are 
likely to be small, because the cumulative deviation from baseline fuel 
consumption induced by the final rule will itself be small.
Macroeconomic Impacts of This Rule
    The final rule will have a number of consequences that may have 
short-run and longer-run macroeconomic effects. It is important to 
recognize, however, that these effects do not represent benefits in 
addition to those resulting directly from reduced fuel consumption and 
emissions. Instead, they represent the economic effects that occur as 
these direct impacts filter through the interconnected markets 
comprising the U.S. economy.
     Increasing the cost and quality (in the form of better 
fuel economy) of new passenger cars and light trucks will have ripple 
effects through the rest of the economy. Depending on the assumptions 
made, the rule could generate very small increases or declines in 
output.
     Reducing consumption of imported petroleum should induce 
an increase in long-run output.
     Decreasing the world price of oil should induce an 
increase in long-run output.
    NHTSA has not studied the macroeconomic effects of the final rule, 
however a discussion of the economy-wide impacts of this rule conducted 
by EPA is presented in Section III.H and is included in the docket. 
Although economy-wide models do not capture all of the potential 
impacts of this rule (e.g., improvements in product quality), these 
models can provide valuable insights on how this final rule would 
impact the U.S. economy in ways that extend beyond the transportation 
sector.

[[Page 25659]]

Military Expenditures
    This analysis contains quantified estimates for the social cost of 
petroleum imports based on the risk of oil market disruption. We have 
not included estimates of monopsony effects or the cost of military 
expenditures associated with petroleum imports.
Distributional Effects
    The final rule analysis provides a national-level distribution of 
impacts for gas price and similar variables. NHTSA also shows the 
effects of the EIA high and low gas price forecasts on the aggregate 
benefits in the sensitivity analysis. Generally, this rule has the 
greatest impact on those individuals who purchase vehicles. In terms of 
how the benefits of the rule might accrue differently for different 
consumers, consumers who drive more than our mean estimates for VMT 
will see more fuel savings, while those who drive less than our mean 
VMT estimates will see less fuel savings.

H. Vehicle Classification

    Vehicle classification, for purposes of the CAFE program, refers to 
whether NHTSA considers a vehicle to be a passenger automobile or a 
light truck, and thus subject to either the passenger automobile or the 
light truck standards. As NHTSA explained in the MY 2011 rulemaking, 
EPCA categorizes some light 4-wheeled vehicles as passenger automobiles 
(cars) and the balance as non-passenger automobiles (light trucks). 
EPCA defines passenger automobiles as any automobile (other than an 
automobile capable of off-highway operation) which NHTSA decides by 
rule is manufactured primarily for use in the transportation of not 
more than 10 individuals. EPCA 501(2), 89 Stat. 901. NHTSA created 
regulatory definitions for passenger automobiles and light trucks, 
found at 49 CFR part 523, to guide the agency and manufacturers in 
classifying vehicles.
    Under EPCA, there are two general groups of automobiles that 
qualify as non-passenger automobiles or light trucks: (1) Those defined 
by NHTSA in its regulations as other than passenger automobiles due to 
their having design features that indicate they were not manufactured 
``primarily'' for transporting up to ten individuals; and (2) those 
expressly excluded from the passenger category by statute due to their 
capability for off-highway operation, regardless of whether they might 
have been manufactured primarily for passenger transportation.\750\ 
NHTSA's classification rule directly tracks those two broad groups of 
non-passenger automobiles in subsections (a) and (b), respectively, of 
49 CFR 523.5.
---------------------------------------------------------------------------

    \750\ 49 U.S.C. 32901(a)(18). We note that the statute refers 
both to vehicles that are 4WD and to vehicles over 6,000 lbs GVWR as 
potential candidates for off-road capability, if they also meet the 
``significant feature * * * designed for off-highway operation'' as 
defined by the Secretary. NHTSA would consider ``AWD'' vehicles as 
4WD for purposes of this determination--they send power to all 
wheels of the vehicle all the time, while 4WD vehicles may only do 
so part of the time, which appears to make them equal candidates for 
off-road capability given other necessary characteristics.
---------------------------------------------------------------------------

    For the purpose of this NPRM for the MYs 2012-2016 standards, EPA 
agreed to use NHTSA's regulatory definitions for determining which 
vehicles would be subject to which CO2 standards.
    In the MY 2011 rulemaking, NHTSA took a fresh look at the 
regulatory definitions in light of several factors and developments: 
Its desire to ensure clarity in how vehicles are classified, the 
passage of EISA, and the Ninth Circuit's decision in CBD v. NHTSA.\751\ 
NHTSA explained the origin of the current definitions of passenger 
automobiles and light trucks by tracing them back through the history 
of the CAFE program, and did not propose to change the definitions 
themselves at that time, because the agency concluded that the 
definitions were largely consistent with Congress' intent in separating 
passenger automobiles and light trucks, but also in part because the 
agency tentatively concluded that doing so would not lead to increased 
fuel savings. However, the agency tightened the definitions in Sec.  
523.5 to ensure that only vehicles that actually have 4WD will be 
classified as off-highway vehicles by reason of having 4WD (to prevent 
2WD SUVs that also come in a 4WD ``version'' from qualifying 
automatically as ``off-road capable'' simply by reason of the existence 
of the 4WD version). It also took this action to ensure that 
manufacturers may only use the ``greater cargo-carrying capacity'' 
criterion of 523.5(a)(4) for cargo van-type vehicles, rather than for 
SUVs with removable second-row seats unless they truly have greater 
cargo-carrying than passenger-carrying capacity ``as sold'' to the 
first retail purchaser. NHTSA concluded that these changes increased 
clarity, were consistent with EPCA and EISA, and responded to the Ninth 
Circuit's decision with regard to vehicle classification.
---------------------------------------------------------------------------

    \751\ 538 F.3d 1172 (9th Cir. 2008).
---------------------------------------------------------------------------

    However, NHTSA recognizes that manufacturers may have an incentive 
to classify vehicles as light trucks if the fuel economy target for 
light trucks with a given footprint is less stringent than the target 
for passenger cars with the same footprint. This is often the case 
given the current fleet, due to the fact that the curves are based on 
actual fuel economy capabilities of the vehicles to which they apply. 
Because of characteristics like 4WD and towing and hauling capacity 
(and correspondingly, although not necessarily, heavier weight), the 
vehicles in the current light truck fleet are generally less capable of 
achieving higher fuel economy levels as compared to the vehicles in the 
passenger car fleet. 2WD SUVs are the vehicles that could be most 
readily redesigned so that they can be ``moved'' from the passenger car 
to the light truck fleet. A manufacturer could do this by adding a 
third row of seats, for example, or boosting GVWR over 6,000 lbs for a 
2WD SUV that already meets the ground clearance requirements for ``off-
road capability.'' A change like this may only be possible during a 
vehicle redesign, but since vehicles are redesigned, on average, every 
5 years, at least some manufacturers may choose to make such changes 
before or during the model years covered by this rulemaking.
    In the NPRM, in looking forward to model years beyond 2011 and 
considering how CAFE should operate in the context of the National 
Program and previously-received comments as requested by President 
Obama, NHTSA sought comment on the following potential changes to 
NHTSA's vehicle classification system, as well as on whether, if any of 
the changes were to be adopted, they should be applied to any of the 
model years covered by this rulemaking or whether, due to lead time 
concerns, they should apply only to MY 2017 and thereafter.
    Reclassifying minivans and other ``3-row'' light trucks as 
passenger cars (i.e., removing 49 CFR 523.5(a)(5)):
    NHTSA has received repeated comments over the course of the last 
several rulemakings from environmental and consumer groups regarding 
the classification of minivans as light trucks instead of as passenger 
cars. Commenters have argued that because minivans generally have three 
rows of seats, are built on unibody chassis, and are used primarily for 
transporting passengers, they should be classified as passenger cars. 
NHTSA did not accept these arguments in the MY 2011 final rule, due to 
concerns that moving minivans to the passenger car fleet would lower 
the fuel economy targets for those passenger cars having essentially 
the same footprint as the minivans, and thus lower the overall fuel 
average fuel economy level that the

[[Page 25660]]

manufacturers would need to meet. However, due to the new methodology 
for setting standards, the as-yet-unknown fuel-economy capabilities of 
future minivans and 3-row 2WD SUVs, and the unknown state of the 
vehicle market (particularly for MYs 2017 and beyond), NHTSA did not 
feel that it could say with certainty that moving these vehicles could 
negatively affect potential stringency levels for either passenger cars 
or light trucks. Thus, although such a change would not be made 
applicable during the MY 2012-2016 time frame, NHTSA sought comment on 
why the agency should or should not consider, as part of this 
rulemaking, reclassifying minivans (and other current light trucks that 
qualify as such because they have three rows of designated seating 
positions as standard equipment) for MYs 2017 and after.
    Comments received on this issue were split between support and 
opposition. As perhaps expected, the Alliance, AIAM, NADA, Chrysler, 
Ford, and Toyota all commented in favor of maintaining 3-row vehicles 
as light trucks indefinitely. The Alliance and Chrysler stated that the 
existing definitions for light trucks are consistent with Congressional 
intent in EPCA and EISA, given that Congress could have changed the 3-
row definition in passing EISA but did not do so. The Alliance, AIAM, 
and Chrysler also argued that the functional characteristics of 3-row 
vehicles do make them ``truck-like,'' citing their ``high load 
characteristics'' and ability to carry cargo if their seats are stowed 
or removed. Ford and Toyota emphasized the need for stability in the 
definitions as manufacturers adjust to the recent reclassification of 
many 2WD SUVs from the truck to the car fleet, and the Alliance argued 
further that moving the 3-row vehicles to the car fleet would simply 
deter manufacturers from continuing to provide them, causing consumers 
to purchase larger full-size vans instead and resulting in less fuel 
savings and emissions reductions. Toyota stated further that no 
significant changes have occurred in the marketplace (as in, not all 
2WD SUVs suddenly have 3 rows) to trigger additional reclassification 
beyond that required by the MY 2011 final rule. Hyundai neither 
supported nor objected to reclassification, but requested ample lead 
time for the industry if any changes are eventually made.
    Other commenters favored reclassification of 3-row vehicles from 
the truck to the car fleet: NJ DEP expressed general support for 
reclassifying 3-row vehicles for MYs 2017 and beyond, while the UCSB 
student commenters seemed to support reclassifying these vehicles for 
the current rulemaking. The UCSB students stated that EPCA/EISA 
properly distinguishes light trucks based on their ``specialized 
utility,'' either their ability to go off-road or to transport material 
loads, but that 3-row vehicles do not generally have such utility as 
sold, and are clearly primarily sold and used for transporting 
passengers. The UCSB students suggested that reclassifying the 3-row 
vehicles from the truck to the car fleet could help to ensure the 
anticipated levels of fuel savings by moving the fleet closer to the 
67/33 fleet split assumed in the agencies' analysis for MY 2016, and 
stated that this would increase fuel economy over the long term. The 
students urged NHTSA to look at the impact on fuel savings from 
reclassifying these vehicles for the model years covered by the 
rulemaking.
    In response, NHTSA did conduct such an analysis to attempt to 
consider the impact of moving these vehicles. As previously stated, the 
agency's hypothesis is that moving 3-row vehicles from the truck to the 
car fleet will tend to bring the achieved fuel economy levels down in 
both fleets--the car fleet achieved levels could theoretically fall due 
to the introduction of many more vehicles that are relatively heavy for 
their footprint and thus comparatively less fuel economy-capable, while 
the truck fleet achieved levels could theoretically fall due to the 
characteristics of the vehicles remaining in the fleet (4WDs and 
pickups, mainly) that are often comparatively less fuel-economy capable 
than 3-row vehicles, although more vehicles would be subject to the 
relatively more stringent passenger car standards, assuming the curves 
were not refit to the data.
    The agency first identified which vehicles should be moved. We 
identified all of the 3-row vehicles in the baseline (MY 2008) 
fleet,\752\ and then considered whether any could be properly 
classified as a light truck under a different provision of 49 CFR 
523.5--about 40 vehicles were classifiable under Sec.  523.5(b) as off-
highway capable.
---------------------------------------------------------------------------

    \752\ Of the 430 light trucks models in the fleet, 175 of these 
had 3 rows.
---------------------------------------------------------------------------

    The agency then transferred those remaining 3-row vehicles from the 
light truck to the passenger car input sheets for the Volpe model, re-
estimated the gap in stringency between the passenger car and light 
truck standards, shifted the curves to obtain the same overall average 
required fuel economy as under the final standards, and ran the model 
to evaluate potential impacts (in terms of costs, fuel savings, etc.) 
of moving these vehicles. The results of this analysis may be found in 
the same location on NHTSA's Web site as the results of the analysis of 
the final standards. In summary, moving the vehicles reduced the 
stringency of the passenger car standards by approximately 0.8 mpg on 
average for the five years of the rule, and reduced the stringency of 
the light truck standards by approximately 0.2 mpg on average for the 
five years of the rule. It also caused the gap between the car curve 
and the truck curve to decrease or narrow slightly, by 0.1 mpg. 
However, the analysis also showed that such a shift in 3-row vehicles 
could result in approximately 676 million fewer gallons of fuel 
consumed (equivalent to about 1 percent of the reduction in fuel 
consumption under the final standards) and 7.1 mmt fewer CO2 
emissions (equivalent to about 1 percent of the reduction in 
CO2 emissions under the final standards) over the lifetime 
of the MYs 2012-2016 vehicles. This result is attributable to slight 
differences (due to rounding precision) in the overall average required 
fuel economy levels in MYs 2012-2014, and to the retention of the 
relatively high lifetime mileage accumulation (compared to 
``traditional'' passenger cars) of the vehicles moved from the light 
truck fleet to the passenger car fleet.
    The changes in overall costs and vehicle price did not necessarily 
go in the same direction for both fleets, however. Overall costs of 
applying technology for the passenger car fleet went up approximately 
$1 billion per year for each of MYs 2012-2016, while overall costs for 
the light truck fleet went down by an average of approximately $800 
million for each year, such that the net effect was approximately $200 
million additional spending on technology each year (equivalent to 
about 2 percent of the average increase in annual technology outlays 
under the final standards). Assuming manufacturers would pass that cost 
forward to consumers by increasing vehicle costs, vehicle prices would 
increase by an average of approximately $13 during MYs 2012-2016.
    However, one important point to note in this comparative analysis 
is that, due to time constraints, the agency did not attempt to refit 
the respective fleet target curves or to change the intended required 
stringency in MY 2016 of 34.1 mpg for the combined fleets. If we had 
refitted curves following the same procedures described above in 
Section II, considering the vehicles in question, we expect that we 
might have obtained a somewhat steeper passenger car curve, and a 
somewhat flatter light truck curve.

[[Page 25661]]

If so, this might have increased the gap in between portions of the 
passenger car and light truck curves.
    NHTSA agrees with the industry commenters that some degree of 
stability in the passenger car and light truck definitions will assist 
the industry in making the transition to the stringency of the new 
National Program, and therefore will not reclassify 3-row vehicles to 
the passenger car fleet for purposes of MYs 2012-2016. Going forward, 
the real question is how to balance the benefits of regulatory 
stability against the potential benefits of greater fuel savings if 
reclassification is determined to lead in that direction. NHTSA 
believes that this question merits much further analysis before the 
agency can make a decision for model years beyond MY 2016, and will 
provide further opportunity for public comment regarding that analysis 
prior to finalizing any changes in the future.
    Classifying ``like'' vehicles together:
    Many commenters objected in the rulemaking for the MY 2011 
standards to NHTSA's regulatory separation of ``like'' vehicles. 
Industry commenters argued that it was technologically inappropriate 
for NHTSA to place 4WD and 2WD versions of the same SUV in separate 
classes. They argued that the vehicles are the same, except for their 
drivetrain features, thus giving them similar fuel economy improvement 
potential. They further argued that all SUVs should be classified as 
light trucks. Environmental and consumer group commenters, on the other 
hand, argued that 4WD SUVs and 2WD SUVs that are ``off-highway 
capable'' by virtue of a GVWR above 6,000 pounds should be classified 
as passenger cars, since they are primarily used to transport 
passengers. In the MY 2011 rulemaking, NHTSA rejected both of these 
sets of arguments. NHTSA concluded that 2WD SUVs that were neither 
``off-highway capable'' nor possessed ``truck-like'' functional 
characteristics were appropriately classified as passenger cars. At the 
same time, NHTSA also concluded that because Congress explicitly 
designated vehicles with GVWRs over 6,000 pounds as ``off-highway 
capable'' (if they meet the ground clearance requirements established 
by the agency), NHTSA did not have authority to move these vehicles to 
the passenger car fleet.
    With regard to the first argument, that ``like'' vehicles should be 
classified similarly (i.e., that 2WD SUVs should be classified as light 
trucks because, besides their drivetrain, they are ``like'' the 4WD 
version that qualifies as a light truck), NHTSA continues to believe 
that 2WD SUVs that do not meet any part of the existing regulatory 
definition for light trucks should be classified as passenger cars. 
However, NHTSA recognizes the additional point raised by industry 
commenters in the MY 2011 rulemaking that manufacturers may respond to 
this tighter classification by ceasing to build 2WD versions of SUVs, 
which could reduce fuel savings. In response to that point, NHTSA 
stated in the MY 2011 final rule that it expects that manufacturer 
decisions about whether to continue building 2WD SUVs will be driven in 
much greater measure by consumer demand than by NHTSA's regulatory 
definitions. If it appears, in the course of the next several model 
years, that manufacturers are indeed responding to the CAFE regulatory 
definitions in a way that reduces overall fuel savings from expected 
levels, it may be appropriate for NHTSA to review this question again. 
NHTSA sought comment in the NPRM on how the agency might go about 
reviewing this question as more information about manufacturer behavior 
is accumulated, but no commenters really responded to this issue 
directly, although several cited the possibility that manufacturers 
might cease to build 2WD SUVs as a way of avoiding the higher passenger 
car curve targets in arguing that the agencies should implement 
backstop standards for all fleets. Since NHTSA has already stated above 
that it will revisit the backstop question as necessary in the future, 
we may as well add that we will consider the need to classify ``like'' 
vehicles together as necessary in the future.
    With regard to the second argument, that NHTSA should move vehicles 
that qualify as ``off-highway capable'' from the light truck to the 
passenger car fleet because they are primarily used to transport 
passengers, NHTSA reiterates that EPCA is clear that certain vehicles 
are non-passenger automobiles (i.e., light trucks) because of their 
off-highway capabilities, regardless of how they may be used day-to-
day.
    However, NHTSA suggested in the NPRM that it could explore 
additional approaches, although it cautioned that not all could be 
pursued on current law. Possible alternative legal regimes might 
include: (a) Classifying vehicles as passenger cars or light trucks 
based on use alone (rather than characteristics); (b) removing the 
regulatory distinction altogether and setting standards for the entire 
fleet of vehicles instead of for separate passenger car and light truck 
fleets; or (c) dividing the fleet into multiple categories more 
consistent with current vehicle fleets (i.e., sedans, minivans, SUVs, 
pickup trucks, etc.). NHTSA sought comment on whether and why it should 
pursue any of these courses of action.
    Some commenters (ICCT, CBD, NESCAUM) did raise the issue of 
removing the regulatory distinction between cars and trucks and setting 
standards for the entire fleet of vehicles, but those commenters did 
not appear to recognize the fact that EPCA/EISA expressly requires that 
NHTSA set separate standards for passenger cars and light trucks. As 
the statute is currently written, NHTSA does not believe that a single 
standard would be appropriate unless the observed relationship between 
footprint and fuel economy of the two fleets converged significantly 
over time. Nevertheless, NHTSA will continue to monitor the issue going 
forward.
    Besides these issues in vehicle classification, NHTSA additionally 
received comments from two manufacturers on issues not raised by NHTSA 
in the NPRM. VW requested clarification with respect to how the agency 
evaluates a vehicle for off-road capability under 49 CFR 523.5(b)(2), 
asking the agency to measure vehicles with ``active ride height 
management'' at the ``height setting representative of off-road 
operation if the vehicle has the capability to change ride height.'' 
NHTSA issued an interpretation to Porsche in 2004 addressing this 
issue, when Porsche asked whether a driver-controlled variable ride 
height suspension system could be used in the ``off-road'' ride height 
position to meet the suspension parameters required for an off- road 
classification determination.\753\ Porsche argued that a vehicle should 
not need to satisfy the four-out-of-five criteria at all ride heights 
in order to be deemed capable of off-highway operation. NHTSA agreed 
that 523.5(b)(2) does not require a vehicle to meet four of the five 
criteria at all ride heights, but stated that a vehicle must meet four 
out of the five criteria in at least one ride height. The agency 
determined that it would be appropriate to measure the vehicle's 
running clearance with the vehicle's adjustable suspension placed in 
the position(s) intended for off-road operation under real-world 
conditions.
---------------------------------------------------------------------------

    \753\ Available at http://isearch.nhtsa.gov/files/
porschevrhs.html (last accessed Mar. 1, 2010).
---------------------------------------------------------------------------

    Thus, NHTSA clarifies that the agency would consider it appropriate 
to measure vehicles for off-road capability at the height setting 
intended for off-road operation under real-world conditions. However, 
we note that before this question need be asked and answered, the 
vehicle must first either

[[Page 25662]]

be equipped with 4WD or be rated at more than 6,000 pounds gross 
vehicle weight to be eligible for classification as a light truck under 
49 CFR 523.5(b).
    The final comment on the issue of vehicle classification was 
received from Honda, who recommended that deformable aero parts, such 
as strakes, should be excluded from the ride height measurements that 
determine whether a vehicle qualifies as a truck for off-road 
capability. The air strakes described by Honda are semi-deformable 
parts similar to a mud flap that can be used to improve a vehicle's 
aerodynamics, and thus to improve its fuel economy. Honda argued that 
NHTSA would deter the application of this technology if it did not 
agree to measure ride height with the air strakes at their most 
deformed state, because otherwise a vehicle so equipped would have to 
be classified as a passenger car and thus be faced with the more 
stringent standard.
    In response, Honda did not provide enough information to the agency 
for the agency to make a decision with regard to how air strakes should 
be considered in measuring a vehicle for off-road capability. NHTSA 
personnel would prefer to directly examine a vehicle equipped with 
these devices before considering the issue further. The agency will 
defer consideration of this issue to another time, and no changes will 
be made in this final rule in response to this comment.

I. Compliance and Enforcement

1. Overview
    NHTSA's CAFE enforcement program and the compliance flexibilities 
available to manufacturers are largely established by statute--unlike 
the CAA, EPCA and EISA are very prescriptive and leave the agency 
limited authority to increase the flexibilities available to 
manufacturers. This was intentional, however. Congress balanced the 
energy saving purposes of the statute against the benefits of the 
various flexibilities and incentives it provided and placed precise 
limits on those flexibilities and incentives. For example, while the 
Department sought authority for unlimited transfer of credits between a 
manufacturer's car and light truck fleets, Congress limited the extent 
to which a manufacturer could raise its average fuel economy for one of 
its classes of vehicles through credit transfer in lieu of adding more 
fuel saving technologies. It did not want these provisions to slow 
progress toward achieving greater energy conservation or other policy 
goals. In keeping with EPCA's focus on energy conservation, NHTSA has 
done its best, for example, in crafting the credit transfer and trading 
regulations authorized by EISA, to ensure that total fuel savings are 
preserved when manufacturers exercise their compliance flexibilities.
    The following sections explain how NHTSA determines whether 
manufacturers are in compliance with the CAFE standards for each model 
year, and how manufacturers may address potential non-compliance 
situations through the use of compliance flexibilities or fine payment.
2. How does NHTSA determine compliance?
a. Manufacturer Submission of Data and CAFE Testing by EPA
    NHTSA begins to determine CAFE compliance by considering pre- and 
mid-model year reports submitted by manufacturers pursuant to 49 CFR 
part 537, Automotive Fuel Economy Reports.\754\ The reports for the 
current model year are submitted to NHTSA every December and July. As 
of the time of this final rule, NHTSA has received pre-model year 
reports from manufacturers for MY 2010, and anticipates receiving mid-
model year reports for MY 2010 in July of this year. Although the 
reports are used for NHTSA's reference only, they help the agency, and 
the manufacturers who prepare them, anticipate potential compliance 
issues as early as possible, and help manufacturers plan compliance 
strategies. Currently, NHTSA receives these reports in paper form. In 
order to facilitate submission by manufacturers and consistent with the 
President's electronic government initiatives, NHTSA proposed to amend 
part 537 to allow for electronic submission of the pre- and mid-model 
year CAFE reports. The only comments addressing this proposal were from 
Ferrari, who supported it in the interest of efficiency, and Ford, who 
did not object as long as CBI was sufficiently protected. Having 
received no comments objecting, NHTSA is finalizing this change to part 
537.
---------------------------------------------------------------------------

    \754\ 49 CFR part 537 is authorized by 49 U.S.C. 32907.
---------------------------------------------------------------------------

    NHTSA makes its ultimate determination of manufacturers' CAFE 
compliance upon receiving EPA's official certified and reported CAFE 
data. The EPA certified data is based on vehicle testing and on final 
model year data submitted by manufacturers to EPA pursuant to 40 CFR 
600.512, Model Year Report, no later than 90 days after the end of the 
calendar year. Pursuant to 49 U.S.C. 32904(e), EPA is responsible for 
calculating automobile manufacturers' CAFE values so that NHTSA can 
determine compliance with the CAFE standards. In measuring the fuel 
economy of passenger cars, EPA is required by EPCA\755\ to use the EPA 
test procedures in place as of 1975 (or procedures that give comparable 
results), which are the city and highway tests of today, with 
adjustments for procedural changes that have occurred since 1975. EPA 
uses similar procedures for light trucks, although, as noted above, 
EPCA does not require it to do so.
---------------------------------------------------------------------------

    \755\ 49 U.S.C. 32904(c).
---------------------------------------------------------------------------

    As discussed above in Section III, a number of commenters raised 
the issue of whether the city and highway test procedures and the 
calculation are still appropriate or whether they may be outdated. 
Several commenters argued that the calculation should be more ``real-
world'': For example, ACEEE stated that EPA should use a ``correction 
factor'' like the one used for the fuel economy label in the interim 
until test procedures can be changed, while BorgWarner, Cummins, 
Honeywell, MECA, and MEMA argued that EPA should change the weighting 
of the city and highway cycles (to more highway and less city) to 
reflect current American driving patterns and to avoid biasing the 
calculation against technologies that provide greater efficiency in 
highway driving than in city driving. Sierra Club et al. commented that 
the fact that EPA was proposing to allow off-cycle credits indicated 
that the test procedures and the calculation needed updating. Several 
commenters (API, James Hyde, MECA, NACAA, and NY DEC) stated that the 
test procedures should use more ``real-world'' fuel, like E-10 instead 
of ``indolene clear.'' The UCSB students also had a number of comments 
aimed at making the test procedures more thorough and real-world. 
Several industry-related commenters (AIAM, Ferrari, and Ford) argued to 
the contrary that existing test procedures and calculations are fine 
for now, and that any changes would require significant lead time to 
allow manufacturers to adjust their plans to the new procedures.
    Statutorily, the decision to change the test procedures or 
calculation is within EPA's discretion, so NHTSA will not attempt to 
answer these comments in detail, see supra Section III for EPA's 
responses. We note simply that the agency recognizes the need for lead 
time for the industry if test procedures were to change in the future 
to become more real-world, and will keep it in mind.
    One notable shortcoming of the 1975 test procedure is that it does 
not include

[[Page 25663]]

a provision for air conditioner usage during the test cycle. As 
discussed in Section III above, air conditioner usage increases the 
load on a vehicle's engine, reducing fuel efficiency and increasing 
CO2 emissions. Since the air conditioner is not turned on 
during testing, equipping a vehicle model with a relatively inefficient 
air conditioner will not adversely affect that model's measured fuel 
economy, while equipping a vehicle model with a relatively efficient 
air conditioner will not raise that model's measured fuel economy. The 
fuel economy test procedures for light trucks could be amended through 
rulemaking to provide for air conditioner operation during testing and 
to take other steps for improving the accuracy and representativeness 
of fuel economy measurements. In the NPRM, NHTSA sought comment 
regarding implementing such amendments beginning in MY 2017 and also on 
the more immediate interim step of providing credits under 49 U.S.C. 
32904(c) for light trucks equipped with relatively efficient air 
conditioners for MYs 2012-2016. NHTSA emphasized that modernizing the 
passenger car test procedures as well would not be possible under EPCA 
as currently written.
    Comments were split as to whether the test procedure should be 
changed. Several manufacturers and manufacturer groups (BMW, GM, 
Toyota, VW, the Alliance) opposed changes to the test procedures to 
account for A/C usage on the grounds that any changes could create 
negative unintended consequences. Public Citizen also opposed changes 
to the test procedure, arguing that the fuel economy information 
presented to the consumer on the fuel economy label is already 
confusing, and that further changes to the light truck test procedures 
when there was no authority to change the passenger car test procedures 
would simply result in more confusion. In contrast, NJ DEP fully 
supported changes to the light truck test procedures beginning with MY 
2017, and an individual commenter (Weber) also supported the inclusion 
of A/C in the test procedures to represent real-world ``A/C on'' time.
    However, some of the same commenters--BMW, Toyota, and VW, for 
example--that opposed changes to the test procedure supported NHTSA 
allowing credits for A/C. Toyota stated that it supported anything that 
increased compliance flexibility, while VW emphasized that A/C credits 
for CAFE would help to address the fact that NHTSA's standards could 
end up being more stringent than EPA's for manufacturers relying 
heavily on A/C improvements to meet the GHG standards. NJ DEP also 
supported interim A/C credits for light trucks, but in contrast to VW, 
argued that the light truck standards would have to be made more 
stringent to account for those credits if they were allowed.
    Other commenters (Chrysler, Daimler, Ferrari) supported interim A/C 
credits for light truck CAFE, but stated that such credits could simply 
be added to EPA's calculation of CAFE under 49 U.S.C. 32904(c) without 
any change in the test procedure ever being necessary. Daimler stated 
that the prohibition on changing the test procedure, according to 
legislative history, was to avoid sudden and dramatic changes and 
provide consistency for manufacturers in the beginning of the CAFE 
program, but that nothing indicated that EPA was barred from updating 
the way a manufacturer's fuel economy is calculated after the test 
procedures are followed. Daimler emphasized that EPA has broad 
authority in how it calculates fuel economy, and that adding credits at 
the end of the calculation would make CAFE more consistent with the GHG 
program and recognize real-world benefits not measured by the test 
cycle. Daimler argued that if EPA did not include A/C credits as part 
of the calculation, it would remove incentives to improve A/C, because 
those gains could not be used for CAFE compliance and NHTSA has no 
authority to include A/C in determining stringency, because A/C is a 
``parasitic load'' that does not impact mpg.
    Some commenters opposed interim A/C credits. CARB stated that no A/
C credits should be given under EPCA unless the test procedures can be 
changed to fully account for A/C and NHTSA is given clear authority for 
A/C, while GM stated that NHTSA's authority to create additional types 
of credits must be limited by the fact that Congress clearly provided 
in EPCA for some types of CAFE credits but not for A/C-related credits 
for CAFE.
    NHTSA has decided not to implement interim A/C credits for purposes 
of this final rule and MYs 2012-2016 light trucks. Changes to the test 
procedure for light trucks will be considered by the agencies in 
subsequent rulemakings.
    While NHTSA agrees with commenters that the EPA authority to 
consider how fuel economy is calculated is broad, especially as to 
light trucks, we disagree that credits could simply be added to the 
CAFE calculation without making parallel changes in CAFE standard 
stringency to reflect their availability. CAFE stringency is 
determined, in part, with reference to the technologies available to 
manufacturers to improve mpg. If a technology draws power from the 
engine, like A/C, then making that technology more efficient to reduce 
its load on the engine will conserve fuel, consistent with EPCA's 
purposes. However, as noted above, some technologies that improve mpg 
are not accounted for in current CAFE test procedures. NHTSA agrees 
that the test procedures should be updated to account for the real-
world loads on the engine and their impact on fuel economy, but 
recognizes that manufacturers will need lead-time and advance notice in 
order to ready themselves for such changes and their impact on CAFE 
compliance.
    Thus, if manufacturers are able to achieve improvements in mpg that 
are not reflected on the test cycle, then the level of CAFE that they 
are capable of achieving is higher than that which their performance on 
the test cycle would otherwise indicate, which suggests, in turn, that 
a higher stringency is feasible. NHTSA has determined that the current 
CAFE levels being finalized today are feasible using traditional 
``tailpipe technologies'' alone. If manufacturers are capable of 
improving fuel economy beyond that level using A/C technologies, and 
wish to receive credit for doing so, then NHTSA believes that more 
stringent CAFE standards would need to be established. Not raising CAFE 
could allow manufacturers to leave tailpipe technology on the table and 
make cheaper A/C improvements, which would not result in the maximum 
feasible fuel savings contemplated by EPCA.
    Because raising CAFE stringency in conjunction with allowing A/C 
credits was not a possibility clearly contemplated in the NPRM, NHTSA 
does not believe that it would be within scope of notice for purposes 
of this rulemaking. Accordingly, the final rule cannot provide for 
interim A/C credits. However, if NHTSA were to allow A/C credits in the 
future, NHTSA believes it would be required to increase standard 
stringency accordingly, to avoid losses in fuel savings, as stated 
above. NHTSA will consider this approach further, ensuring that any 
changes to the treatment of A/C and accompanying changes in CAFE 
stringency are made with sufficient notice and lead-time.
b. NHTSA Then Analyzes EPA-Certified CAFE Values for Compliance
    Determining CAFE compliance is fairly straightforward: After 
testing, EPA verifies the data submitted by

[[Page 25664]]

manufacturers and issues final CAFE reports to manufacturers and to 
NHTSA between April and October of each year (for the previous model 
year), and NHTSA then identifies the manufacturers' compliance 
categories (fleets) that do not meet the applicable CAFE fleet 
standards.
    To determine if manufacturers have earned credits that would offset 
those shortfalls, NHTSA calculates a cumulative credit status for each 
of a manufacturer's vehicle compliance categories according to 49 
U.S.C. 32903. If a manufacturer's compliance category exceeds the 
applicable fuel economy standard, NHTSA adds credits to the account for 
that compliance category. If a manufacturer's vehicles in a particular 
compliance category fall below the standard fuel economy value, NHTSA 
will provide written notification to the manufacturer that it has not 
met a particular fleet standard. The manufacturer will be required to 
confirm the shortfall and must either: Submit a plan indicating it will 
allocate existing credits, and/or for MY 2011 and later, how it will 
earn, transfer and/or acquire credits; or pay the appropriate civil 
penalty. The manufacturer must submit a plan or payment within 60 days 
of receiving agency notification. The amount of credits are determined 
by multiplying the number of tenths of a mpg by which a manufacturer 
exceeds, or falls short of, a standard for a particular category of 
automobiles by the total volume of automobiles of that category 
manufactured by the manufacturer for a given model year. Credits used 
to offset shortfalls are subject to the three and five year limitations 
as described in 49 U.S.C. 32903(a). Transferred credits are subject to 
the limitations specified by 49 U.S.C. 32903(g)(3). The value of each 
credit, when used for compliance, received via trade or transfer is 
adjusted, using the adjustment factor described in 49 CFR 536.4, 
pursuant to 49 U.S.C. 32903(f)(1). Credit allocation plans received 
from the manufacturer will be reviewed and approved by NHTSA. NHTSA 
will approve a credit allocation plan unless it finds the proposed 
credits are unavailable or that it is unlikely that the plan will 
result in the manufacturer earning sufficient credits to offset the 
subject credit shortfall. If a plan is approved, NHTSA will revise the 
respective manufacturer's credit account accordingly. If a plan is 
rejected, NHTSA will notify the respective manufacturer and request a 
revised plan or payment of the appropriate fine.
    In the event that a manufacturer does not comply with a CAFE 
standard, even after the consideration of credits, EPCA provides for 
the assessing of civil penalties. The Act specifies a precise formula 
for determining the amount of civil penalties for such a noncompliance. 
The penalty, as adjusted for inflation by law, is $5.50 for each tenth 
of a mpg that a manufacturer's average fuel economy falls short of the 
standard for a given model year multiplied by the total volume of those 
vehicles in the affected fleet (i.e., import or domestic passenger car, 
or light truck), manufactured for that model year. The amount of the 
penalty may not be reduced except under the unusual or extreme 
circumstances specified in the statute. All penalties are paid to the 
U.S. Treasury and not to NHTSA itself.\756\
---------------------------------------------------------------------------

    \756\ Honeywell commented that any fines imposed and collected 
under the CAFE and GHG standards should be appropriated to the 
development of vehicle technologies that continue to improve fuel 
economy in the future, and that the direct application of the 
penalties collected would support the underlying legislative policy 
and drive innovation. While NHTSA certainly would not oppose such an 
outcome, it would lie within the hands of Congress and not the 
agency to direct the use of the fines in that manner.
---------------------------------------------------------------------------

    Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does 
not provide for recall and remedy in the event of a noncompliance. The 
presence of recall and remedy provisions \757\ in the Safety Act and 
their absence in EPCA is believed to arise from the difference in the 
application of the safety standards and CAFE standards. A safety 
standard applies to individual vehicles; that is, each vehicle must 
possess the requisite equipment or feature which must provide the 
requisite type and level of performance. If a vehicle does not, it is 
noncompliant. Typically, a vehicle does not entirely lack an item or 
equipment or feature. Instead, the equipment or features fails to 
perform adequately. Recalling the vehicle to repair or replace the 
noncompliant equipment or feature can usually be readily accomplished.
---------------------------------------------------------------------------

    \757\ 49 U.S.C. 30120, Remedies for defects and noncompliance.
---------------------------------------------------------------------------

    In contrast, a CAFE standard applies to a manufacturer's entire 
fleet for a model year. It does not require that a particular 
individual vehicle be equipped with any particular equipment or feature 
or meet a particular level of fuel economy. It does require that the 
manufacturer's fleet, as a whole, comply. Further, although under the 
attribute-based approach to setting CAFE standards fuel economy targets 
are established for individual vehicles based on their footprints, the 
vehicles are not required to comply with those targets on a model-by-
model or vehicle-by-vehicle basis. However, as a practical matter, if a 
manufacturer chooses to design some vehicles so they fall below their 
target levels of fuel economy, it will need to design other vehicles so 
they exceed their targets if the manufacturer's overall fleet average 
is to meet the applicable standard.
    Thus, under EPCA, there is no such thing as a noncompliant vehicle, 
only a noncompliant fleet. No particular vehicle in a noncompliant 
fleet is any more, or less, noncompliant than any other vehicle in the 
fleet.
    After enforcement letters are sent, NHTSA continues to monitor 
receipt of credit allocation plans or civil penalty payments that are 
due within 60 days from the date of receipt of the letter by the 
vehicle manufacturer, and takes further action if the manufacturer is 
delinquent in responding.
    Several commenters encouraged the agency to increase the 
transparency of how the agency monitors and enforces CAFE compliance. 
EDF, Public Citizen, Sierra Club et al., UCS, and Porsche all commented 
that NHTSA should publish an annual compliance report for 
manufacturers, and Porsche suggested that it be available online. 
Sierra Club et al. and Porsche stated that this would help clarify 
manufacturers' credit status (for the benefit of the public and 
manufacturers looking to purchase credits, respectively) and sales, and 
Sierra Club et al. further stated that the agency should make public 
all information regarding credits and attained versus projected fleet 
average mpg levels. EDF similarly urged the agency to provide publicly 
a compliance report every year that would include any recommended 
adjustments to the program, enforcement actions, or prospective policy 
action to ensure the policy objectives are achieved.
    In response, NHTSA agrees that there could be substantial benefits 
to increasing the transparency of information concerning the credit 
holdings of each credit holder. Along with the MY 2011 final rule, 
NHTSA issued a new regulation 49 CFR part 536 to implement the new CAFE 
credit trading and transfer programs authorized by EISA. Paragraph 
536.5(e) requires that we periodically publish credit holding 
information. NHTSA plans to make this information available to the 
public on the NHTSA Web site. The exact format that will be used to 
display this information has not been finalized but it is our plan to 
begin making this information available no later than calendar year 
2011 to coincide with MY 2011 when manufacturers may begin utilizing 
credit trades and transfers.

[[Page 25665]]

3. What compliance flexibilities are available under the CAFE program 
and how do manufacturers use them?
    There are three basic flexibilities permitted by EPCA/EISA that 
manufacturers can use to achieve compliance with CAFE standards beyond 
applying fuel economy-improving technologies: (1) Building dual- and 
alternative-fueled vehicles; (2) banking, trading, and transferring 
credits earned for exceeding fuel economy standards; and (3) paying 
fines. We note again that while these flexibility mechanisms will 
reduce compliance costs to some degree for most manufacturers, 49 
U.S.C. 32902(h) expressly prohibits NHTSA from considering the 
availability of credits (either for building dual- or alternative-
fueled vehicles or from accumulated transfers or trades) in determining 
the level of the standards. Thus, NHTSA may not raise CAFE standards 
because manufacturers have enough credits to meet higher standards. 
This is an important difference from EPA's authority under the CAA, 
which does not contain such a restriction, and which allows EPA to set 
higher standards as a result.
a. Dual- and Alternative-Fueled Vehicles
    As discussed at length in prior rulemakings, EPCA encourages 
manufacturers to build alternative-fueled and dual- (or flexible-) 
fueled vehicles by providing special fuel economy calculations for 
``dedicated'' (that is, 100 percent) alternative fueled vehicles and 
``dual-fueled'' (that is, capable of running on either the alternative 
fuel or gasoline) vehicles. The fuel economy of a dedicated alternative 
fuel vehicle is determined by dividing its fuel economy in equivalent 
miles per gallon of gasoline or diesel fuel by 0.15.\758\ Thus, a 15 
mpg dedicated alternative fuel vehicle would be rated as 100 mpg. For 
dual-fueled vehicles, the rating is the average of the fuel economy on 
gasoline or diesel and the fuel economy on the alternative fuel vehicle 
divided by 0.15.\759\
---------------------------------------------------------------------------

    \758\ 49 U.S.C. 32905(a).
    \759\ 49 U.S.C. 32905(b).
---------------------------------------------------------------------------

    For example, this calculation procedure turns a dual-fueled vehicle 
that averages 25 mpg on gasoline or diesel into a 40 mpg vehicle for 
CAFE purposes. This assumes that (1) the vehicle operates on gasoline 
or diesel 50 percent of the time and on alternative fuel 50 percent of 
the time; (2) fuel economy while operating on alternative fuel is 15 
mpg (15/.15 = 100 mpg); and (3) fuel economy while operating on gas or 
diesel is 25 mpg. Thus:

CAFE FE = 1/{0.5/(mpg gas) + 0.5/(mpg alt fuel){time}  = 1/{0.5/25 + 
0.5/100{time}  = 40 mpg

    In the case of natural gas, the calculation is performed in a 
similar manner. The fuel economy is the weighted average while 
operating on natural gas and operating on gas or diesel. The statute 
specifies that 100 cubic feet (ft\3\) of natural gas is equivalent to 
0.823 gallons of gasoline. The gallon equivalency of natural gas is 
equal to 0.15 (as for other alternative fuels).\760\ Thus, if a vehicle 
averages 25 miles per 100 ft\3\ of natural gas, then:
---------------------------------------------------------------------------

    \760\ 49 U.S.C. 32905(c).
---------------------------------------------------------------------------

CAFE FE = (25/100) * (100/.823)*(1/0.15) = 203 mpg

    Congress extended the incentive in EISA for dual-fueled automobiles 
through MY 2019, but provided for its phase out between MYs 2015 and 
2019.\761\ The maximum fuel economy increase which may be attributed to 
the incentive is thus as follows:
---------------------------------------------------------------------------

    \761\ 49 U.S.C. 32906(a). NHTSA notes that the incentive for 
dedicated alternative-fuel automobiles, automobiles that run 
exclusively on an alternative fuel, at 49 U.S.C. 32905(a), was not 
phased-out by EISA.

------------------------------------------------------------------------
                                                                  mpg
                         Model year                            increase
------------------------------------------------------------------------
MYs 1993-2014...............................................         1.2
MY 2015.....................................................         1.0
MY 2016.....................................................         0.8
MY 2017.....................................................         0.6
MY 2018.....................................................         0.4
MY 2019.....................................................         0.2
After MY 2019...............................................         0
------------------------------------------------------------------------

    49 CFR part 538 implements the statutory alternative-fueled and 
dual-fueled automobile manufacturing incentive. NHTSA updated part 538 
as part of this final rule to reflect the EISA changes extending the 
incentive to MY 2019, but to the extent that 49 U.S.C. 32906(a) differs 
from the current version of 49 CFR 538.9, the statute supersedes the 
regulation, and regulated parties may rely on the text of the statute.
    A major difference between EPA's statutory authority and NHTSA's 
statutory authority is that the CAA contains no specific prescriptions 
with regard to credits for dual- and alternative-fueled vehicles 
comparable to those found in EPCA/EISA. As an exercise of that 
authority, and as discussed in Section III above, EPA is offering 
similar credits for dual- and alternative-fueled vehicles through MY 
2015 for compliance with its CO2 standards, but for MY 2016 
and beyond EPA will establish CO2 emission levels for 
alternative fuel vehicles based on measurement of actual CO2 
emissions during testing, plus a manufacturer demonstration that the 
vehicles are actually being run on the alternative fuel. The 
manufacturer would then be allowed to weight the gasoline and 
alternative fuel test results based on the proportion of actual usage 
of both fuels, as discussed above in Section III. NHTSA has no such 
authority under EPCA/EISA to require that vehicles manufactured for the 
purpose of obtaining the credit actually be run on the alternative 
fuel, but requested comment in the NPRM on whether it should seek 
legislative changes to revise its authority to address this issue.
    NHTSA received only one comment on this issue: VW commented that 
NHTSA should not seek a change in its authority, because Congress' 
intent for NHTSA is already clear. VW did, however, encourage NHTSA to 
include the statutory FFV credit phase-out in Part 538, which the 
agency is doing.
b. Credit Trading and Transfer
    As part of the MY 2011 final rule, NHTSA established Part 536 for 
credit trading and transfer. Part 536 implements the provisions in EISA 
authorizing NHTSA to establish by regulation a credit trading program 
and directing it to establish by regulation a credit transfer 
program.\762\ Since its enactment, EPCA has permitted manufacturers to 
earn credits for exceeding the standards and to carry those credits 
backward or forward. EISA extended the ``carry-forward'' period from 
three to five model years, and left the ``carry-back'' period at three 
model years. Under part 536, credit holders (including, but not limited 
to, manufacturers) will have credit accounts with NHTSA, and will be 
able to hold credits, use them to achieve compliance with CAFE 
standards, transfer them between compliance categories, or trade them. 
A credit may also be cancelled before its expiry date, if the credit 
holder so chooses. Traded and transferred credits are subject to an 
``adjustment factor'' to ensure total oil savings are preserved, as 
required by EISA.\763\ EISA also prohibits credits

[[Page 25666]]

earned before MY 2011 from being transferred, so NHTSA has developed 
several regulatory restrictions on trading and transferring to 
facilitate Congress' intent in this regard. EISA also establishes a 
``cap'' for the maximum increase in any compliance category 
attributable to transferred credits: For MYs 2011-2013, transferred 
credits can only be used to increase a manufacturer's CAFE level in a 
given compliance category by 1.0 mpg; for MYs 2014-2017, by 1.5 mpg; 
and for MYs 2018 and beyond, by 2.0 mpg.
---------------------------------------------------------------------------

    \762\ Congress required that DOT establish a credit 
``transferring'' regulation, to allow individual manufacturers to 
move credits from one of their fleets to another (e.g., using a 
credit earned for exceeding the light truck standard for compliance 
with the domestic passenger car standard). Congress allowed DOT to 
establish a credit ``trading'' regulation, so that credits may be 
bought and sold between manufacturers and other parties.
    \763\ Ford and Toyota both commented on NHTSA's use of the 
adjustment factor: Ford stated that it preferred a streamlined 
``megagrams'' approach like EPA was proposing, while Toyota stated 
that NHTSA and EPA should use consistent VMT estimates for purposes 
of all analysis and for use in the adjustment factor. In response to 
Ford, NHTSA is maintaining use of the adjustment factor just 
finalized last March, which uses mpg rather than gallons or grams 
and is thus consistent with the rest of the CAFE program. In 
response to Toyota, NHTSA agrees that consistency of VMT estimates 
should be maintained and will revise the adjustment factor as 
necessary.
---------------------------------------------------------------------------

    NHTSA recognizes that some manufacturers may have to rely on credit 
transferring for compliance in MYs 2012-2017.\764\ As a way to improve 
the transferring flexibility mechanism for manufacturers, NHTSA 
interprets EISA not to prohibit the banking of transferred credits for 
use in later model years. Thus, NHTSA believes that the language of 
EISA may be read to allow manufacturers to transfer credits from one 
fleet that has an excess number of credits, within the limits 
specified, to another fleet that may also have excess credits instead 
of transferring only to a fleet that has a credit shortfall. This would 
mean that a manufacturer could transfer a certain number of credits 
each year and bank them, and then the credits could be carried forward 
or back ``without limit'' later if and when a shortfall ever occurred 
in that same fleet. NHTSA bases this interpretation on 49 U.S.C. 
32903(g)(2), which states that transferred credits ``are available to 
be used in the same model years that the manufacturer could have 
applied such credits under subsections (a), (b), (d), and (e), as well 
as for the model year in which the manufacturer earned such credits.'' 
The EISA limitation applies only to the application of such credits for 
compliance in particular model years, and not their transfer per se. If 
transferred credits have the same lifespan and may be used in carry-
back and carry-forward plans, it seems reasonable that they should be 
allowed to be stored in any fleet, rather than only in the fleet in 
which they were earned. Of course, manufacturers could not transfer and 
bank credits for purposes of achieving the minimum standard for 
domestically-manufactured passenger cars, as prohibited by 49 U.S.C. 
32903(g)(4). Transferred and banked credits would additionally still be 
subject to the adjustment factor when actually used, which would help 
to ensure that total oil savings are preserved while still offering 
greater flexibility to manufacturers. This interpretation of EISA also 
helps NHTSA, to some extent, to harmonize better with EPA's 
CO2 program, which allows unlimited banking and transfer of 
credits. NHTSA sought comment in the NPRM on this interpretation of 
EISA.
---------------------------------------------------------------------------

    \764\ In contrast, manufacturers stated in comments in NHTSA's 
MY 2011 rulemaking that they did not anticipate a robust market for 
credit trading, due to competitive concerns. NHTSA does not yet know 
whether those concerns will continue to deter manufacturers from 
exercising the trading flexibility during MYs 2012-2016.
---------------------------------------------------------------------------

    Only one commenter, VW, commented on NHTSA's interpretation of EISA 
as allowing the banking of transferred credits, and agreed with it. VW 
suggested that NHTSA revise part 536 to clarify accordingly, and that 
NHTSA include the statutory transfer cap in part 536 as well. While 
NHTSA does not believe that including the statutory transfer cap in the 
regulation is necessary, NHTSA will revise Part 536 in this final rule 
by amending the definition of ``transfer'' as follows (in bold and 
italics):

    Transfer means the application by a manufacturer of credits 
earned by that manufacturer in one compliance category or credits 
acquired be trade (and originally earned by another manufacturer in 
that category) to achieve compliance with fuel economy standards 
with respect to a different compliance category. For example, a 
manufacturer may purchase light truck credits from another 
manufacturer, and transfer them to achieve compliance in the 
manufacturer's domestically manufactured passenger car fleet. 
Subject to the credit transfer limitations of 49 U.S.C. 32903 
(g)(3), credits can also be transferred across compliance categories 
and banked or saved in that category to be carried forward or 
backward to address a credit shortfall.
c. Payment of Fines
    If a manufacturer's average miles per gallon for a given compliance 
category (domestic passenger car, imported passenger car, light truck) 
falls below the applicable standard, and the manufacturer cannot make 
up the difference by using credits earned or acquired, the manufacturer 
is subject to penalties. The penalty, as mentioned, is $5.50 for each 
tenth of a mpg that a manufacturer's average fuel economy falls short 
of the standard for a given model year, multiplied by the total volume 
of those vehicles in the affected fleet, manufactured for that model 
year. NHTSA has collected $785,772,714.50 to date in CAFE penalties, 
the largest ever being paid by DaimlerChrysler for its MY 2006 import 
passenger car fleet, $30,257,920.00. For their MY 2008 fleets, six 
manufacturers paid CAFE fines for not meeting an applicable standard--
Ferrari, Maserati, Mercedes-Benz, Porsche, Chrysler and Fiat--for a 
total of $12,922,255,50.
    NHTSA recognizes that some manufacturers may use the option to pay 
fines as a CAFE compliance flexibility--presumably, when paying fines 
is deemed more cost-effective than applying additional fuel economy-
improving technology, or when adding fuel economy-improving technology 
would fundamentally change the characteristics of the vehicle in ways 
that the manufacturer believes its target consumers would not accept. 
NHTSA has no authority under EPCA/EISA to prevent manufacturers from 
turning to fine-payment if they choose to do so. This is another 
important difference from EPA's authority under the CAA, which allows 
EPA to revoke a manufacturer's certificate of conformity that permits 
it to sell vehicles if EPA determines that the manufacturer is in non-
compliance, and does not permit manufacturers to pay fines in lieu of 
compliance with applicable standards.
    NHTSA has grappled repeatedly with the issue of whether fines are 
motivational for manufacturers, and whether raising fines would 
increase manufacturers' compliance with the standards. EPCA authorizes 
increasing the civil penalty very slightly up to $10.00, exclusive of 
inflationary adjustments, if NHTSA decides that the increase in the 
penalty ``will result in, or substantially further, substantial energy 
conservation for automobiles in the model years in which the increased 
penalty may be imposed; and will not have a substantial deleterious 
impact on the economy of the United States, a State, or a region of a 
State.'' 49 U.S.C. 32912(c).
    To support a decision that increasing the penalty would result in 
``substantial energy conservation'' without having ``a substantial 
deleterious impact on the economy,'' NHTSA would likely need to provide 
some reasonably certain quantitative estimates of the fuel that would 
be saved, and the impact on the economy, if the penalty were raised. 
Comments received on this issue in the past have not explained in clear 
quantitative terms what the benefits and drawbacks to raising the 
penalty might be. Additionally, it may be that the range of possible 
increase that the statute provides, i.e., up to $10 per tenth of a mpg, 
is insufficient to result in

[[Page 25667]]

substantial energy conservation, although changing this would require 
an amendment to the statute by Congress. While NHTSA continues to seek 
to gain information on this issue to inform a future rulemaking 
decision, we requested in the NPRM that commenters wishing to address 
this issue please provide, as specifically as possible, estimates of 
how raising or not raising the penalty amount will or will not 
substantially raise energy conservation and impact the economy.
    Only Ferrari and Daimler commented on this issue. Both 
manufacturers argued that raising the penalty would have no impact on 
fuel savings and would simply hurt the manufacturers forced to pay it. 
Daimler stated further that the agency's asking for a quantitative 
analysis ignores the fact that manufacturers pay fines because they 
cannot increase energy savings any further. Thus, again, the agency 
finds itself without a clear quantitative explanation of what the 
benefits and drawbacks to raising the penalty might be, but it 
continues to appear that the range of possible increase is insufficient 
to result in additional substantial energy conservation. NHTSA will 
therefore defer consideration of this issue for purposes of this 
rulemaking.
4. Other CAFE Enforcement Issues--Variations in Footprint
    NHTSA has a standardized test procedure for determining vehicle 
footprint,\765\ which is defined by regulation as follows:
---------------------------------------------------------------------------

    \765\ NHTSA TP-537-01, March 30, 2009. Available at http://
www.nhtsa.gov/portal/site/nhtsa/
menuitem.b166d5602714f9a73baf3210dba046a0/, scroll down to ``537'' 
(last accessed July 18, 2009).

    Footprint is defined as the product of track width (measured in 
inches, calculated as the average of front and rear track widths, 
and rounded to the nearest tenth of an inch) times wheelbase 
(measured in inches and rounded to the nearest tenth of an inch), 
divided by 144 and then rounded to the nearest tenth of a square 
foot.\766\
---------------------------------------------------------------------------

    \766\ 49 CFR 523.2.

``Track width,'' in turn, is defined as ``the lateral distance between 
the centerlines of the base tires at ground, including the camber 
angle.'' \767\ ``Wheelbase'' is defined as ``the longitudinal distance 
between front and rear wheel centerlines.'' \768\
---------------------------------------------------------------------------

    \767\ Id.
    \768\ Id.
---------------------------------------------------------------------------

    NHTSA began requiring manufacturers to submit this information on 
footprint, wheelbase, and track width as part of their pre-model year 
reports in MY 2008 for light trucks, and will require manufacturers to 
submit this information for passenger cars as well beginning in MY 
2010. Manufacturers have submitted the required information for their 
light trucks, but NHTSA has identified several issues with regard to 
footprint measurement that could affect how required fuel economy 
levels are calculated for a manufacturer as discussed below.
a. Variations in Track Width
    By definition, wheelbase measurement should be very consistent from 
one vehicle to another of the same model. Track width, in contrast, may 
vary in two respects: Wheel offset,\769\ and camber. Most current 
vehicles have wheels with positive offset, with technical 
specifications for offset typically expressed in millimeters. 
Additionally, for most vehicles, the camber angle of each of a 
vehicle's wheels is specified as a range, i.e., front axle, left and 
right within minus 0.9 to plus 0.3 degree and rear axle, left and right 
within minus 0.9 to plus 0.1 degree. Given the small variations in 
offset and camber angle dimensions, the potential effects of components 
(wheels) and vehicle specifications (camber) within existing designs on 
vehicle footprints are considered insignificant.
---------------------------------------------------------------------------

    \769\ Offset of a wheel is the distance from its hub mounting 
surface to the centerline of the wheel, i.e., measured laterally 
inboard or outboard.
    Zero offset--the hub mounting surface is even with the 
centerline of the wheel.
    Positive offset--the hub mounting surface is outboard of the 
centerline of the wheel (toward street side).
    Negative offset--the hub mounting surface is inboard of the 
centerline of the wheel (away from street side).
---------------------------------------------------------------------------

    However, NHTSA recognizes that manufacturers may change the 
specifications of and the equipment on vehicles, even those that are 
not redesigned or refreshed, during a model year and from year to year. 
There may be opportunity for manufacturers to change specifications for 
wheel offset and camber to increase a vehicle's track width and 
footprint, and thus decrease their required fuel economy level. NHTSA 
believes that this is likely easiest on vehicles that already have 
sufficient space to accommodate changes without accompanying changes to 
the body profile and/or suspension component locations.
    There may be drawbacks to such a decision, however. Changing from 
positive offset wheels to wheels with zero or negative offset will move 
tires and wheels outward toward the fenders. Increasing the negative 
upper limit of camber will tilt the top of the tire and wheel inward 
and move the bottom outward, placing the upper portion of the rotating 
tires and wheels in closer proximity to suspension components. In 
addition, higher negative camber can adversely affect tire life and the 
on-road fuel economy of the vehicle. Furthermore, it is likely that 
most vehicle designs have already used the available space in wheel 
areas since, by doing so, the vehicle's handling performance is 
improved. Therefore, it seems unlikely that manufacturers will make 
significant changes to wheel offset and camber. No comments were 
received on this issue.
b. How Manufacturers Designate ``Base Tires'' and Wheels
    According to the definition of ``track width'' in 49 CFR 523.2, 
manufacturers must determine track width when the vehicle is equipped 
with ``base tires.'' Section 523.2 defines ``base tire,'' in turn, as 
``the tire specified as standard equipment by a manufacturer on each 
configuration of a model type.'' NHTSA did not define ``standard 
equipment.''
    In their pre-model year reports required by 49 CFR 537, 
manufacturers have the option of either (A) reporting a base tire for 
each model type, or (B) reporting a base tire for each vehicle 
configuration within a model type, which represents an additional level 
of specificity. If different vehicle configurations have different 
footprint values, then reporting the number of vehicles for each 
footprint will improve the accuracy of the required fuel economy level 
for the fleet, since the pre-model year report data is part of what 
manufacturers use to determine their CAFE obligations.
    For example, assume a manufacturer's pre-model year report listed 
five vehicle configurations that comprise one model type. If the 
manufacturer provides only one vehicle configuration's front and rear 
track widths, wheelbase, footprint and base tire size to represent the 
model type, and the other vehicle configurations all have a different 
tire size specified as standard equipment, the footprint value 
represented by the manufacturer may not capture the full spectrum of 
footprint values for that model type. Similarly, the base tires of a 
model type may be mounted on two or more wheels with different offset 
dimensions for different vehicle configurations. Of course, if the 
footprint value for all vehicle configurations is essentially the same, 
there would be no need to report by vehicle configuration. However, if 
footprints are different--larger or smaller--reporting for each group 
with similar footprints or for each vehicle configuration would produce 
a more

[[Page 25668]]

accurate result. No comments were received on this issue.
c. Vehicle ``Design'' Values Reported by Manufacturers
    NHTSA understands that the track widths and wheelbase values and 
the calculated footprint calculated values, as provided in pre-model 
year reports, are based on vehicle designs. This can lead to inaccurate 
calculations of required fuel economy level. For example, if the values 
reported by manufacturers are within an expected range of values, but 
are skewed to the higher end of the ranges, the required fuel economy 
level for the fleet will be artificially lower, an inaccurate attribute 
based value. Likewise, it would be inaccurate for manufacturers to 
submit values on the lower end of the ranges, but would decrease the 
likelihood that measured values would be less than the values reported 
and reduce the likelihood of an agency inquiry. Since not every vehicle 
is identical, it is also probable that variations between vehicles 
exist that can affect track width, wheelbase and footprint. As with 
other self-certifications, each manufacturer must decide how it will 
report, by model type, vehicle configuration, or a combination, and 
whether the reported values have sufficient margin to account for 
variations.
    To address this, the agency will be monitoring the track widths, 
wheelbases and footprints reported by manufacturers, and anticipates 
measuring vehicles to determine if the reported and measured values are 
consistent. We will look for year-to-year changes in the reported 
values. We can compare MY 2008 light truck information and MY 2010 
passenger car information to the information reported in subsequent 
model years. Moreover, under 49 CFR 537.8, manufacturers may make 
separate reports to explain why changes have occurred or they may be 
contacted by the agency to explain them. No comments were received on 
this issue.
d. How Manufacturers Report This Information in Their Pre-Model Year 
Reports
    49 CFR 537.7(c) requires that manufacturers' pre-model year reports 
include ``model type and configuration fuel economy and technical 
information.'' The fuel economy of a ``model type'' is, for many 
manufacturers, comprised of a number of vehicle configurations. 49 CFR 
537.4 states that ``model type'' and ``vehicle configuration'' are 
defined in 40 CFR 600. Under that Part, ``model type'' includes engine, 
transmission, and drive configuration (2WD, 4WD, or all-wheel drive), 
while ``vehicle configuration'' includes those parameters plus test 
weight. Model type is important for calculating fuel economy in the new 
attribute-based system--the required fuel economy level for each of a 
manufacturer's fleets is calculated using the number of vehicles within 
each model type and the applicable fuel economy target for each model 
type.
    In MY 2008 and 2009 pre-model year reports for light trucks, 
manufacturers have expressed information in different ways. Some 
manufacturers that have many vehicle configurations within a model type 
have included information for each vehicle configuration's track width, 
wheelbase and footprint. Other manufacturers reported vehicle 
configuration information per Sec.  537.7(c)(4), but provided only 
model type track width, wheelbase and footprint information for 
subsections 537.7(c)(4)(xvi)(B)(3), (4) and (5). NHTSA believes that 
these manufacturers may have reported the information this way because 
the track widths, wheelbase and footprint are essentially the same for 
each vehicle configuration within each model type. A third group of 
manufacturers submitted model type information only, presumably because 
each model type contains only one vehicle configuration.
    NHTSA does not believe that this variation in reporting methodology 
presents an inherent problem, as long as manufacturers follow the 
specifications in part 537 for reporting format, and as long as pre-
model year reports provide information that is accurate and represents 
each vehicle configuration within a model type. The report may, but 
need not, be similar to what manufacturers submit to EPA as their end-
of-model year report. However, NHTSA sought comment in the NPRM on any 
potential benefits or drawbacks to requiring a more standardized 
reporting methodology. NHTSA requested that, if commenters recommend 
increasing standardization, they provide specific examples of what 
information should be required and how NHTSA should require it to be 
provided but no comments were received on this specific issue.
    However, on a related topic, Honda and Toyota both commented on the 
equations and corresponding terms used to calculate the fleet required 
standards. Both manufacturers indicated that the terms defined for use 
in the equations could be interpreted differently by vehicle 
manufacturers. For example, the term ``footprint of a vehicle model'' 
could be interpreted to mean that a manufacturer only has to use one 
representative footprint within a model type or that it is necessary to 
use all the unique footprints and corresponding fuel economy target 
standards within a model type when determining a fleet target standard. 
This issue is discussed in more detail in Section IV.E. above.
5. Other CAFE Enforcement Issues--Miscellaneous
    Hyundai commented that 49 CFR 537.9 appeared to contain erroneous 
references to 40 CFR 600.506 and 600.506(a)(2), which seemed not to 
exist, and asked the agency to check those references. In response, 
NHTSA examined the issue and found that 40 CFR 600.506 was, in fact, 
eliminated by a final rule published on April 6, 1984 (49 FR 13832). 
That section of 40 CFR originally required manufacturers to submit 
preliminary CAFE data to EPA prior to submitting the final end of the 
year data. EPA's primary intent for eliminating the requirement, as 
stated in the final rule, was to reduce administration burden. To 
address these inaccurate references, NHTSA is revising part 537 to 
delete references to 40 CFR 600.506. This will not impact the existing 
requirements for the pre-model year, mid-model year and supplemental 
reports manufacturers must submit to NHTSA under part 537.

J. Other Near-Term Rulemakings Mandated by EISA

1. Commercial Medium- and Heavy-Duty On-Highway Vehicles and Work 
Trucks
    EISA added new provisions to 49 U.S.C. 32902 requiring DOT, in 
consultation with DOE and EPA, to conduct a study regarding a program 
to require improvements in the fuel efficiency of commercial medium- 
and heavy-duty on-highway vehicles and work trucks and then to conduct 
a rulemaking to adopt and implement such a program. In the study, the 
agency must examine the fuel efficiency of commercial medium- and 
heavy-duty on-highway vehicles \770\ and work trucks \771\ and 
determine the appropriate test procedures and methodologies for 
measuring their fuel efficiency, as well as the appropriate metric for 
measuring and expressing their fuel efficiency performance and the 
range of factors that affect their fuel efficiency. Then the agency 
must determine in a rulemaking

[[Page 25669]]

proceeding how to implement a commercial medium- and heavy-duty on-
highway vehicle and work truck fuel efficiency improvement program 
designed to achieve the maximum feasible improvement, and adopt and 
implement appropriate test methods, measurement metrics, fuel economy 
standards, and compliance and enforcement protocols that are 
appropriate, cost-effective, and technologically feasible for 
commercial medium- and heavy-duty on-highway vehicles and work trucks. 
The agency is working closely with EPA on developing a proposal for 
these standards.
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    \770\ Defined as an on-highway vehicle with a gross vehicle 
weight rating of 10,000 pounds or more.
    \771\ Defined as a vehicle that is both rated at between 8,500 
and 10,000 pounds gross vehicle weight; and also is not a medium-
duty passenger vehicle (as defined in 40 CFR 86.1803-01, as in 
effect on the date of EISA's enactment.
---------------------------------------------------------------------------

2. Consumer Information on Fuel Efficiency and Emissions
    EISA also added a new provision to 49 U.S.C. 32908 requiring DOT, 
in consultation with DOE and EPA, to develop and implement by rule a 
program to require manufacturers to label new automobiles sold in the 
United States with:
    (1) Information reflecting an automobile's performance on the basis 
of criteria that EPA shall develop, not later than 18 months after the 
date of the enactment of EISA, to reflect fuel economy and greenhouse 
gas and other emissions over the useful life of the automobile; and
    (2) A rating system that would make it easy for consumers to 
compare the fuel economy and greenhouse gas and other emissions of 
automobiles at the point of purchase, including a designation of 
automobiles with the lowest greenhouse gas emissions over the useful 
life of the vehicles; and with the highest fuel economy.
    DOT must also develop and implement by rule a program to require 
manufacturers to include in the owner's manual for vehicles capable of 
operating on alternative fuels information that describes that 
capability and the benefits of using alternative fuels, including the 
renewable nature and environmental benefits of using alternative fuels.
    EISA further requires DOT, in consultation with DOE and EPA, to
     Develop and implement by rule a consumer education program 
to improve consumer understanding of automobile performance described 
[by the label to be developed] and to inform consumers of the benefits 
of using alternative fuel in automobiles and the location of stations 
with alternative fuel capacity;
     Establish a consumer education campaign on the fuel 
savings that would be recognized from the purchase of vehicles equipped 
with thermal management technologies, including energy efficient air 
conditioning systems and glass; and
     By rule require a label to be attached to the fuel 
compartment of vehicles capable of operating on alternative fuels, with 
the form of alternative fuel stated on the label.

49 U.S.C. 32908(g)(2) and (3).
    DOT has 42 months from the date of EISA's enactment (by the end of 
2011) to issue final rules under this subsection. Work on developing 
these standards is also on-going. The agency is working closely with 
EPA on developing a proposal for these regulations.
    Additionally, in preparation for this future rulemaking, NHTSA will 
consider appropriate metrics for presenting fuel economy-related 
information on labels. Based on the non-linear relationship between mpg 
and fuel costs as well as emissions, inclusion of the ``gallons per 100 
miles'' metric on fuel economy labels may be appropriate going forward, 
although the mpg information is currently required by law. A cost/
distance metric may also be useful, as could a CO2e grams 
per mile metric to facilitate comparisons between conventional vehicles 
and alternative fuel vehicles and to incorporate information about air 
conditioning-related emissions.

K. Record of Decision

    On May 19, 2009 President Obama announced a National Fuel 
Efficiency Policy aimed at both increasing fuel economy and reducing 
greenhouse gas pollution for all new cars and trucks sold in the United 
States, while also providing a predictable regulatory framework for the 
automotive industry. The policy seeks to set harmonized Federal 
standards to regulate both fuel economy and GHG emissions. The program 
covers model year 2012 to model year 2016 and ultimately requires the 
equivalent of an average fuel economy of 35.5 mpg in 2016, if all 
CO2 reduction were achieved through fuel economy 
improvements.
    In accordance with President Obama's May 19, 2009 announcement, 
this final rule promulgates the fuel economy standards for MYs 2012-
2016. This final rule constitutes the Record of Decision (ROD) for 
NHTSA's MYs 2012-2016 CAFE standards, pursuant to the National 
Environmental Policy Act (NEPA) and the Council on Environmental 
Quality's (CEQ) implementing regulations.\772\ See 40 CFR 1505.2.
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    \772\ NEPA is codified at 42 U.S.C. 4321-47. CEQ NEPA 
implementing regulations are codified at 40 Code of Federal 
Regulations (CFR) Parts 1500-08.
---------------------------------------------------------------------------

    As required by CEQ regulations, this final rule and ROD sets forth 
the following: (1) The agency's decision; (2) alternatives considered 
by NHTSA in reaching its decision, including the environmentally 
preferable alternative; (3) the factors balanced by NHTSA in making its 
decision, including considerations of national policy; (4) how these 
factors and considerations entered into its decision; and (5) the 
agency's preferences among alternatives based on relevant factors, 
including economic and technical considerations and agency statutory 
missions. This final rule also briefly addresses mitigation.
The Agency's Decision
    In the DEIS and the FEIS, the agency identified the approximately 
4.3-percent average annual increase alternative as NHTSA's Preferred 
Alternative. After carefully reviewing and analyzing all of the 
information in the public record including technical support documents, 
the FEIS, and public and agency comments submitted on the DEIS, the 
FEIS, and the NPRM, NHTSA has decided to proceed with the Preferred 
Alternative. The Preferred Alternative requires approximately a 4.3-
percent average annual increase in mpg for MYs 2012-2016. This decision 
results in an estimated required MY 2016 fleetwide 37.8 mpg for 
passenger cars and 28.7 mpg for light trucks. As stated in the FEIS, 
the Preferred Alternative results in a combined estimated required 
fleetwide 34.1 mpg in MY 2016.
    Following publication of the FEIS, the Federal government 
Interagency Working Group on Social Cost of Carbon made public a 
revised estimate of the Social Cost of Carbon to support Federal 
regulatory activities where reducing CO2 emissions is an 
important potential outcome. NHTSA relied upon the interagency group's 
interim guidance published in August 2009 for the FEIS analysis. For 
this final rule NHTSA has updated the analysis and now uses the central 
SCC value of $21 per metric ton (2010 emissions) identified in the 
interagency group's revised guidance.\773\ See Section IV.C.3.l.iii.
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    \773\ The $21/ton estimate is for 2010 emissions and increases 
over time because of damages resulting from increased GHG 
concentrations. $21 is the average SCC at the 3 percent discount 
rate. The other three estimates include: Avg SCC at 5% ($5-$16); Avg 
SCC at 2.5% ($35-$65); and 95th percentile at 3% ($65-$136).
---------------------------------------------------------------------------

    The group's purpose in developing new estimates of the SCC was to 
allow

[[Page 25670]]

Federal agencies to incorporate the social benefits of reducing carbon 
dioxide (CO2) emissions into cost-benefit analyses of 
regulatory actions that have small, or ``marginal,'' impacts on 
cumulative global emissions, as most Federal regulatory actions can be 
expected to have. The interagency group convened on a regular basis to 
consider public comments, explore the technical literature in relevant 
fields, and discuss key inputs and assumptions in order to generate SCC 
estimates. The revised SCC estimates represent the interagency group's 
consideration of the literature and judgments about how to monetize 
some of the benefits of GHG mitigation.\774\
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    \774\ The interagency group intends to update these estimates as 
the science and economic understanding of climate change and its 
impacts on society improves over time.
---------------------------------------------------------------------------

    Incorporating the revised estimate, NHTSA's analysis indicates that 
the Agency's Decision will likely result in slightly greater fuel 
savings and CO2 emissions reductions than those noted in the 
EIS. The revised SCC valuation applied for purposes of the final rule 
resulted in a slightly smaller gap in stringency between the passenger 
car and light truck standards; the ratio of passenger car stringency 
(i.e., average required fuel economy) to light truck stringency in MY 
2016 shrank from 1.318 to 1.313, or about 0.4 percent. Because 
manufacturers projected to pay civil penalties (rather than fully 
complying with CAFE standards) account for a smaller share of the light 
truck market than of the passenger car market, and because lifetime 
mileage accumulation is somewhat higher for light trucks than for 
passenger cars, this slight shift in relative stringency caused average 
fuel economy levels achieved under the preferred alternative to 
increase by about 0.02 mpg during MYs 2012-2016, resulted in 
corresponding lifetime (i.e., over the full useful life of MYs 2012-
2016 vehicles) fuel savings increases of about 0.9 percent, and 
corresponding increases in lifetime CO2 emission reductions 
of about 1.1 percent. For environmental impacts associated with NHTSA's 
Decision, see Section IV.G of this final rule.
    The incorporation of the revised interagency estimate of SCC 
results in minimal changes to the required fleetwide mpg for some model 
years covered by this final rule. All changes are less than or equal to 
.1 mpg (but may reflect an increase when rounding up during 
calculations) and continue to result, on average, in a 4.3 percent 
annual increase in mpg.\775\ See Section IV.F for discussion of 
required annual fleetwide mpg.
---------------------------------------------------------------------------

    \775\ There are no ``substantial changes to the proposed 
action'' and there are no ``significant new circumstances or 
information relevant to environmental concerns and bearing on the 
proposed action or its impacts.'' Therefore, consistent with 40 CFR 
1502.9(c), no supplement to the EIS is required. Moreover, the 
environmental impacts of this decision fall within the spectrum of 
impacts analyzed in the DEIS and the FEIS.
---------------------------------------------------------------------------

    For a discussion of the agency's selection of the Preferred 
Alternative as NHTSA's Decision, see Section IV.F of this final rule.
Alternatives Considered by NHTSA in Reaching Its Decision, Including 
the Environmentally Preferable Alternative
    When preparing an EIS, NEPA requires an agency to compare the 
potential environmental impacts of its proposed action and a reasonable 
range of alternatives. NHTSA identified alternative stringencies that 
represent the spectrum of potential actions the agency could take. The 
environmental impacts of these alternatives, in turn, represent the 
spectrum of potential environmental impacts that could result from 
NHTSA's chosen action in setting CAFE standards. Specifically, the DEIS 
and FEIS analyzed the impacts of the following eight ``action'' 
alternatives: 3-Percent Alternative (Alternative 2), 4-Percent 
Alternative (Alternative 3), Preferred Alternative (Alternative 4), 5-
Percent Alternative (Alternative 5), an alternative that maximizes net 
benefits (MNB) (Alternative 6), 6-Percent Alternative (Alternative 7), 
7-Percent Alternative (Alternative 8), and an alternative under which 
total cost equals total benefit (TCTB) (Alternative 9). The DEIS and 
FEIS also analyzed the impacts that would be expected if NHTSA imposed 
no new requirements (the No Action Alternative). In accordance with CEQ 
regulations, the agency selected a Preferred Alternative in the DEIS 
and the FEIS (the approximately 4.3-percent average annual increase 
alternative).
    In response to public comments, the FEIS expanded the analysis to 
determine how the proposed alternatives were affected by variations in 
the economic assumptions input into the computer model NHTSA uses to 
calculate the costs and benefits of various potential CAFE standards 
(the Volpe model). Variations in economic assumptions can be used to 
examine the sensitivity of costs and benefits of each of the 
alternatives, including future fuel prices, the value of reducing 
CO2 emissions (referred to as the social cost of carbon or 
SCC), the magnitude of the rebound effect, and the value of oil import 
externalities. Different combinations of economic assumptions can also 
affect the calculation of environmental impacts of the various action 
alternatives. This occurs partly because some economic inputs to the 
Volpe model--notably fuel prices and the size of the rebound effect--
influence its estimates of vehicle use and fuel consumption, the main 
factors that determine emissions of GHGs, criteria air pollutants, and 
airborne toxics. See section 2.4 of the FEIS for a discussion of the 
sensitivity analysis conducted for the FEIS.
    The agency considered and analyzed each of the individual economic 
assumptions to determine which assumptions most accurately represent 
future economic conditions. For a discussion of the analysis supporting 
the selection of the economic assumptions relied on by the agency in 
this final rule, see Section IV.C.3.
    Also in response to comments, the agency conducted a national-scale 
photochemical air quality modeling and health risk assessment for a 
subset of the DEIS alternatives to support and confirm the health 
effects and health-related economic estimates of the EIS. The 
photochemical air quality study is included as Appendix F to the EIS. 
The study used air quality modeling and health benefits analysis tools 
to quantify the air quality and health-related benefits associated with 
the alternative CAFE standards. Four alternatives from the DEIS were 
modeled: the No Action Alternative and Alternative 2 (the 3-Percent 
Alternative) to represent fuel economy requirements at the lower end of 
the range; Alternative 4 (the Preferred Alternative) and Alternative 8 
(the 7-Percent Alternative) to represent fuel economy requirements at 
the higher end of the range.
    The agency compared the potential environmental impacts of 
alternative mpg levels, analyzing direct, indirect, and cumulative 
impacts. For a discussion of the environmental impacts associated with 
each of the alternatives, see Chapters 3 and 4 of the FEIS.
    Alternative 8 (the 7-Percent Alternative) is the overall 
Environmentally Preferable Alternative, because it would result in the 
largest reductions in fuel use and GHG emissions by vehicles produced 
during MYs 2012-2016 among the alternatives considered. Under each 
alternative the agency considered, the reduction in fuel consumption 
resulting from higher fuel economy causes emissions that occur during 
fuel refining and distribution to decline. For most pollutants, this 
decline is more than sufficient to offset the increase in tailpipe 
emissions that results from increased driving due to the fuel economy 
rebound effect, leading to

[[Page 25671]]

a net reduction in total emissions from fuel production, distribution, 
and use. Because it leads to the largest reductions in fuel refining, 
distribution, and consumption among the alternatives considered, 
Alternative 8 would also lead to the largest net reductions in 
emissions of CO2 and other GHGs, most criteria air 
pollutants,\776\ as well as the mobile source air toxics (MSATs) 
benzene and diesel particulate matter (diesel PM).
---------------------------------------------------------------------------

    \776\ Reductions in emissions of two criteria air pollutants, 
fine particulate matter (PM2.5) and sulfur oxides 
(SOX), are forecast to be slightly larger for Alternative 
9 (TCTB) than for Alternative 8. Because the estimates of health 
benefits depend most critically on changes in particulate matter 
emissions, this causes the health benefits estimates reported in 
this FEIS to be slightly larger for Alternative 9 than for 
Alternative 8. See Section 3.3 of the FEIS. Nonetheless, for the 
other reasons explained above, NHTSA considers Alternative 8 to be 
the overall Environmentally Preferable Alternative.
---------------------------------------------------------------------------

    However, NHTSA's environmental analysis indicates that emissions of 
the MSATs acetaldehyde, acrolein, 1,3-butadiene, and formaldehyde would 
increase under some alternatives, with the largest increases in 
emissions of these MSATs projected to occur under Alternative 8 in most 
future years. This occurs because the rates at which these MSATs are 
emitted during fuel refining and distribution are very low relative to 
their emission rates during vehicle use. As a consequence, the 
reductions in their total emissions during fuel refining and 
distribution that result from lower fuel use are insufficient to offset 
the increases in emissions that result from additional vehicle use. The 
amount by which increased tailpipe emissions of these MSATs exceeds the 
reductions in their emissions during fuel refining and distribution 
increases for alternatives that require larger improvements in fuel 
economy, and in most future years is smallest under Alternative 2 
(which would increase CAFE standards least rapidly among the action 
alternatives) and largest under Alternative 8 (which would require the 
most rapid increase in fuel economy). Thus while Alternative 8 is the 
environmentally preferable alternative on the basis of CO2 
and other GHGs, most criteria air pollutants, and some MSATs, other 
alternatives are environmentally preferable from the standpoint of the 
criteria air pollutants fine particulate matter and sulfur oxides, as 
well as the MSATs acetaldehyde, acrolein, 1,3-butadiene, and 
formaldehyde. Overall, however, NHTSA considers Alternative 8 to be the 
Environmentally Preferable Alternative.
    For additional discussion regarding the alternatives considered by 
the agency in reaching its decision, including the Environmentally 
Preferable Alternative, see Section IV.F of this final rule. For a 
discussion of the environmental impacts associated with each 
alternative, see Chapters 3 and 4 of the FEIS.
Factors Balanced by NHTSA in Making Its Decision
    For discussion of the factors balanced by NHTSA in making its 
decision, see Sections IV.D. and IV.F of this final rule.
How the Factors and Considerations Balanced by NHTSA Entered Into Its 
Decision
    For discussion of how the factors and considerations balanced by 
the agency entered into NHTSA's Decision, see Section IV.F of this 
final rule.
The Agency's Preferences Among Alternatives Based on Relevant Factors, 
Including Economic and Technical Considerations and Agency Statutory 
Missions
    For discussion of the agency's preferences among alternatives based 
on relevant factors, including economic and technical considerations, 
see Section IV.F of this final rule.
Mitigation
    The CEQ regulations specify that a ROD must ``state whether all 
practicable means to avoid or minimize environmental harm from the 
alternative selected have been adopted, and if not, why they were 
not.'' 49 CFR 1505.2(c). The majority of the environmental effects of 
NHTSA's action are positive, i.e., beneficial environmental impacts, 
and would not raise issues of mitigation. The only negative 
environmental impacts are the projected increase in emissions of carbon 
monoxide and certain air toxics, as discussed above under the 
Environmentally Preferable Alternative, and in Section 2.6 and Chapter 
5 of the FEIS. The agency forecasts these increases because, under all 
the alternatives analyzed in the EIS, increase in vehicle use due to 
improved fuel economy is projected to result in growth in total miles 
traveled by passenger cars and light trucks. This growth is exacerbated 
by the expected growth in the number of passenger cars and light trucks 
in use in the United States. The growth in travel outpaces emissions 
reductions for some pollutants, resulting in projected increases for 
these pollutants.
    NHTSA's authority to promulgate new fuel economy standards is 
limited and does not allow regulation of vehicle emissions or of 
factors affecting vehicle emissions, including driving habits. 
Consequently, under the CAFE program, NHTSA must set standards but is 
unable to take steps to mitigate the impacts of these standards. 
However, we note that the Department of Transportation is currently 
implementing initiatives that work toward the stated Secretarial policy 
goal of reducing annual vehicle miles traveled. Chapter 5 of the FEIS 
outlines a number of other initiatives across government that could 
ameliorate the environmental impacts of motor vehicle use.

L. Regulatory Notices and Analyses

    Following is a discussion of regulatory notices and analyses 
relevant to this rulemaking.
1. Executive Order 12866 and DOT Regulatory Policies and Procedures
    Executive Order 12866, ``Regulatory Planning and Review'' (58 FR 
51735, Oct. 4, 1993), provides for making determinations whether a 
regulatory action is ``significant'' and therefore subject to OMB 
review and to the requirements of the Executive Order. The Order 
defines a ``significant regulatory action'' as one that is likely to 
result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or Tribal governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    The rulemaking proposed in this NPRM is economically significant. 
Accordingly, OMB reviewed it under Executive Order 12866. The rule is 
also significant within the meaning of the Department of 
Transportation's Regulatory Policies and Procedures.
    The benefits and costs of this rule are described above. Because 
the rule is economically significant under both the Department of 
Transportation's procedures and OMB guidelines, the agency has prepared 
a Final Regulatory Impact Analysis (FRIA) and placed it in the docket 
and on the agency's Web site. Further, pursuant to OMB Circular A-4, we 
have prepared a formal probabilistic uncertainty analysis for this 
rule. The

[[Page 25672]]

circular requires such an analysis for complex rules where there are 
large, multiple uncertainties whose analysis raises technical 
challenges or where effects cascade and where the impacts of the rule 
exceed $1 billion. This final rule meets these criteria on all counts.
2. National Environmental Policy Act
    Under NEPA, a Federal agency must prepare an Environmental Impact 
Statement (EIS) on proposed actions that could significantly impact the 
quality of the human environment. The requirement is designed to serve 
three major functions: (1) To provide the decisionmaker(s) with a 
detailed description of the potential environmental impacts of a 
proposed action prior to its adoption, (2) to rigorously explore and 
evaluate all reasonable alternatives, and (3) to inform the public of, 
and allow comment on, such efforts.
    In addition, the CEQ regulations emphasize agency cooperation early 
in the NEPA process, and allow a lead agency (in this case, NHTSA) to 
request the assistance of other agencies that either have jurisdiction 
by law or have special expertise regarding issues considered in an 
EIS.\777\ NHTSA invited EPA to be a cooperating agency because of its 
special expertise in the areas of climate change and air quality. On 
May 12, 2009, EPA agreed to become a cooperating agency.\778\
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    \777\ 40 CFR 1501.6.
    \778\ Consistent with the National Fuel Efficiency Policy that 
the President announced on May 19, 2009, EPA and NHTSA published 
their Notice of Upcoming Joint Rulemaking to ensure a coordinated 
National Program on GHG emissions and fuel economy for passenger 
cars, light-duty trucks, and medium-duty passenger vehicles. NHTSA 
takes no position on whether the EPA proposed rule on GHG emissions 
could be considered a ``connected action'' under the CEQ regulation 
at 40 CFR Section 1508.25. For purposes of the EIS, however, NHTSA 
decided to treat the EPA proposed rule as if it were a ``connected 
action'' under that regulation to improve the usefulness of the EIS 
for NHTSA decisionmakers and the public. NHTSA is aware that Section 
7(c) of the Energy Supply and Environmental Coordination Act of 1974 
expressly exempts from NEPA requirements EPA action taken under the 
CAA. See 15 U.S.C. 793(c)(1).
---------------------------------------------------------------------------

    NHTSA, in cooperation with EPA, prepared a draft EIS (DEIS), 
solicited public comments in writing and in a public hearing, and 
prepared a final EIS (FEIS) responding to those comments. Specifically, 
in April 2009, NHTSA published an NOI to prepare an EIS for proposed 
MYs 2012-2016 CAFE standards.\779\ See 40 CFR 1501.7.
---------------------------------------------------------------------------

    \779\ See Notice of Intent to Prepare an Environmental Impact 
Statement for New Corporate Average Fuel Economy Standards, 74 FR 
14857 (Apr. 1, 2009).
---------------------------------------------------------------------------

    On September 25, 2009, EPA issued its Notice of Availability of the 
DEIS,\780\ triggering the 45-day public comment period. See 74 FR 
48951. See also 40 CFR 1506.10. In accordance with CEQ regulations, the 
public was invited to submit written comments on the DEIS until 
November 9, 2009. See 40 CFR 1503, et seq.
---------------------------------------------------------------------------

    \780\ Also on September 25, 2009, NHTSA published a Federal 
Register Notice of Availability of its DEIS. See 74 FR 48894. 
NHTSA's Notice of Availability also announced the date and location 
of a public hearing, and invited the public to participate at the 
hearing on October 30, 2009, in Washington, DC. See id.
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    NHTSA mailed (both electronically and through regular U.S. mail) 
over 500 copies of the DEIS to interested parties, including Federal, 
State, and local officials and agencies; elected officials, 
environmental and public interest groups; Native American tribes; and 
other interested individuals. NHTSA held a public hearing on the DEIS 
at the National Transportation Safety Board Conference Center in 
Washington, DC on October 30, 2009.
    NHTSA received 11 written comments from interested stakeholders, 
including Federal agencies, state agencies, environmental advocacy 
groups, and private citizens. In addition, three interested parties 
spoke at the public hearing. The transcript from the public hearing and 
written comments submitted to NHTSA are part of the administrative 
record, and are available on the Federal Docket, which can be found on 
the Web at http://www.regulations.gov, Reference Docket No. NHTSA-2009-
0059.
    NHTSA reviewed and analyzed all comments received during the public 
comment period and revised the FEIS in response to comments on the EIS 
where appropriate.\781\ For a more detailed discussion of NHTSA's 
scoping and comment periods, see Section 1.5 and Chapter 10 of the 
FEIS.
---------------------------------------------------------------------------

    \781\ The agency also changed the FEIS as a result of updated 
information that became available after issuance of the DEIS.
---------------------------------------------------------------------------

    On February 22, 2010, NHTSA submitted the FEIS to the EPA. NHTSA 
also mailed (both electronically and through regular U.S. mail) over 
500 copies of the FEIS to interested parties and posted the FEIS on its 
Web site, http://www.nhtsa.gov/portal/fueleconomy.jsp. On March 3, 
2010, EPA published a Notice of Availability of the FEIS in the Federal 
Register. See 75 FR 9596.
    The FEIS analyzes and discloses the potential environmental impacts 
of the proposed MYs 2012-2016 CAFE standards for the total fleet of 
passenger cars and light trucks and reasonable alternative standards 
for the NHTSA CAFE Program pursuant to the National Environmental 
Policy Act (NEPA), the Council on Environmental Quality (CEQ) 
regulations implementing NEPA, DOT Order 5610.1C, and NHTSA 
regulations.\782\ The FEIS compared the potential environmental impacts 
of alternative mile per gallon (mpg) levels considered by NHTSA for the 
final rule. It also analyzed direct, indirect, and cumulative impacts 
and analyzes impacts in proportion to their significance. See the FEIS 
and the FEIS Summary for a discussion of the environmental impacts 
analyzed. Docket Nos. NHTSA-2009-0059-0140, NHTSA-2009-0059-0141.
---------------------------------------------------------------------------

    \782\ NEPA is codified at 42 U.S.C. 4321-4347. CEQ NEPA 
implementing regulations are codified at 40 Code of Federal 
Regulations (CFR) Parts 1500-1508. NHTSA NEPA implementing 
regulations are codified at 49 CFR part 520.
---------------------------------------------------------------------------

    The MYs 2012-2016 CAFE standards adopted in this final rule have 
been informed by analyses contained in the Final Environmental Impact 
Statement, Corporate Average Fuel Economy Standards, Passenger Cars and 
Light Trucks, Model Years 2012-2016, Docket No. NHTSA-2009-0059 (FEIS). 
For purposes of this rulemaking, the agency referred to an extensive 
compilation of technical and policy documents available in NHTSA's EIS/
Rulemaking docket and EPA's docket. NHTSA's EIS and rulemaking docket 
and EPA's rulemaking docket can be found on the Web at http://
www.regulations.gov, Reference Docket Nos.: NHTSA-2009-0059 (EIS and 
Rulemaking) and EPA-HQ-OAR-2009-0472 (EPA Rulemaking).
    Based on the foregoing, the agency concludes that the environmental 
analysis and public involvement process complies with NEPA implementing 
regulations issued by CEQ, DOT Order 5610.1C, and NHTSA 
regulations.\783\
---------------------------------------------------------------------------

    \783\ NEPA is codified at 42 U.S.C. 4321-4347. CEQ's NEPA 
implementing regulations are codified at 40 CFR parts 1500-1508, and 
NHTSA's NEPA implementing regulations are codified at 49 CFR part 
520.
---------------------------------------------------------------------------

3. Clean Air Act (CAA)
    The CAA (42 U.S.C. 7401) is the primary Federal legislation that 
addresses air quality. Under the authority of the CAA and subsequent 
amendments, the EPA has established National Ambient Air Quality 
Standards (NAAQS) for six criteria pollutants, which are relatively 
commonplace pollutants that can accumulate in the atmosphere as a 
result of normal levels of human activity. The EPA is required to 
review the NAAQS every five years and to change the levels of the 
standards

[[Page 25673]]

if warranted by new scientific information.
    The air quality of a geographic region is usually assessed by 
comparing the levels of criteria air pollutants found in the atmosphere 
to the levels established by the NAAQS. Concentrations of criteria 
pollutants within the air mass of a region are measured in parts of a 
pollutant per million parts of air (ppm) or in micrograms of a 
pollutant per cubic meter ([mu]g/m3) of air present in 
repeated air samples taken at designated monitoring locations. These 
ambient concentrations of each criteria pollutant are compared to the 
permissible levels specified by the NAAQS in order to assess whether 
the region's air quality is potentially unhealthful.
    When the measured concentrations of a criteria pollutant within a 
geographic region are below those permitted by the NAAQS, the region is 
designated by the EPA as an attainment area for that pollutant, while 
regions where concentrations of criteria pollutants exceed Federal 
standards are called nonattainment areas (NAAs). Former NAAs that have 
attained the NAAQS are designated as maintenance areas. Each NAA is 
required to develop and implement a State Implementation Plan (SIP), 
which documents how the region will reach attainment levels within time 
periods specified in the CAA. In maintenance areas, the SIP documents 
how the State intends to maintain compliance with the NAAQS. When EPA 
changes a NAAQS, States must revise their SIPs to address how they will 
attain the new standard.
    Section 176(c) of the CAA prohibits Federal agencies from taking 
actions in nonattainment or maintenance areas that do not ``conform'' 
to the State Implementation Plan (SIP). The purpose of this conformity 
requirement is to ensure that Federal activities do not interfere with 
meeting the emissions targets in the SIPs, do not cause or contribute 
to new violations of the NAAQS, and do not impede the ability to attain 
or maintain the NAAQS. The EPA has issued two sets of regulations to 
implement CAA Section 176(c):
     The Transportation Conformity Rules (40 CFR part 51 
subpart T), which apply to transportation plans, programs, and projects 
funded under title 23 United States Code (U.S.C.) or the Federal 
Transit Act. Highway and transit infrastructure projects funded by FHWA 
or the Federal Transit Administration (FTA) usually are subject to 
transportation conformity.
     The General Conformity Rules (40 CFR part 51 subpart W) 
apply to all other Federal actions not covered under transportation 
conformity. The General Conformity Rules established emissions 
thresholds, or de minimis levels, for use in evaluating the conformity 
of a project. If the net emission increases due to the project are less 
than these thresholds, then the project is presumed to conform and no 
further conformity evaluation is required. If the emission increases 
exceed any of these thresholds, then a conformity determination is 
required. The conformity determination may entail air quality modeling 
studies, consultation with EPA and State air quality agencies, and 
commitments to revise the SIP or to implement measures to mitigate air 
quality impacts.
    The CAFE standards and associated program activities are not funded 
under title 23 U.S.C. or the Federal Transit Act. Further, CAFE 
standards are established by NHTSA and are not an action undertaken by 
FHWA or FTA. Accordingly, the CAFE standards are not subject to 
transportation conformity.
    The General Conformity Rules contain several exemptions applicable 
to ``Federal actions,'' which the conformity regulations define as: 
``any activity engaged in by a department, agency, or instrumentality 
of the Federal Government, or any activity that a department, agency or 
instrumentality of the Federal Government supports in any way, provides 
financial assistance for, licenses, permits, or approves, other than 
activities [subject to transportation conformity].'' 40 CFR 51.852. 
``Rulemaking and policy development and issuance'' are exempted at 40 
CFR 51.853(c)(2)(iii). Since NHTSA's CAFE standards involve a 
rulemaking process, its action is exempt from general conformity. Also, 
emissions for which a Federal agency does not have a ``continuing 
program responsibility'' are not considered ``indirect emissions'' 
subject to general conformity under 40 CFR 51.852. ``Emissions that a 
Federal agency has a continuing program responsibility for means 
emissions that are specifically caused by an agency carrying out its 
authorities, and does not include emissions that occur due to 
subsequent activities, unless such activities are required by the 
Federal agency.'' 40 CFR 51.852. Emissions that occur as a result of 
the final CAFE standards are not caused by NHTSA carrying out its 
statutory authorities and clearly occur due to subsequent activities, 
including vehicle manufacturers' production of passenger car and light 
truck fleets and consumer purchases and driving behavior. Thus, changes 
in any emissions that result from NHTSA's final CAFE standards are not 
those for which the agency has a ``continuing program responsibility'' 
and NHTSA is confident that a general conformity determination is not 
required. NHTSA has evaluated the potential impacts of air emissions 
under NEPA.
4. National Historic Preservation Act (NHPA)
    The NHPA (16 U.S.C. 470) sets forth government policy and 
procedures regarding ``historic properties''--that is, districts, 
sites, buildings, structures, and objects included in or eligible for 
the National Register of Historic Places (NRHP). See also 36 CFR part 
800. Section 106 of the NHPA requires Federal agencies to ``take into 
account'' the effects of their actions on historic properties. The 
agency concludes that the NHPA is not applicable to NHTSA's Decision, 
because it does not directly involve historic properties. The agency 
has, however, conducted a qualitative review of the related direct, 
indirect, and cumulative impacts, positive or negative, of the 
alternatives on potentially affected resources, including historic and 
cultural resources. See Sections 3.5 and 4.5 of the FEIS.
5. Executive Order 12898 (Environmental Justice)
    Under Executive Order 12898, Federal agencies are required to 
identify and address any disproportionately high and adverse human 
health or environmental effects of its programs, policies, and 
activities on minority populations and low-income populations. NHTSA 
complied with this order by identifying and addressing the potential 
effects of the alternatives on minority and low-income populations in 
Sections 3.5 and 4.5 of the FEIS, where the agency set forth a 
qualitative analysis of the cumulative effects of the alternatives on 
these populations.
6. Fish and Wildlife Conservation Act (FWCA)
    The FWCA (16 U.S.C. 2900) provides financial and technical 
assistance to States for the development, revision, and implementation 
of conservation plans and programs for nongame fish and wildlife. In 
addition, the Act encourages all Federal agencies and departments to 
utilize their authority to conserve and to promote conservation of 
nongame fish and wildlife and their habitats. The agency concludes that 
the FWCA is not applicable to NHTSA's Decision, because it does not 
directly involve fish and wildlife.
7. Coastal Zone Management Act (CZMA)
    The Coastal Zone Management Act (16 U.S.C. 1450) provides for the

[[Page 25674]]

preservation, protection, development, and (where possible) restoration 
and enhancement of the nation's coastal zone resources. Under the 
statute, States are provided with funds and technical assistance in 
developing coastal zone management programs. Each participating State 
must submit its program to the Secretary of Commerce for approval. Once 
the program has been approved, any activity of a Federal agency, either 
within or outside of the coastal zone, that affects any land or water 
use or natural resource of the coastal zone must be carried out in a 
manner that is consistent, to the maximum extent practicable, with the 
enforceable policies of the State's program.
    The agency concludes that the CZMA is not applicable to NHTSA's 
Decision, because it does not involve an activity within, or outside 
of, the nation's coastal zones. The agency has, however, conducted a 
qualitative review of the related direct, indirect, and cumulative 
impacts, positive or negative, of the alternatives on potentially 
affected resources, including coastal zones. See Sections 3.5 and 4.5 
of the FEIS.
8. Endangered Species Act (ESA)
    Under Section 7(a)(2) of the Endangered Species Act (ESA) Federal 
agencies must ensure that actions they authorize, fund, or carry out 
are ``not likely to jeopardize'' federally listed threatened or 
endangered species or result in the destruction or adverse modification 
of the designated critical habitat of these species. 16 U.S.C. 
1536(a)(2). If a Federal agency determines that an agency action may 
affect a listed species or designated critical habitat, it must 
initiate consultation with the appropriate Service--the U.S. Fish and 
Wildlife Service (FWS) of the Department of the Interior and/or 
National Oceanic and Atmospheric Administration's National Marine 
Fisheries Service (NOAA Fisheries Service) of the Department of 
Commerce, depending on the species involved--in order to ensure that 
the action is not likely to jeopardize the species or destroy or 
adversely modify designated critical habitat. See 50 CFR 402.14. Under 
this standard, the Federal agency taking action evaluates the possible 
effects of its action and determines whether to initiate consultation. 
See 51 FR 19926, 19949 (Jun. 3, 1986).
    NHTSA has reviewed applicable ESA regulations, case law, guidance, 
and rulings in assessing the potential for impacts to threatened and 
endangered species from the proposed CAFE standards. NHTSA believes 
that the agency's action of setting CAFE standards, which will result 
in nationwide fuel savings and, consequently, emissions reductions from 
what would otherwise occur in the absence of the agency's CAFE 
standards, does not require consultation with NOAA Fisheries Service or 
the FWS under section 7(a)(2) of the ESA. For additional discussion of 
the agency's rationale, see Appendix G of the FEIS. Accordingly, NHTSA 
has concluded its review of this action under Section 7 of the ESA.
    NHTSA has worked with EPA to assess ESA requirements and develop 
the agencies' responses to comments addressing this issue. NHTSA notes 
that EPA has reached the same conclusion as NHTSA, and has determined 
that ESA consultation is not required for its action taken today 
pursuant to the Clean Air Act. EPA's determination with regard to ESA 
is set forth in its response to comments regarding ESA requirements, 
and can be found in EPA's Response to Comments document, which EPA will 
place in the EPA docket for this rulemaking (OAR-2009-0472), and on the 
EPA Web site. As set forth therein, EPA adopts the reasoning of NHTSA's 
response in Appendix G of the FEIS as applied to EPA's rulemaking 
action.
9. Floodplain Management (Executive Order 11988 & DOT Order 5650.2)
    These Orders require Federal agencies to avoid the long- and short-
term adverse impacts associated with the occupancy and modification of 
floodplains, and to restore and preserve the natural and beneficial 
values served by floodplains. Executive Order 11988 also directs 
agencies to minimize the impact of floods on human safety, health and 
welfare, and to restore and preserve the natural and beneficial values 
served by floodplains through evaluating the potential effects of any 
actions the agency may take in a floodplain and ensuring that its 
program planning and budget requests reflect consideration of flood 
hazards and floodplain management. DOT Order 5650.2 sets forth DOT 
policies and procedures for implementing Executive Order 11988. The DOT 
Order requires that the agency determine if a proposed action is within 
the limits of a base floodplain, meaning it is encroaching on the 
floodplain, and whether this encroachment is significant. If 
significant, the agency is required to conduct further analysis of the 
proposed action and any practicable alternatives. If a practicable 
alternative avoids floodplain encroachment, then the agency is required 
to implement it.
    In this rulemaking, the agency is not occupying, modifying and/or 
encroaching on floodplains. The agency, therefore, concludes that the 
Orders are not applicable to NHTSA's Decision. The agency has, however, 
conducted a review of the alternatives on potentially affected 
resources, including floodplains. See Section 4.5 of the FEIS.
10. Preservation of the Nation's Wetlands (Executive Order 11990 & DOT 
Order 5660.1a)
    These Orders require Federal agencies to avoid, to the extent 
possible, undertaking or providing assistance for new construction 
located in wetlands unless the agency head finds that there is no 
practicable alternative to such construction and that the proposed 
action includes all practicable measures to minimize harms to wetlands 
that may result from such use. Executive Order 11990 also directs 
agencies to take action to minimize the destruction, loss or 
degradation of wetlands in ``conducting Federal activities and programs 
affecting land use, including but not limited to water and related land 
resources planning, regulating, and licensing activities.'' DOT Order 
5660.1a sets forth DOT policy for interpreting Executive Order 11990 
and requires that transportation projects ``located in or having an 
impact on wetlands'' should be conducted to assure protection of the 
Nation's wetlands. If a project does have a significant impact on 
wetlands, an EIS must be prepared.
    The agency is not undertaking or providing assistance for new 
construction located in wetlands. The agency, therefore, concludes that 
these Orders do not apply to NHTSA's Decision. The agency has, however, 
conducted a review of the alternatives on potentially affected 
resources, including wetlands. See Section 4.5 of the FEIS.
11. Migratory Bird Treaty Act (MBTA), Bald and Golden Eagle Protection 
Act (BGEPA), Executive Order 13186
    The MBTA provides for the protection of migratory birds that are 
native to the United States by making it illegal for anyone to pursue, 
hunt, take, attempt to take, kill, capture, collect, possess, buy, 
sell, trade, ship, import, or export any migratory bird covered under 
the statute. The statute prohibits both intentional and unintentional 
acts. Therefore, the statute is violated if an agency acts in a manner 
that harms a migratory bird, whether it was intended or not. See, e.g., 
United States v. FMC Corp., 572 F.2d 902 (2nd Cir. 1978).
    The BGEPA (16 U.S.C. 668) prohibits any form of possession or 
taking of both

[[Page 25675]]

bald and golden eagles. Under the BGEPA, violators are subject to 
criminal and civil sanctions as well as an enhanced penalty provision 
for subsequent offenses.
    Executive Order 13186, ``Responsibilities of Federal Agencies to 
Protect Migratory Birds,'' helps to further the purposes of the MBTA by 
requiring a Federal agency to develop a Memorandum of Understanding 
(MOU) with the Fish and Wildlife Service when it is taking an action 
that has (or is likely to have) a measurable negative impact on 
migratory bird populations.
    The agency concludes that the MBTA, BGEPA, and Executive Order 
13186 do not apply to NHTSA's Decision, because there is no disturbance 
and/or take involved in NHTSA's Decision.
12. Department of Transportation Act (Section 4(f))
    Section 4(f) of the Department of Transportation Act of 1966 (49 
U.S.C. 303), as amended by Public Law Sec.  109-59, is designed to 
preserve publicly owned parklands, waterfowl and wildlife refuges, and 
significant historic sites. Specifically, Section 4(f) of the 
Department of Transportation Act provides that DOT agencies cannot 
approve a transportation program or project that requires the use of 
any publicly owned land from a significant public park, recreation 
area, or wildlife and waterfowl refuge, or any land from a significant 
historic site, unless a determination is made that:
     There is no feasible and prudent alternative to the use of 
land, and
     The program or project includes all possible planning to 
minimize harm to the property resulting from use, or
     A transportation use of Section 4(f) property results in a 
de minimis impact.
    The agency concludes that the Section 4(f) is not applicable to 
NHTSA's Decision because this rulemaking does not require the use of 
any publicly owned land. For a more detailed discussion, please see 
Section 3.5 of the FEIS.
13. Regulatory Flexibility Act
    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq., 
as amended by the Small Business Regulatory Enforcement Fairness Act 
(SBREFA) of 1996), whenever an agency is required to publish a notice 
of rulemaking for any proposed or final rule, it must prepare and make 
available for public comment a regulatory flexibility analysis that 
describes the effect of the rule on small entities (i.e., small 
businesses, small organizations, and small governmental jurisdictions). 
The Small Business Administration's regulations at 13 CFR part 121 
define a small business, in part, as a business entity ``which operates 
primarily within the United States.'' 13 CFR 121.105(a). No regulatory 
flexibility analysis is required if the head of an agency certifies the 
rule will not have a significant economic impact on a substantial 
number of small entities.
    I certify that this final rule will not have a significant economic 
impact on a substantial number of small entities. The following is 
NHTSA's statement providing the factual basis for the certification (5 
U.S.C. 605(b)).
    The final rule directly affects twenty-one large single stage motor 
vehicle manufacturers.\784\ According to current information, the final 
rule would also affect two small domestic single stage motor vehicle 
manufacturers, Saleen and Tesla.\785\ According to the Small Business 
Administration's small business size standards (see 13 CFR 121.201), a 
single stage automobile or light truck manufacturer (NAICS code 336111, 
Automobile Manufacturing; 336112, Light Truck and Utility Vehicle 
Manufacturing) must have 1,000 or fewer employees to qualify as a small 
business. Both Saleen and Tesla have less than 1,000 employees and make 
less than 1,000 vehicles per year. We believe that the rulemaking would 
not have a significant economic impact on these small vehicle 
manufacturers because under part 525, passenger car manufacturers 
making less than 10,000 vehicles per year can petition NHTSA to have 
alternative standards set for those manufacturers. Tesla produces only 
electric vehicles with fuel economy values far above those finalized 
today, so we would not expect them to need to petition for relief. 
Saleen modifies a very small number of vehicles produced by one of the 
21 large single-stage manufacturers, and currently does not meet the 
27.5 mpg passenger car standard, nor is it anticipated to be able to 
meet the standards proposed today. However, Saleen already petitions 
the agency for relief. If the standard is raised, it has no meaningful 
impact on Saleen, because it must still go through the same process to 
petition for relief. Ferrari commented that NHTSA will not necessarily 
always grant the petitions of small vehicle manufacturers for 
alternative standards, and that therefore the relief is not 
guaranteed.\786\ In response, NHTSA notes that the fact that the agency 
may not grant a petition for an alternative standard for one 
manufacturer at one time does not mean that the mechanism for handling 
small businesses is unavailable for all. Thus, given that there already 
is a mechanism for handling small businesses, which is the purpose of 
the Regulatory Flexibility Act, a regulatory flexibility analysis was 
not prepared.
---------------------------------------------------------------------------

    \784\ BMW, Daimler (Mercedes), Chrysler, Ferrari, Ford, Subaru, 
General Motors, Honda, Hyundai, Kia, Lotus, Maserati, Mazda, 
Mitsubishi, Nissan, Porsche, Subaru, Suzuki, Tata, Toyota, and 
Volkswagen.
    \785\ The Regulatory Flexibility Act only requires analysis of 
small domestic manufacturers. There are two passenger car 
manufacturers that we know of, Saleen and Tesla, and no light truck 
manufacturers.
    \786\ We note that Ferrari would not currently qualify for such 
an alternative standard, because it does not manufacture fewer than 
10,000 passenger automobiles per year, as required by 49 U.S.C. 
32902(d) for exemption from the main passenger car CAFE standard.
---------------------------------------------------------------------------

14. Executive Order 13132 (Federalism)
    Executive Order 13132 requires NHTSA to develop an accountable 
process to ensure ``meaningful and timely input by State and local 
officials in the development of regulatory policies that have 
federalism implications.'' The Order defines the term ``Policies that 
have federalism implications'' to include regulations that have 
``substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government.'' Under 
the Order, NHTSA may not issue a regulation that has federalism 
implications, that imposes substantial direct compliance costs, and 
that is not required by statute, unless the Federal government provides 
the funds necessary to pay the direct compliance costs incurred by 
State and local governments, or NHTSA consults with State and local 
officials early in the process of developing the proposed regulation. 
Several state agencies provided comments to the proposed standards.
    Additionally, in his January 26 memorandum, the President requested 
NHTSA to ``consider whether any provisions regarding preemption are 
consistent with the EISA, the Supreme Court's decision in Massachusetts 
v. EPA and other relevant provisions of law and the policies underlying 
them.'' NHTSA is deferring consideration of the preemption issue. The 
agency believes that it is unnecessary to address the issue further at 
this time because of the consistent and coordinated Federal standards 
that will apply nationally under the National Program.

[[Page 25676]]

15. Executive Order 12988 (Civil Justice Reform)
    Pursuant to Executive Order 12988, ``Civil Justice Reform,'' \787\ 
NHTSA has considered whether this rulemaking would have any retroactive 
effect. This final rule does not have any retroactive effect.
---------------------------------------------------------------------------

    \787\ 61 FR 4729 (Feb. 7, 1996).
---------------------------------------------------------------------------

16. Unfunded Mandates Reform Act
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires Federal agencies to prepare a written assessment of the costs, 
benefits, and other effects of a proposed or final rule that includes a 
Federal mandate likely to result in the expenditure by State, local, or 
tribal governments, in the aggregate, or by the private sector, of more 
than $100 million in any one year (adjusted for inflation with base 
year of 1995). Adjusting this amount by the implicit gross domestic 
product price deflator for 2006 results in $126 million (116.043/92.106 
= 1.26). Before promulgating a rule for which a written statement is 
needed, section 205 of UMRA generally requires NHTSA to identify and 
consider a reasonable number of regulatory alternatives and adopt the 
least costly, most cost-effective, or least burdensome alternative that 
achieves the objectives of the rule. The provisions of section 205 do 
not apply when they are inconsistent with applicable law. Moreover, 
section 205 allows NHTSA to adopt an alternative other than the least 
costly, most cost-effective, or least burdensome alternative if the 
agency publishes with the final rule an explanation why that 
alternative was not adopted.
    This final rule will not result in the expenditure by State, local, 
or tribal governments, in the aggregate, of more than $126 million 
annually, but it will result in the expenditure of that magnitude by 
vehicle manufacturers and/or their suppliers. In promulgating this 
final rule, NHTSA considered a variety of alternative average fuel 
economy standards lower and higher than those proposed. NHTSA is 
statutorily required to set standards at the maximum feasible level 
achievable by manufacturers based on its consideration and balancing of 
relevant factors and has concluded that the final fuel economy 
standards are the maximum feasible standards for the passenger car and 
light truck fleets for MYs 2012-2016 in light of the statutory 
considerations.
17. Regulation Identifier Number
    The Department of Transportation assigns a regulation identifier 
number (RIN) to each regulatory action listed in the Unified Agenda of 
Federal Regulations. The Regulatory Information Service Center 
publishes the Unified Agenda in April and October of each year. You may 
use the RIN contained in the heading at the beginning of this document 
to find this action in the Unified Agenda.
18. Executive Order 13045
    Executive Order 13045\788\ applies to any rule that: (1) Is 
determined to be economically significant as defined under E.O. 12866, 
and (2) concerns an environmental, health, or safety risk that NHTSA 
has reason to believe may have a disproportionate effect on children. 
If the regulatory action meets both criteria, we must evaluate the 
environmental health or safety effects of the proposed rule on 
children, and explain why the proposed regulation is preferable to 
other potentially effective and reasonably foreseeable alternatives 
considered by us.
---------------------------------------------------------------------------

    \788\ 62 FR 19885 (Apr. 23, 1997).
---------------------------------------------------------------------------

    Chapter 4 of NHTSA's FEIS notes that breathing PM can cause 
respiratory ailments, heart attack, and arrhythmias (Dockery et al. 
1993, Samet et al. 2000, Pope et al. 1995, 2002, 2004, Pope and Dockery 
2006, Dominici et al. 2006, Laden et al. 2006, all in Ebi et al. 
2008).\789\ Populations at greatest risk could include children, the 
elderly, and those with heart and lung disease, diabetes (Ebi et al. 
2008), and high blood pressure (K[uuml]nzli et al. 2005, in Ebi et al. 
2008). Chronic exposure to PM could decrease lifespan by 1 to 3 years 
(Pope 2000, in American Lung Association 2008). Increasing PM 
concentrations are expected to have a measurable adverse impact on 
human health (Confalonieri et al. 2007).
---------------------------------------------------------------------------

    \789\ The references referred to in the remainder of this 
section are detailed in Section 7.4.5 of the FEIS.
---------------------------------------------------------------------------

    Additionally, the FEIS notes that substantial morbidity and 
childhood mortality has been linked to water- and food-borne diseases. 
Climate change is projected to alter temperature and the hydrologic 
cycle through changes in precipitation, evaporation, transpiration, and 
water storage. These changes, in turn, potentially affect water-borne 
and food-borne diseases, such as salmonellosis, campylobacter, 
leptospirosis, and pathogenic species of vibrio. They also have a 
direct impact on surface water availability and water quality. 
Increased temperatures, greater evaporation, and heavy rain events have 
been associated with adverse impacts on drinking water through 
increased waterborne diseases, algal blooms, and toxins (Chorus and 
Bartram 1999, Levin et al. 2002, Johnson and Murphy 2004, all in 
Epstein et al. 2005). A seasonal signature has been associated with 
waterborne disease outbreaks (EPA 2009b). In the United States, 68 
percent of all waterborne diseases between 1948 and 1994 were observed 
after heavy rainfall events (Curriero et al. 2001a, in Epstein et al. 
2005).
    Climate change could further impact a pathogen by directly 
affecting its life cycle (Ebi et al. 2008). The global increase in the 
frequency, intensity, and duration of red tides could be linked to 
local impacts already associated with climate change (Harvell et al. 
1999, in Epstein et al. 2005); toxins associated with red tide directly 
affect the nervous system (Epstein et al. 2005).
    Many people do not report or seek medical attention for their 
ailments of water-borne or food-borne diseases; hence, the number of 
actual cases with these diseases is greater than clinical records 
demonstrate (Mead et al. 1999, in Ebi et al. 2008). Many of the 
gastrointestinal diseases associated with water-borne and food-borne 
diseases can be self-limiting; however, vulnerable populations include 
young children, those with a compromised immune system, and the 
elderly.
    Thus, as detailed in the FEIS, NHTSA has evaluated the 
environmental health and safety effects of agency's action on children.
19. National Technology Transfer and Advancement Act
    Section 12(d) of the National Technology Transfer and Advancement 
Act (NTTAA) requires NHTA to evaluate and use existing voluntary 
consensus standards in its regulatory activities unless doing so would 
be inconsistent with applicable law (e.g., the statutory provisions 
regarding NHTSA's vehicle safety authority) or otherwise impractical.
    Voluntary consensus standards are technical standards developed or 
adopted by voluntary consensus standards bodies. Technical standards 
are defined by the NTTAA as ``performance-base or design-specific 
technical specification and related management systems practices.'' 
They pertain to ``products and processes, such as size, strength, or 
technical performance of a product, process or material.''
    Examples of organizations generally regarded as voluntary consensus 
standards bodies include the American Society for Testing and Materials 
(ASTM), the Society of Automotive

[[Page 25677]]

Engineers (SAE), and the American National Standards Institute (ANSI). 
If NHTSA does not use available and potentially applicable voluntary 
consensus standards, we are required by the Act to provide Congress, 
through OMB, an explanation of the reasons for not using such 
standards.
    There are currently no voluntary consensus standards relevant to 
today's final CAFE standards.
20. Executive Order 13211
    Executive Order 13211\790\ applies to any rule that: (1) Is 
determined to be economically significant as defined under E.O. 12866, 
and is likely to have a significant adverse effect on the supply, 
distribution, or use of energy; or (2) that is designated by the 
Administrator of the Office of Information and Regulatory Affairs as a 
significant energy action. If the regulatory action meets either 
criterion, we must evaluate the adverse energy effects of the final 
rule and explain why the final regulation is preferable to other 
potentially effective and reasonably feasible alternatives considered 
by us.
---------------------------------------------------------------------------

    \790\ 66 FR 28355 (May 18, 2001).
---------------------------------------------------------------------------

    The final rule seeks to establish passenger car and light truck 
fuel economy standards that will reduce the consumption of petroleum 
and will not have any adverse energy effects. Accordingly, this final 
rulemaking action is not designated as a significant energy action.
21. Department of Energy Review
    In accordance with 49 U.S.C. 32902(j)(1), we submitted this final 
rule to the Department of Energy for review. That Department did not 
make any comments that we have not addressed.
22. Privacy Act
    Anyone is able to search the electronic form of all comments 
received into any of our dockets by the name of the individual 
submitting the comment (or signing the comment, if submitted on behalf 
of an organization, business, labor union, etc.). You may review DOT's 
complete Privacy Act statement in the Federal Register (65 FR 19477-78, 
April 11, 2000) or you may visit http://www.dot.gov/privacy.html.

List of Subjects

40 CFR Part 85

    Confidential business information, Imports, Labeling, Motor vehicle 
pollution, Reporting and recordkeeping requirements, Research, 
Warranties.

40 CFR Part 86

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

40 CFR Part 600

    Administrative practice and procedure, Electric power, Fuel 
economy, Incorporation by reference, Labeling, Reporting and 
recordkeeping requirements.

49 CFR Part 531 and 533

    Fuel economy.

49 CFR Part 536 and 537

    Fuel economy, Reporting and recordkeeping requirements.

49 CFR Part 538

    Administrative practice and procedure, Fuel economy, Motor 
vehicles, Reporting and recordkeeping requirements.

Environmental Protection Agency

40 CFR Chapter I

0
Accordingly, EPA amends 40 CFR Chapter I as follows:

PART 85--CONTROL OF AIR POLLUTION FROM MOBILE SOURCES

0
1. The authority citation for part 85 continues to read as follows:

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

Subpart T--[Amended]

0
2. Section 85.1902 is amended by revising paragraphs (b) and (d) to 
read as follows:

Sec.  85.1902  Definitions.

* * * * *
    (b) The phrase emission-related defect shall mean:
    (1) A defect in design, materials, or workmanship in a device, 
system, or assembly described in the approved Application for 
Certification (required by 40 CFR 86.1843-01 and 86.1844-01, and by 40 
CFR 86.001-22 and similar provisions of 40 CFR part 86) which affects 
any parameter or specification enumerated in appendix VIII of this 
part; or
    (2) A defect in the design, materials, or workmanship in one or 
more emissions control or emission-related parts, components, systems, 
software or elements of design which must function properly to assure 
continued compliance with vehicle emission requirements, including 
compliance with CO2, CH4, N2O, and 
carbon-related exhaust emission standards;
* * * * *
    (d) The phrase Voluntary Emissions Recall shall mean a repair, 
adjustment, or modification program voluntarily initiated and conducted 
by a manufacturer to remedy any emission-related defect for which 
direct notification of vehicle or engine owners has been provided, 
including programs to remedy defects related to emissions standards for 
CO2, CH4, N2O, and/or carbon-related 
exhaust emissions.
* * * * *

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

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

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

0
4. Section 86.1 is amended by adding paragraphs (b)(2)(xxxix) through 
(xl) to read as follows:

Sec.  86.1  Reference materials.

* * * * *
    (b) * * *
    (2) * * *
    (xxxix) SAE J2064, Revised December 2005, R134a Refrigerant 
Automotive Air-Conditioned Hose, IBR approved for Sec.  86.166-12.
    (xl) SAE J2765, October, 2008, Procedure for Measuring System COP 
[Coefficient of Performance] of a Mobile Air Conditioning System on a 
Test Bench, IBR approved for Sec.  86.1866-12.
* * * * *

Subpart B--[Amended]

0
5. Section 86.111-94 is amended by revising paragraph (b) introductory 
text to read as follows:

Sec.  86.111-94  Exhaust gas analytical system.

* * * * *
    (b) Major component description. The exhaust gas analytical system, 
Figure B94-7, consists of a flame ionization detector (FID) (heated, 
235 [deg]15 [deg]F (113 [deg]8 [deg]C) for 
methanol-fueled vehicles) for the determination of THC, a methane 
analyzer (consisting of a gas chromatograph combined with a FID) for 
the determination of CH4, non-dispersive infrared analyzers 
(NDIR) for the determination of CO and CO2, a 
chemiluminescence analyzer (CL) for the determination of 
NOX, and an analyzer meeting the requirements specified in 
40 CFR 1065.275 for the determination of N2O (required for 
2015 and later model year vehicles). A heated

[[Page 25678]]

flame ionization detector (HFID) is used for the continuous 
determination of THC from petroleum-fueled diesel-cycle vehicles (may 
also be used with methanol-fueled diesel-cycle vehicles), Figure B94-5 
(or B94-6). The analytical system for methanol consists of a gas 
chromatograph (GC) equipped with a flame ionization detector. The 
analysis for formaldehyde is performed using high-pressure liquid 
chromatography (HPLC) of 2,4-dinitrophenylhydrazine (DNPH) derivatives 
using ultraviolet (UV) detection. The exhaust gas analytical system 
shall conform to the following requirements:
* * * * *

0
6. Section 86.113-04 is amended by revising the entry for RVP in the 
table in paragraph (a)(1) to read as follows:

Sec.  86.113-04  Fuel specifications.

* * * * *
    (a) * * *
    (1) * * *

----------------------------------------------------------------------------------------------------------------
                            Item                                ASTM test method No.              Value
----------------------------------------------------------------------------------------------------------------

                                                  * * * * * * *
RVP 2, 3....................................................                    D 323       8.7-9.2 (60.0-63.4)

                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

* * * * *

0
7. A new Sec.  86.127-12 is added to read as follows:

Sec.  86.127-12  Test procedures; overview.

    Applicability. The procedures described in this subpart are used to 
determine the conformity of vehicles with the standards set forth in 
subpart A or S of this part (as applicable) for light-duty vehicles, 
light-duty trucks, and medium-duty passenger vehicles. Except where 
noted, the procedures of paragraphs (a) through (d) of this section, 
and the contents of Sec. Sec.  86.135-00, 86.136-90, 86.137-96, 86.140-
94, 86.142-90, and 86.144-94 are applicable for determining emission 
results for vehicle exhaust emission systems designed to comply with 
the FTP emission standards, or the FTP emission element required for 
determining compliance with composite SFTP standards. Paragraph (e) of 
this section discusses fuel spitback emissions. Paragraphs (f) and (g) 
of this section discuss the additional test elements of aggressive 
driving (US06) and air conditioning (SC03) that comprise the exhaust 
emission components of the SFTP. Paragraphs (h) and (i) of this section 
are applicable to all vehicle emission test procedures.
    (a) The overall test consists of prescribed sequences of fueling, 
parking, and operating test conditions. Vehicles are tested for any or 
all of the following emissions, depending upon the specific test 
requirements and the vehicle fuel type:
    (1) Gaseous exhaust THC, NMHC, NMOG, CO, NOX, 
CO2, N2O, CH4, CH3OH, 
C2H5OH, C2H4O, and HCHO.
    (2) Particulates.
    (3) Evaporative HC (for gasoline-fueled, methanol-fueled and 
gaseous-fueled vehicles) and CH3OH (for methanol-fueled 
vehicles). The evaporative testing portion of the procedure occurs 
after the exhaust emission test; however, exhaust emissions need not be 
sampled to complete a test for evaporative emissions.
    (4) Fuel spitback (this test is not required for gaseous-fueled 
vehicles).
    (b) The FTP Otto-cycle exhaust emission test is designed to 
determine gaseous THC, NMHC, NMOG, CO, CO2, CH4, 
NOX, N2O, and particulate mass emissions from 
gasoline-fueled, methanol-fueled and gaseous-fueled Otto-cycle vehicles 
as well as methanol and formaldehyde from methanol-fueled Otto-cycle 
vehicles, as well as methanol, ethanol, acetaldehyde, and formaldehyde 
from ethanol-fueled vehicles, while simulating an average trip in an 
urban area of approximately 11 miles (approximately 18 kilometers). The 
test consists of engine start-ups and vehicle operation on a chassis 
dynamometer through a specified driving schedule (see paragraph (a) of 
appendix I to this part for the Urban Dynamometer Driving Schedule). A 
proportional part of the diluted exhaust is collected continuously for 
subsequent analysis, using a constant volume (variable dilution) 
sampler or critical flow venturi sampler.
    (c) The diesel-cycle exhaust emission test is designed to determine 
particulate and gaseous mass emissions during the test described in 
paragraph (b) of this section. For petroleum-fueled diesel-cycle 
vehicles, diluted exhaust is continuously analyzed for THC using a 
heated sample line and analyzer; the other gaseous emissions 
(CH4, CO, CO2, N2O, and 
NOX) are collected continuously for analysis as in paragraph 
(b) of this section. For methanol- and ethanol-fueled vehicles, THC, 
methanol, formaldehyde, CO, CO2, CH4, 
N2O, and NOX are collected continuously for 
analysis as in paragraph (b) of this section. Additionally, for 
ethanol-fueled vehicles, ethanol and acetaldehyde are collected 
continuously for analysis as in paragraph (b) of this section. THC, 
methanol, ethanol, acetaldehyde, and formaldehyde are collected using 
heated sample lines, and a heated FID is used for THC analyses. 
Simultaneous with the gaseous exhaust collection and analysis, 
particulates from a proportional part of the diluted exhaust are 
collected continuously on a filter. The mass of particulate is 
determined by the procedure described in Sec.  86.139. This testing 
requires a dilution tunnel as well as the constant volume sampler.
    (d) The evaporative emission test (gasoline-fueled vehicles, 
methanol-fueled and gaseous-fueled vehicles) is designed to determine 
hydrocarbon and methanol evaporative emissions as a consequence of 
diurnal temperature fluctuation, urban driving and hot soaks following 
drives. It is associated with a series of events that a vehicle may 
experience and that may result in hydrocarbon and/or methanol vapor 
losses. The test procedure is designed to measure:
    (1) Diurnal emissions resulting from daily temperature changes (as 
well as relatively constant resting losses), measured by the enclosure 
technique (see Sec.  86.133-96);
    (2) Running losses resulting from a simulated trip performed on a 
chassis dynamometer, measured by the enclosure or point-source 
technique (see Sec.  86.134-96; this test is not required for gaseous-
fueled vehicles); and
    (3) Hot soak emissions, which result when the vehicle is parked and 
the hot engine is turned off, measured by the enclosure technique (see 
Sec.  86.138-96).
    (e) Fuel spitback emissions occur when a vehicle's fuel fill neck 
cannot

[[Page 25679]]

accommodate dispensing rates. The vehicle test for spitback consists of 
a short drive followed immediately by a complete refueling event. This 
test is not required for gaseous-fueled vehicles.
    (f) The element of the SFTP for exhaust emissions related to 
aggressive driving (US06) is designed to determine gaseous THC, NMHC, 
CO, CO2, CH4, and NOX emissions from 
gasoline-fueled or diesel-fueled vehicles (see Sec.  86.158-08 
Supplemental test procedures; overview, and Sec.  86.159-08 Exhaust 
emission test procedures for US06 emissions). The test cycle simulates 
urban driving speeds and accelerations that are not represented by the 
FTP Urban Dynamometer Driving Schedule simulated trips discussed in 
paragraph (b) of this section. The test consists of vehicle operation 
on a chassis dynamometer through a specified driving cycle (see 
paragraph (g), US06 Dynamometer Driving Schedule, of appendix I to this 
part). A proportional part of the diluted exhaust is collected 
continuously for subsequent analysis, using a constant volume (variable 
dilution) sampler or critical flow venturi sampler.
    (g)(1) The element of the SFTP related to the increased exhaust 
emissions caused by air conditioning operation (SC03) is designed to 
determine gaseous THC, NMHC, CO, CO2, CH4, and 
NOX emissions from gasoline-fueled or diesel fueled vehicles 
related to air conditioning use (see Sec.  86.158-08 Supplemental 
Federal test procedures; overview and Sec.  86.160-00 Exhaust emission 
test procedure for SC03 emissions). The test cycle simulates urban 
driving behavior with the air conditioner operating. The test consists 
of engine startups and vehicle operation on a chassis dynamometer 
through specified driving cycles (see paragraph (h), SC03 Dynamometer 
Driving Schedule, of appendix I to this part). A proportional part of 
the diluted exhaust is collected continuously for subsequent analysis, 
using a constant volume (variable dilution) sampler or critical flow 
venturi sampler. The testing sequence includes an approved 
preconditioning cycle, a 10 minute soak with the engine turned off, and 
the SC03 cycle with measured exhaust emissions.
    (2) The SC03 air conditioning test is conducted with the air 
conditioner operating at specified settings and the ambient test 
conditions of:
    (i) Air temperature of 95 [deg]F;
    (ii) 100 grains of water/pound of dry air (approximately 40 percent 
relative humidity);
    (iii) Simulated solar heat intensity of 850 W/m\2\ (see Sec.  
86.161-00(d)); and
    (iv) Air flow directed at the vehicle that will provide 
representative air conditioner system condenser cooling at all vehicle 
speeds (see Sec.  86.161-00(e)).
    (3) Manufacturers have the option of simulating air conditioning 
operation during testing at other ambient test conditions provided they 
can demonstrate that the vehicle tail pipe exhaust emissions are 
representative of the emissions that would result from the SC03 cycle 
test procedure and the ambient conditions of paragraph (g)(2) of this 
section. The simulation test procedure must be approved in advance by 
the Administrator (see Sec. Sec.  86.162-03 and 86.163-00).
    (h) Except in cases of component malfunction or failure, all 
emission control systems installed on or incorporated in a new motor 
vehicle shall be functioning during all procedures in this subpart. 
Maintenance to correct component malfunction or failure shall be 
authorized in accordance with Sec.  86.007-25 or Sec.  86.1834-01 as 
applicable.
    (i) Background concentrations are measured for all species for 
which emissions measurements are made. For exhaust testing, this 
requires sampling and analysis of the dilution air. For evaporative 
testing, this requires measuring initial concentrations. (When testing 
methanol-fueled vehicles, manufacturers may choose not to measure 
background concentrations of methanol and/or formaldehyde, and then 
assume that the concentrations are zero during calculations.)

0
8. A new Sec.  86.135-12 is added to read as follows:

Sec.  86.135-12  Dynamometer procedure.

    (a) Overview. The dynamometer run consists of two tests, a ``cold'' 
start test, after a minimum 12-hour and a maximum 36-hour soak 
according to the provisions of Sec. Sec.  86.132 and 86.133, and a 
``hot'' start test following the ``cold'' start by 10 minutes. Engine 
startup (with all accessories turned off), operation over the UDDS, and 
engine shutdown make a complete cold start test. Engine startup and 
operation over the first 505 seconds of the driving schedule complete 
the hot start test. The exhaust emissions are diluted with ambient air 
in the dilution tunnel as shown in Figure B94-5 and Figure B94-6. A 
dilution tunnel is not required for testing vehicles waived from the 
requirement to measure particulates. Six particulate samples are 
collected on filters for weighing; the first sample plus backup is 
collected during the first 505 seconds of the cold start test; the 
second sample plus backup is collected during the remainder of the cold 
start test (including shutdown); the third sample plus backup is 
collected during the hot start test. Continuous proportional samples of 
gaseous emissions are collected for analysis during each test phase. 
For gasoline-fueled, natural gas-fueled and liquefied petroleum gas-
fueled Otto-cycle vehicles, the composite samples collected in bags are 
analyzed for THC, CO, CO2, CH4, NOX, 
and, for 2015 and later model year vehicles, N2O. For 
petroleum-fueled diesel-cycle vehicles (optional for natural gas-
fueled, liquefied petroleum gas-fueled and methanol-fueled diesel-cycle 
vehicles), THC is sampled and analyzed continuously according to the 
provisions of Sec.  86.110-94. Parallel samples of the dilution air are 
similarly analyzed for THC, CO, CO2, CH4, 
NOX, and, for 2015 and later model year vehicles, 
N2O. For natural gas-fueled, liquefied petroleum gas-fueled 
and methanol-fueled vehicles, bag samples are collected and analyzed 
for THC (if not sampled continuously), CO, CO2, 
CH4, NOX, and, for 2015 and later model year 
vehicles, N2O. For methanol-fueled vehicles, methanol and 
formaldehyde samples are taken for both exhaust emissions and dilution 
air (a single dilution air formaldehyde sample, covering the total test 
period may be collected). For ethanol-fueled vehicles, methanol, 
ethanol, acetaldehyde, and formaldehyde samples are taken for both 
exhaust emissions and dilution air (a single dilution air formaldehyde 
sample, covering the total test period may be collected). Parallel bag 
samples of dilution air are analyzed for THC, CO, CO2, 
CH4, NOX, and, for 2015 and later model year 
vehicles, N2O.
    (b) During dynamometer operation, a fixed speed cooling fan shall 
be positioned so as to direct cooling air to the vehicle in an 
appropriate manner with the engine compartment cover open. In the case 
of vehicles with front engine compartments, the fan shall be squarely 
positioned within 12 inches (30.5 centimeters) of the vehicle. In the 
case of vehicles with rear engine compartments (or if special designs 
make the above impractical), the cooling fan shall be placed in a 
position to provide sufficient air to maintain vehicle cooling. The fan 
capacity shall normally not exceed 5300 cfm (2.50 m\3\/sec). However, 
if the manufacturer can show that during field operation the vehicle 
receives additional cooling, and that such additional cooling is needed 
to provide a representative test, the fan capacity may be increased, 
additional fans used, variable speed fan(s) may be used, and/or the 
engine compartment

[[Page 25680]]

cover may be closed, if approved in advance by the Administrator. For 
example, the hood may be closed to provide adequate air flow to an 
intercooler through a factory installed hood scoop. Additionally, the 
Administrator may conduct certification, fuel economy and in-use 
testing using the additional cooling set-up approved for a specific 
vehicle.
    (c) The vehicle speed as measured from the dynamometer rolls shall 
be used. A speed vs. time recording, as evidence of dynamometer test 
validity, shall be supplied on request of the Administrator.
    (d) Practice runs over the prescribed driving schedule may be 
performed at test point, provided an emission sample is not taken, for 
the purpose of finding the minimum throttle action to maintain the 
proper speed-time relationship, or to permit sampling system 
adjustment. Note: When using two-roll dynamometers a truer speed-time 
trace may be obtained by minimizing the rocking of the vehicle in the 
rolls; the rocking of the vehicle changes the tire rolling radius on 
each roll. This rocking may be minimized by restraining the vehicle 
horizontally (or nearly so) by using a cable and winch.
    (e) The drive wheel tires may be inflated up to a gauge pressure of 
45 psi (310 kPa) in order to prevent tire damage. The drive wheel tire 
pressure shall be reported with the test results.
    (f) If the dynamometer has not been operated during the 2-hour 
period immediately preceding the test, it shall be warmed up for 15 
minutes by operating at 30 mph (48 kph) using a non-test vehicle or as 
recommended by the dynamometer manufacturer.
    (g) If the dynamometer horsepower must be adjusted manually, it 
shall be set within 1 hour prior to the exhaust emissions test phase. 
The test vehicle shall not be used to make this adjustment. 
Dynamometers using automatic control of pre-selectable power settings 
may be set anytime prior to the beginning of the emissions test.
    (h) The driving distance, as measured by counting the number of 
dynamometer roll or shaft revolutions, shall be determined for the 
transient cold start, stabilized cold start, and transient hot start 
phases of the test. The revolutions shall be measured on the same roll 
or shaft used for measuring the vehicle's speed.
    (i) Four-wheel drive and all-wheel drive vehicles may be tested 
either in a four-wheel drive or a two-wheel drive mode of operation. In 
order to test in the two-wheel drive mode, four-wheel drive and all-
wheel drive vehicles may have one set of drive wheels disengaged; four-
wheel and all-wheel drive vehicles which can be shifted to a two-wheel 
mode by the driver may be tested in a two-wheel drive mode of 
operation.

0
9. A new Sec.  86.165-12 is added to subpart B to read as follows:

Sec.  86.165-12  Air conditioning idle test procedure.

    (a) Applicability. This section describes procedures for 
determining air conditioning-related CO2 emissions from 
light-duty vehicles, light-duty trucks, and medium-duty passenger 
vehicles. The results of this test are used to qualify for air 
conditioning efficiency CO2 credits according to Sec.  
86.1866-12(c).
    (b) Overview. The test consists of a brief period to stabilize the 
vehicle at idle, followed by a ten-minute period at idle when 
CO2 emissions are measured without any air conditioning 
systems operating, followed by a ten-minute period at idle when 
CO2 emissions are measured with the air conditioning system 
operating. This test is designed to determine the air conditioning-
related CO2 emission value, in grams per minute. If engine 
stalling occurs during cycle operation, follow the provisions of Sec.  
86.136-90 to restart the test. Measurement instruments must meet the 
specifications described in this subpart.
    (c) Test cell ambient conditions.
    (1) Ambient humidity within the test cell during all phases of the 
test sequence shall be controlled to an average of 50  5 
grains of water/pound of dry air.
    (2) Ambient air temperature within the test cell during all phases 
of the test sequence shall be controlled to 75  2 [deg]F on 
average and 75  5 [deg]F as an instantaneous measurement. 
Air temperature shall be recorded continuously at a minimum of 30 
second intervals.
    (d) Test sequence.
    (1) Connect the vehicle exhaust system to the raw sampling location 
or dilution stage according to the provisions of this subpart. For 
dilution systems, dilute the exhaust as described in this subpart. 
Continuous sampling systems must meet the specifications provided in 
this subpart.
    (2) Test the vehicle in a fully warmed-up condition. If the vehicle 
has soaked for two hours or less since the last exhaust test element, 
preconditioning may consist of a 505 Cycle, 866 Cycle, US06, or SC03, 
as these terms are defined in Sec.  86.1803-01, or a highway fuel 
economy test procedure, as defined in Sec.  600.002-08 of this chapter. 
For soak periods longer than two hours, precondition the vehicle using 
one full Urban Dynamometer Driving Schedule. Ensure that the vehicle 
has stabilized at test cell ambient conditions such that the vehicle 
interior temperature is not substantially different from the external 
test cell temperature. Windows may be opened during preconditioning to 
achieve this stabilization.
    (3) Immediately after the preconditioning, turn off any cooling 
fans, if present, close the vehicle's hood, fully close all the 
vehicle's windows, ensure that all the vehicle's air conditioning 
systems are set to full off, start the CO2 sampling system, 
and then idle the vehicle for not less than 1 minute and not more than 
5 minutes to achieve normal and stable idle operation.
    (4) Measure and record the continuous CO2 concentration 
for 600 seconds. Measure the CO2 concentration continuously 
using raw or dilute sampling procedures. Multiply this concentration by 
the continuous (raw or dilute) flow rate at the emission sampling 
location to determine the CO2 flow rate. Calculate the 
CO2 cumulative flow rate continuously over the test 
interval. This cumulative value is the total mass of the emitted 
CO2.
    (5) Within 60 seconds after completing the measurement described in 
paragraph (d)(4) of this section, turn on the vehicle's air 
conditioning system. Set automatic air conditioning systems to a 
temperature 9 [deg]F (5 [deg]C) below the ambient temperature of the 
test cell. Set manual air conditioning systems to maximum cooling with 
recirculation turned off, except that recirculation shall be enabled if 
the air conditioning system automatically defaults to a recirculation 
mode when set to maximum cooling. Continue idling the vehicle while 
measuring and recording the continuous CO2 concentration for 
600 seconds as described in paragraph (d)(4) of this section. Air 
conditioning systems with automatic temperature controls are finished 
with the test after this 600 second idle period. Manually controlled 
air conditioning systems must complete one additional idle period as 
described in paragraph (d)(6) of this section.
    (6) This paragraph (d)(6) applies only to manually controlled air 
conditioning systems. Within 60 seconds after completing the 
measurement described in paragraph (d)(5) of this section, leave the 
vehicle's air conditioning system on and set as described in paragraph 
(d)(5) of this section but set the fan speed to the lowest setting that 
continues to provide air flow. Recirculation shall be turned off except 
that if the system defaults to a recirculation mode when set to maximum 
cooling and maintains

[[Page 25681]]

recirculation with the low fan speed, then recirculation shall continue 
to be enabled. After the fan speed has been set, continue idling the 
vehicle while measuring and recording the continuous CO2 
concentration for a total of 600 seconds as described in paragraph 
(d)(4) of this section.
    (e) Calculations. (1) For the measurement with no air conditioning 
operation, calculate the CO2 emissions (in grams per minute) 
by dividing the total mass of CO2 from paragraph (d)(4) of 
this section by 10.0 (the duration in minutes for which CO2 
is measured). Round this result to the nearest tenth of a gram per 
minute.
    (2)(i) For the measurement with air conditioning in operation for 
automatic air conditioning systems, calculate the CO2 
emissions (in grams per minute) by dividing the total mass of 
CO2 from paragraph (d)(5) of this section by 10.0. Round 
this result to the nearest tenth of a gram per minute.
    (ii) For the measurement with air conditioning in operation for 
manually controlled air conditioning systems, calculate the 
CO2 emissions (in grams per minute) by summing the total 
mass of CO2 from paragraphs (d)(5) and (d)(6) of this 
section and dividing by 20.0. Round this result to the nearest tenth of 
a gram per minute.
    (3) Calculate the increased CO2 emissions due to air 
conditioning (in grams per minute) by subtracting the results of 
paragraph (e)(1) of this section from the results of paragraph 
(e)(2)(i) or (ii) of this section, whichever is applicable.
    (f) The Administrator may prescribe procedures other than those in 
this section for air conditioning systems and/or vehicles that may not 
be susceptible to satisfactory testing by the procedures and methods in 
this section. For example, the Administrator may prescribe alternative 
air conditioning system settings for systems with controls that are not 
able to meet the requirements in this section.

0
10. A new Sec.  86.166-12 is added to subpart B to read as follows:

Sec.  86.166-12  Method for calculating emissions due to air 
conditioning leakage.

    This section describes procedures used to determine a refrigerant 
leakage rate in grams per year from vehicle-based air conditioning 
units. The results of this test are used to determine air conditioning 
leakage credits according to Sec.  86.1866-12(b).
    (a) Emission totals. Calculate an annual rate of refrigerant 
leakage from an air conditioning system using the following equation:

Grams/YRTOT = Grams/YRRP + Grams/YRSP 
+ Grams/YRFH + Grams/YRMC + Grams/YRC

Where:

Grams/YRTOT = Total air conditioning system emission rate 
in grams per year and rounded to the nearest tenth of a gram per 
year.
Grams/YRRP = Emission rate for rigid pipe connections as 
described in paragraph (b) of this section.
Grams/YRSP = Emission rate for service ports and 
refrigerant control devices as described in paragraph (c) of this 
section.
Grams/YRFH = Emission rate for flexible hoses as 
described in paragraph (d) of this section.
Grams/YRMC = Emission rate for heat exchangers, mufflers, 
receiver/driers, and accumulators as described in paragraph (e) of 
this section.
Grams/YRC = Emission rate for compressors as described in 
paragraph (f) of this section.

    (b) Rigid pipe connections. Determine the grams per year emission 
rate for rigid pipe connections using the following equation:

Grams/YRRP = 0.00522 x [(125 x SO) + (75 x SCO) + (50 x MO) 
+ (10 x SW) + (5 x SWO) + (MG)]

Where:

Grams/YRRP = Total emission rate for rigid pipe 
connections in grams per year.
SO = The number of single O-ring connections.
SCO = The number of single captured O-ring connections.
MO = The number of multiple O-ring connections.
SW = The number of seal washer connections.
SWO = The number of seal washer with O-ring connections.
MG = The number of metal gasket connections.

    (c) Service ports and refrigerant control devices. Determine the 
grams per year emission rate for service ports and refrigerant control 
devices using the following equation:

Grams/YRSP = 0.522 x [(0.3 x HSSP) + (0.2 x LSSP) + (0.2 x 
STV) + (0.2 x TXV)]

Where:

Grams/YRSP = The emission rate for service ports and 
refrigerant control devices, in grams per year.
HSSP = The number of high side service ports.
LSSP = The number of low side service ports.
STV = The total number of switches, transducers, and pressure relief 
valves.
TXV = The number of refrigerant control devices.

    (d) Flexible hoses. Determine the permeation emission rate in grams 
per year for each segment of flexible hose using the following 
equation, and then sum the values for all hoses in the system to 
calculate a total flexible hose emission rate for the system. Hose end 
connections shall be included in the calculations in paragraph (b) of 
this section.

Grams/YRFH = 0.00522 x (3.14159 x ID x L x ER)

Where:

Grams/YRFH = Emission rate for a segment of flexible hose 
in grams per year.
ID = Inner diameter of hose, in millimeters.
L = Length of hose, in millimeters.
ER = Emission rate per unit internal surface area of the hose, in g/
mm\2\. Select the appropriate value for ER from the following table:

------------------------------------------------------------------------
                                                   ER
    Material/configuration     -----------------------------------------
                                 High-pressure side   Low-pressure side
------------------------------------------------------------------------
All rubber hose...............              0.0216               0.0144
Standard barrier or veneer                  0.0054               0.0036
 hose.........................
Ultra-low permeation barrier                0.00225              0.00167
 or veneer hose...............
------------------------------------------------------------------------

     (e) Heat exchangers, mufflers, receiver/driers, and accumulators. 
Use an emission rate of 0.261 grams per year as a combined value for 
all heat exchangers, mufflers, receiver/driers, and accumulators 
(Grams/YRMC).
    (f) Compressors. Determine the emission rate for compressors using 
the following equation, except that the final term in the equation 
(``1500/SSL'') is not applicable to electric (or semi-hermetic) 
compressors:

Grams/YRC = 0.00522 x [(300 x OHS) + (200 x MHS) + (150 x 
FAP) + (100 x GHS) + (1500/SSL)]

Where:

Grams/YRC = The emission rate for the compressors in the 
air conditioning system, in grams per year.

[[Page 25682]]

OHS = The number of O-ring housing seals.
MHS = The number of molded housing seals.
FAP = The number of fitting adapter plates.
GHS = The number of gasket housing seals.
SSL = The number of lips on shaft seal (for belt-driven compressors 
only).

    (g) Definitions. The following definitions apply to this section:
    (1) All rubber hose means a Type A or Type B hose as defined by SAE 
J2064 with a permeation rate not greater than 15 kg/m\2\/year when 
tested according to SAE J2064. SAE J2064 is incorporated by reference; 
see Sec.  86.1.
    (2) Standard barrier or veneer hose means a Type C, D, E, or F hose 
as defined by SAE J2064 with a permeation rate not greater than 5 kg/
m\2\/year when tested according to SAE J2064. SAE J2064 is incorporated 
by reference; see Sec.  86.1.
    (3) Ultra-low permeation barrier or veneer hose means a hose with a 
permeation rate not greater than 1.5 kg/m\2\/year when tested according 
to SAE J2064. SAE J2064 is incorporated by reference; see Sec.  86.1.

Subpart S--[Amended]

0
11. A new Sec.  86.1801-12 is added to read as follows:

Sec.  86.1801-12  Applicability.

    (a) Applicability. Except as otherwise indicated, the provisions of 
this subpart apply to new light-duty vehicles, light-duty trucks, 
medium-duty passenger vehicles, and Otto-cycle complete heavy-duty 
vehicles, including multi-fueled, alternative fueled, hybrid electric, 
plug-in hybrid electric, and electric vehicles. These provisions also 
apply to new incomplete light-duty trucks below 8,500 Gross Vehicle 
Weight Rating. In cases where a provision applies only to a certain 
vehicle group based on its model year, vehicle class, motor fuel, 
engine type, or other distinguishing characteristics, the limited 
applicability is cited in the appropriate section of this subpart.
    (b) Aftermarket conversions. The provisions of this subpart apply 
to aftermarket conversion systems, aftermarket conversion installers, 
and aftermarket conversion certifiers, as those terms are defined in 40 
CFR 85.502, of all model year light-duty vehicles, light-duty trucks, 
medium-duty passenger vehicles, and complete Otto-cycle heavy-duty 
vehicles.
    (c) Optional applicability.
    (1) [Reserved]
    (2) A manufacturer may request to certify any incomplete Otto-cycle 
heavy-duty vehicle of 14,000 pounds Gross Vehicle Weight Rating or less 
in accordance with the provisions for complete heavy-duty vehicles. 
Heavy-duty engine or heavy-duty vehicle provisions of subpart A of this 
part do not apply to such a vehicle.
    (3) [Reserved]
    (4) Upon preapproval by the Administrator, a manufacturer may 
optionally certify an aftermarket conversion of a complete heavy-duty 
vehicle greater than 10,000 pounds Gross Vehicle Weight Rating and of 
14,000 pounds Gross Vehicle Weight Rating or less under the heavy-duty 
engine or heavy-duty vehicle provisions of subpart A of this part. Such 
preapproval will be granted only upon demonstration that chassis-based 
certification would be infeasible or unreasonable for the manufacturer 
to perform.
    (5) A manufacturer may optionally certify an aftermarket conversion 
of a complete heavy-duty vehicle greater than 10,000 pounds Gross 
Vehicle Weight Rating and of 14,000 pounds Gross Vehicle Weight Rating 
or less under the heavy-duty engine or heavy-duty vehicle provisions of 
subpart A of this part without advance approval from the Administrator 
if the vehicle was originally certified to the heavy-duty engine or 
heavy-duty vehicle provisions of subpart A of this part.
    (d) Small volume manufacturers. Special certification procedures 
are available for any manufacturer whose projected or actual combined 
sales in all states and territories of the United States of light-duty 
vehicles, light-duty trucks, heavy-duty vehicles, and heavy-duty 
engines in its product line (including all vehicles and engines 
imported under the provisions of 40 CFR 85.1505 and 85.1509) are fewer 
than 15,000 units for the model year in which the manufacturer seeks 
certification. The small volume manufacturer's light-duty vehicle and 
light-duty truck certification procedures are described in Sec.  
86.1838-01.
    (e)-(g) [Reserved]
    (h) Applicability of provisions of this subpart to light-duty 
vehicles, light-duty trucks, medium-duty passenger vehicles, and heavy-
duty vehicles. Numerous sections in this subpart provide requirements 
or procedures applicable to a ``vehicle'' or ``vehicles.'' Unless 
otherwise specified or otherwise determined by the Administrator, the 
term ``vehicle'' or ``vehicles'' in those provisions apply equally to 
light-duty vehicles (LDVs), light-duty trucks (LDTs), medium-duty 
passenger vehicles (MDPVs), and heavy-duty vehicles (HDVs), as those 
terms are defined in Sec.  86.1803-01.
    (i) Applicability of provisions of this subpart to exhaust 
greenhouse gas emissions. Numerous sections in this subpart refer to 
requirements relating to ``exhaust emissions.'' Unless otherwise 
specified or otherwise determined by the Administrator, the term 
``exhaust emissions'' refers at a minimum to emissions of all 
pollutants described by emission standards in this subpart, including 
carbon dioxide (CO2), nitrous oxide (N2O), and 
methane (CH4).
    (j) Exemption from greenhouse gas emission standards for small 
businesses. Manufacturers that qualify as a small business under the 
Small Business Administration regulations in 13 CFR part 121 are exempt 
from the greenhouse gas emission standards specified in Sec.  86.1818-
12 and in associated provisions in this part and in part 600 of this 
chapter. Both U.S.-based and non-U.S.-based businesses are eligible for 
this exemption. The following categories of businesses (with their 
associated NAICS codes) may be eligible for exemption based on the 
Small Business Administration size standards in 13 CFR 121.201.
    (1) Vehicle manufacturers (NAICS code 336111).
    (2) Independent commercial importers (NAICS codes 811111, 811112, 
811198, 423110, 424990, and 441120).
    (3) Alternate fuel vehicle converters (NAICS codes 335312, 336312, 
336322, 336399, 454312, 485310, and 811198).
    (k) Conditional exemption from greenhouse gas emission standards. 
Manufacturers meeting the eligibility requirements described in 
paragraph (k)(1) and (2) of this section may request a conditional 
exemption from compliance with the emission standards described in 
Sec.  86.1818-12 paragraphs (c) through (e) and associated provisions 
in this part and in part 600 of this chapter. The terms ``sales'' and 
``sold'' as used in this paragraph (k) shall mean vehicles produced and 
delivered for sale (or sold) in the states and territories of the 
United States. For the purpose of determining eligibility the sales of 
related companies shall be aggregated according to the provisions of 
Sec.  86.1838-01(b)(3).
    (1) Eligibility requirements. Eligibility as determined in this 
paragraph (k) shall be based on the total sales of combined passenger 
automobiles and light trucks. Manufacturers must meet one of the 
requirements in paragraph (k)(1)(i) or (ii) of this section to 
initially qualify for this exemption.
    (i) A manufacturer with 2008 or 2009 model year sales of more than 
zero and fewer than 5,000 is eligible for a conditional exemption from 
the greenhouse gas emission standards

[[Page 25683]]

described in Sec.  86.1818-12 paragraphs (c) through (e).
    (ii) A manufacturer with 2008 or 2009 model year sales of more than 
zero and fewer than 5,000 while under the control of another 
manufacturer, where those 2008 or 2009 model year vehicles bore the 
brand of the producing manufacturer but were sold by or otherwise under 
the control of another manufacturer, and where the manufacturer 
producing the vehicles became independent no later than December 31, 
2010, is eligible for a conditional exemption from the greenhouse gas 
emission standards described in Sec.  86.1818-12 paragraphs (c) through 
(e).
    (2) Maintaining eligibility for exemption from greenhouse gas 
emission standards. To remain eligible for exemption under this 
paragraph (k) the manufacturer's average sales for the three most 
recent consecutive model years must remain below 5,000. If a 
manufacturer's average sales for the three most recent consecutive 
model years exceeds 4999, the manufacturer will no longer be eligible 
for exemption and must meet applicable emission standards according to 
the provisions in this paragraph (k)(2).
    (i) If a manufacturer's average sales for three consecutive model 
years exceeds 4999, and if the increase in sales is the result of 
corporate acquisitions, mergers, or purchase by another manufacturer, 
the manufacturer shall comply with the emission standards described in 
Sec.  86.1818-12 paragraphs (c) through (e), as applicable, beginning 
with the first model year after the last year of the three consecutive 
model years.
    (ii) If a manufacturer's average sales for three consecutive model 
years exceeds 4999 and is less than 50,000, and if the increase in 
sales is solely the result of the manufacturer's expansion in vehicle 
production, the manufacturer shall comply with the emission standards 
described in Sec.  86.1818-12 paragraphs (c) through (e), as 
applicable, beginning with the second model year after the last year of 
the three consecutive model years.
    (iii) If a manufacturer's average sales for three consecutive model 
years exceeds 49,999, the manufacturer shall comply with the emission 
standards described in Sec.  86.1818-12 paragraphs (c) through (e), as 
applicable, beginning with the first model year after the last year of 
the three consecutive model years.
    (3) Requesting the conditional exemption from standards. To be 
exempted from the standards described in Sec.  86.1818-12(c) through 
(e), the manufacturer must submit a declaration to EPA containing a 
detailed written description of how the manufacturer qualifies under 
the provisions of this paragraph (k). The declaration must describe 
eligibility information that includes the following: model year 2008 
and 2009 sales, sales volumes for each of the most recent three model 
years, detailed information regarding ownership relationships with 
other manufacturers, details regarding the application of the 
provisions of Sec.  86.1838-01(b)(3) regarding the aggregation of sales 
of related companies, and documentation of good-faith efforts made by 
the manufacturer to purchase credits from other manufacturers. This 
declaration must be signed by a chief officer of the company, and must 
be made prior to each model year for which the exemption is requested. 
The declaration must be submitted to EPA at least 30 days prior to the 
introduction into commerce of any vehicles for each model year for 
which the exemption is requested, but not later than December of the 
calendar year prior to the model year for which exemption is requested. 
A conditional exemption will be granted when EPA approves the exemption 
declaration. The declaration must be sent to the Environmental 
Protection Agency at the following address: Director, Compliance and 
Innovative Strategies Division, U.S. Environmental Protection Agency, 
2000 Traverwood Drive, Ann Arbor, Michigan 48105.

0
12. Section 86.1803-01 is amended as follows:
0
a. By adding the definition for ``Air conditioning idle test.''
0
b. By adding the definition for ``Air conditioning system.''
0
c. By revising the definition for ``Banking.''
0
d. By adding the definition for ``Base level.''
0
e. By adding the definition for ``Base tire.''
0
f. By adding the definition for ``Base vehicle.''
0
g. By revising the definition for ``Basic engine.''
0
h. By adding the definition for ``Carbon-related exhaust emissions.''
0
i. By adding the definition for ``Combined CO2.''
0
j. By adding the definition for ``Combined CREE.''
0
k. By adding the definition for ``Electric vehicle.''
0
l. By revising the definition for ``Engine code.''
0
m. By adding the definition for ``Ethanol fueled vehicle.''
0
n. By revising the definition for ``Flexible fuel vehicle.''
0
o. By adding the definition for ``Footprint.''
0
p. By adding the definition for ``Fuel cell electric vehicle.''
0
q. By adding the definition for ``Highway fuel economy test 
procedure.''
0
r. By adding the definition for ``Hybrid electric vehicle.''
0
s. By adding the definition for ``Interior volume index.''
0
t. By revising the definition for ``Model type.''
0
u. By adding the definition for ``Motor vehicle.''
0
v. By adding the definition for ``Multi-fuel vehicle.''
0
w. By adding the definition for ``Petroleum equivalency factor.''
0
x. By adding the definition for ``Petroleum-equivalent fuel economy.''
0
y. By adding the definition for ``Petroleum powered accessory.''
0
z. By adding the definition for ``Plug-in hybrid electric vehicle.''
0
aa. By adding the definition for ``Production volume.''
0
bb. By revising the definition for ``Round, rounded, or rounding.''
0
cc. By adding the definition for ``Subconfiguration.''
0
dd. By adding the definition for ``Track width.''
0
ee. By revising the definition for ``Transmission class.''
0
ff. By revising the definition for ``Transmission configuration.''
0
gg. By adding the definition for ``Wheelbase.''

Sec.  86.1803-01  Definitions.

* * * * *
    Air Conditioning Idle Test means the test procedure specified in 
Sec.  86.165-12.
    Air conditioning system means a unique combination of air 
conditioning and climate control components, including: compressor type 
(e.g., belt, gear, or electric-driven, or a combination of compressor 
drive mechanisms); compressor refrigerant capacity; the number and type 
of rigid pipe and flexible hose connections; the number of high side 
service ports; the number of low side service ports; the number of 
switches, transducers, and expansion valves; the number of TXV 
refrigerant control devices; the number and type of heat exchangers, 
mufflers, receiver/dryers, and accumulators; and the length and type of 
flexible hose (e.g., rubber, standard barrier or veneer, ultra-low 
permeation).
* * * * *
    Banking means one of the following:
    (1) The retention of NOX emission credits for complete 
heavy-duty vehicles by the manufacturer generating the emission 
credits, for use in future model year certification programs as 
permitted by regulation.

[[Page 25684]]

    (2) The retention of cold temperature non-methane hydrocarbon 
(NMHC) emission credits for light-duty vehicles, light-duty trucks, and 
medium-duty passenger vehicles by the manufacturer generating the 
emission credits, for use in future model year certification programs 
as permitted by regulation.
    (3) The retention of NOX emission credits for light-duty 
vehicles, light-duty trucks, and medium-duty passenger vehicles for use 
in future model year certification programs as permitted by regulation.
    (4) The retention of CO2 emission credits for light-duty 
vehicles, light-duty trucks, and medium-duty passenger vehicles for use 
in future model year certification programs as permitted by regulation.
    Base level has the meaning given in Sec.  600.002-08 of this 
chapter.
    Base tire has the meaning given in Sec.  600.002-08 of this 
chapter.
    Base vehicle has the meaning given in Sec.  600.002-08 of this 
chapter.
    Basic engine has the meaning given in Sec.  600.002-08 of this 
chapter.
* * * * *
    Carbon-related exhaust emissions (CREE) has the meaning given in 
Sec.  600.002-08 of this chapter.
* * * * *
    Combined CO2 means the CO2 value determined for a 
vehicle (or vehicles) by averaging the city and highway CO2 
values, weighted 0.55 and 0.45 respectively.
    Combined CREE means the CREE value determined for a vehicle (or 
vehicles) by averaging the city and highway fuel CREE values, weighted 
0.55 and 0.45 respectively.
* * * * *
    Electric vehicle means a motor vehicle that is powered solely by an 
electric motor drawing current from a rechargeable energy storage 
system, such as from storage batteries or other portable electrical 
energy storage devices, including hydrogen fuel cells, provided that:
    (1) The vehicle is capable of drawing recharge energy from a source 
off the vehicle, such as residential electric service; and
    (2) The vehicle must be certified to the emission standards of Bin 
1 of Table S04-1 in Sec.  86.1811-09(c)(6).
    (3) The vehicle does not have an onboard combustion engine/
generator system as a means of providing electrical energy.
* * * * *
    Engine code means a unique combination within a test group of 
displacement, fuel injection (or carburetor) calibration, choke 
calibration, distributor calibration, auxiliary emission control 
devices, and other engine and emission control system components 
specified by the Administrator. For electric vehicles, engine code 
means a unique combination of manufacturer, electric traction motor, 
motor configuration, motor controller, and energy storage device.
* * * * *
    Ethanol-fueled vehicle means any motor vehicle or motor vehicle 
engine that is engineered and designed to be operated using ethanol 
fuel (i.e., a fuel that contains at least 50 percent ethanol 
(C2H5OH) by volume) as fuel.
* * * * *
    Flexible fuel vehicle means any motor vehicle engineered and 
designed to be operated on a petroleum fuel and on a methanol or 
ethanol fuel, or any mixture of the petroleum fuel and methanol or 
ethanol. Methanol-fueled and ethanol-fueled vehicles that are only 
marginally functional when using gasoline (e.g., the engine has a drop 
in rated horsepower of more than 80 percent) are not flexible fuel 
vehicles.
    Footprint is the product of track width (measured in inches, 
calculated as the average of front and rear track widths, and rounded 
to the nearest tenth of an inch) and wheelbase (measured in inches and 
rounded to the nearest tenth of an inch), divided by 144 and then 
rounded to the nearest tenth of a square foot.
    Fuel cell vehicle means an electric vehicle propelled solely by an 
electric motor where energy for the motor is supplied by an 
electrochemical cell that produces electricity via the non-combustion 
reaction of a consumable fuel, typically hydrogen.
* * * * *
    Highway Fuel Economy Test Procedure (HFET) has the meaning given in 
Sec.  600.002-08 of this chapter.
* * * * *
    Hybrid electric vehicle (HEV) means a motor vehicle which draws 
propulsion energy from onboard sources of stored energy that are both 
an internal combustion engine or heat engine using consumable fuel, and 
a rechargeable energy storage system such as a battery, capacitor, 
hydraulic accumulator, or flywheel, where recharge energy for the 
energy storage system comes solely from sources on board the vehicle.
* * * * *
    Interior volume index has the meaning given in Sec.  600.315-08 of 
this chapter.
* * * * *
    Model type has the meaning given in Sec.  600.002-08 of this 
chapter.
* * * * *
    Motor vehicle has the meaning given in Sec.  85.1703 of this 
chapter.
* * * * *
    Multi-fuel vehicle means any motor vehicle capable of operating on 
two or more different fuel types, either separately or simultaneously.
* * * * *
    Petroleum equivalency factor means the value specified in 10 CFR 
474.3(b), which incorporates the parameters listed in 49 U.S.C. 
32904(a)(2)(B) and is used to calculate petroleum-equivalent fuel 
economy.
    Petroleum-equivalent fuel economy means the value, expressed in 
miles per gallon, that is calculated for an electric vehicle in 
accordance with 10 CFR 474.3(a), and reported to the Administrator of 
the Environmental Protection Agency for use in determining the vehicle 
manufacturer's corporate average fuel economy.
* * * * *
    Petroleum-powered accessory means a vehicle accessory (e.g., a 
cabin heater, defroster, and/or air conditioner) that:
    (1) Uses gasoline or diesel fuel as its primary energy source; and
    (2) Meets the requirements for fuel, operation, and emissions in 
Sec.  88.104-94(g) of this chapter.
    Plug-in hybrid electric vehicle (PHEV) means a hybrid electric 
vehicle that has the capability to charge the battery from an off-
vehicle electric source, such that the off-vehicle source cannot be 
connected to the vehicle while the vehicle is in motion.
* * * * *
    Production volume has the meaning given in Sec.  600.002-08 of this 
chapter.
* * * * *
    Round, rounded or rounding means, unless otherwise specified, that 
numbers will be rounded according to ASTM-E29-93a, which is 
incorporated by reference in this part pursuant to Sec.  86.1.
* * * * *
    Subconfiguration has the meaning given in Sec.  600.002-08 of this 
chapter.
* * * * *
    Track width is the lateral distance between the centerlines of the 
base tires at ground, including the camber angle.
* * * * *
    Transmission class has the meaning given in Sec.  600.002-08 of 
this chapter.
    Transmission configuration has the meaning given in Sec.  600.002-
08 of this chapter.
* * * * *

[[Page 25685]]

    Wheelbase is the longitudinal distance between front and rear wheel 
centerlines.
* * * * *

0
13. A new Sec.  86.1805-12 is added to read as follows:

Sec.  86.1805-12  Useful life.

    (a) Except as permitted under paragraph (b) of this section or 
required under paragraphs (c) and (d) of this section, the full useful 
life for all LDVs and LLDTs is a period of use of 10 years or 120,000 
miles, whichever occurs first. The full useful life for all HLDTs, 
MDPVs, and complete heavy-duty vehicles is a period of 11 years or 
120,000 miles, whichever occurs first. These full useful life values 
apply to all exhaust, evaporative and refueling emission requirements 
except for standards which are specified to only be applicable at the 
time of certification. These full useful life requirements also apply 
to all air conditioning leakage credits, air conditioning efficiency 
credits, and other credit programs used by the manufacturer to comply 
with the fleet average CO2 emission standards in Sec.  
86.1818-12.
    (b) Manufacturers may elect to optionally certify a test group to 
the Tier 2 exhaust emission standards for 150,000 miles to gain 
additional NOX credits, as permitted in Sec.  86.1860-04(g), 
or to opt out of intermediate life standards as permitted in Sec.  
86.1811-04(c). In such cases, useful life is a period of use of 15 
years or 150,000 miles, whichever occurs first, for all exhaust, 
evaporative and refueling emission requirements except for cold CO 
standards and standards which are applicable only at the time of 
certification.
    (c) Where intermediate useful life exhaust emission standards are 
applicable, such standards are applicable for five years or 50,000 
miles, whichever occurs first.
    (d) Where cold CO standards are applicable, the useful life 
requirement for compliance with the cold CO standard only, is 5 years 
or 50,000 miles, whichever occurs first.

0
14. Section 86.1806-05 is amended by revising paragraph (a)(1) to read 
as follows:

Sec.  86.1806-05  On-board diagnostics for vehicles less than or equal 
to 14,000 pounds GVWR.

    (a) * * *
    (1) Except as provided by paragraph (a)(2) of this section, all 
light-duty vehicles, light-duty trucks and complete heavy-duty vehicles 
weighing 14,000 pounds GVWR or less (including MDPVs) must be equipped 
with an onboard diagnostic (OBD) system capable of monitoring all 
emission-related powertrain systems or components during the applicable 
useful life of the vehicle. All systems and components required to be 
monitored by these regulations must be evaluated periodically, but no 
less frequently than once per applicable certification test cycle as 
defined in paragraphs (a) and (d) of Appendix I of this part, or 
similar trip as approved by the Administrator. Emissions of 
CO2, CH4, and N2O are not required to 
be monitored by the OBD system.
* * * * *

0
15. A new Sec.  86.1809-12 is added to read as follows:

Sec.  86.1809-12  Prohibition of defeat devices.

    (a) No new light-duty vehicle, light-duty truck, medium-duty 
passenger vehicle, or complete heavy-duty vehicle shall be equipped 
with a defeat device.
    (b) The Administrator may test or require testing on any vehicle at 
a designated location, using driving cycles and conditions that may 
reasonably be expected to be encountered in normal operation and use, 
for the purposes of investigating a potential defeat device.
    (c) For cold temperature CO and cold temperature NMHC emission 
control, the Administrator will use a guideline to determine the 
appropriateness of the CO and NMHC emission control at ambient 
temperatures between 25 [deg]F (the upper bound of the FTP test 
temperature range) and 68 [deg]F (the lower bound of the FTP test 
temperature range). The guideline for CO emission congruity across the 
intermediate temperature range is the linear interpolation between the 
CO standard applicable at 25 [deg]F and the CO standard applicable at 
68 [deg]F. The guideline for NMHC emission congruity across the 
intermediate temperature range is the linear interpolation between the 
NMHC FEL pass limit (e.g. 0.3499 g/mi for a 0.3 g/mi FEL) applicable at 
20 [deg]F and the Tier 2 NMOG standard to which the vehicle was 
certified at 68 [deg]F, where the intermediate temperature NMHC level 
is rounded to the nearest hundredth for comparison to the interpolated 
line. For vehicles that exceed this CO emissions guideline or this NMHC 
emissions guideline upon intermediate temperature cold testing:
    (1) If the CO emission level is greater than the 20 [deg]F emission 
standard, the vehicle will automatically be considered to be equipped 
with a defeat device without further investigation. If the intermediate 
temperature NMHC emission level, rounded to the nearest hundredth, is 
greater than the 20 [deg]F FEL pass limit, the vehicle will be presumed 
to have a defeat device unless the manufacturer provides evidence to 
EPA's satisfaction that the cause of the test result in question is not 
due to a defeat device.
    (2) If the CO emission level does not exceed the 20 [deg]F emission 
standard, the Administrator may investigate the vehicle design for the 
presence of a defeat device under paragraph (d) of this section. If the 
intermediate temperature NMHC emission level, rounded to the nearest 
hundredth, does not exceed the 20 [deg]F FEL pass limit the 
Administrator may investigate the vehicle design for the presence of a 
defeat device under paragraph (d) of this section.
    (d) The following provisions apply for vehicle designs designated 
by the Administrator to be investigated for possible defeat devices:
    (1) The manufacturer must show to the satisfaction of the 
Administrator that the vehicle design does not incorporate strategies 
that unnecessarily reduce emission control effectiveness exhibited 
during the Federal Test Procedure or Supplemental Federal Test 
Procedure (FTP or SFTP) or the Highway Fuel Economy Test Procedure 
(described in subpart B of 40 CFR part 600), or the Air Conditioning 
Idle Test (described in Sec.  86.165-12), when the vehicle is operated 
under conditions that may reasonably be expected to be encountered in 
normal operation and use.
    (2) The following information requirements apply:
    (i) Upon request by the Administrator, the manufacturer must 
provide an explanation containing detailed information regarding test 
programs, engineering evaluations, design specifications, calibrations, 
on-board computer algorithms, and design strategies incorporated for 
operation both during and outside of the Federal emission test 
procedures.
    (ii) For purposes of investigations of possible cold temperature CO 
or cold temperature NMHC defeat devices under this paragraph (d), the 
manufacturer must provide an explanation to show, to the satisfaction 
of the Administrator, that CO emissions and NMHC emissions are 
reasonably controlled in reference to the linear guideline across the 
intermediate temperature range.
    (e) For each test group the manufacturer must submit, with the Part 
II certification application, an engineering evaluation demonstrating 
to the satisfaction of the Administrator that a discontinuity in 
emissions of non-methane organic gases, carbon

[[Page 25686]]

monoxide, carbon dioxide, oxides of nitrogen, nitrous oxide, methane, 
and formaldehyde measured on the Federal Test Procedure (subpart B of 
this part) and on the Highway Fuel Economy Test Procedure (subpart B of 
40 CFR part 600) does not occur in the temperature range of 20 to 86 
[deg]F. For diesel vehicles, the engineering evaluation must also 
include particulate emissions.

0
16. Section 86.1810-09 is amended by revising paragraph (f) to read as 
follows:

Sec.  86.1810-09  General standards; increase in emissions; unsafe 
condition; waivers.

* * * * *
    (f) Altitude requirements. (1) All emission standards apply at low 
altitude conditions and at high altitude conditions, except for the 
following standards, which apply only at low altitude conditions:
    (i) The supplemental exhaust emission standards as described in 
Sec.  86.1811-04(f);
    (ii) The cold temperature NMHC emission standards as described in 
Sec.  86.1811-10(g);
    (iii) The evaporative emission standards as described in Sec.  
86.1811-09(e).
    (2) For vehicles that comply with the cold temperature NMHC 
standards described in Sec.  86.1811-10(g) and the CO2, 
N2O, and CH4 exhaust emission standards described 
in Sec.  86.1818-12, manufacturers must submit an engineering 
evaluation indicating that common calibration approaches are utilized 
at high altitudes. Any deviation from low altitude emission control 
practices must be included in the auxiliary emission control device 
(AECD) descriptions submitted at certification. Any AECD specific to 
high altitude must require engineering emission data for EPA evaluation 
to quantify any emission impact and validity of the AECD.
* * * * *

0
17. A new Sec.  86.1818-12 is added to read as follows:

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

    (a) Applicability. This section contains standards and other 
regulations applicable to the emission of the air pollutant defined as 
the aggregate group of six greenhouse gases: Carbon dioxide, nitrous 
oxide, methane, hydrofluorocarbons, perfluorocarbons, and sulfur 
hexafluoride. This section applies to 2012 and later model year LDVs, 
LDTs and MDPVs, including multi-fuel vehicles, vehicles fueled with 
alternative fuels, hybrid electric vehicles, plug-in hybrid electric 
vehicles, electric vehicles, and fuel cell vehicles. Unless otherwise 
specified, multi-fuel vehicles must comply with all requirements 
established for each consumed fuel. The provisions of this section also 
apply to aftermarket conversion systems, aftermarket conversion 
installers, and aftermarket conversion certifiers, as those terms are 
defined in 40 CFR 85.502, of all model year light-duty vehicles, light-
duty trucks, and medium-duty passenger vehicles. Manufacturers that 
qualify as a small business according to the requirements of Sec.  
86.1801-12(j) are exempt from the emission standards in this section. 
Manufacturers that have submitted a declaration for a model year 
according to the requirements of Sec.  86.1801-12(k) for which approval 
has been granted by the Administrator are conditionally exempt from the 
emission standards in paragraphs (c) through (e) of this section for 
the approved model year.
    (b) Definitions. For the purposes of this section, the following 
definitions shall apply:
    (1) Passenger automobile means a motor vehicle that is a passenger 
automobile as that term is defined in 49 CFR 523.4.
    (2) Light truck means a motor vehicle that is a non-passenger 
automobile as that term is defined in 49 CFR 523.5.
    (c) Fleet average CO2 standards for passenger automobiles and light 
trucks. (1) For a given individual model year's production of passenger 
automobiles and light trucks, manufacturers must comply with a fleet 
average CO2 standard calculated according to the provisions 
of this paragraph (c). Manufacturers must calculate separate fleet 
average CO2 standards for their passenger automobile and 
light truck fleets, as those terms are defined in this section. Each 
manufacturer's fleet average CO2 standards determined in 
this paragraph (c) shall be expressed in whole grams per mile, in the 
model year specified as applicable. Manufacturers eligible for and 
choosing to participate in the Temporary Leadtime Allowance Alternative 
Standards for qualifying manufacturers specified in paragraph (e) of 
this section shall not include vehicles subject to the Temporary 
Leadtime Allowance Alternative Standards in the calculations of their 
primary passenger automobile or light truck standards determined in 
this paragraph (c). Manufacturers shall demonstrate compliance with the 
applicable standards according to the provisions of Sec.  86.1865-12.
    (2) Passenger automobiles--(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:

------------------------------------------------------------------------
                                                            CO2 target
                       Model year                          value (grams/
                                                               mile)
------------------------------------------------------------------------
2012....................................................           244.0
2013....................................................           237.0
2014....................................................           228.0
2015....................................................           217.0
2016 and later..........................................           206.0
------------------------------------------------------------------------

    (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:

------------------------------------------------------------------------
                                                            CO2 target
                       Model year                          value (grams/
                                                               mile)
------------------------------------------------------------------------
2012....................................................           315.0
2013....................................................           307.0
2014....................................................           299.0
2015....................................................           288.0
2016 and later..........................................           277.0
------------------------------------------------------------------------

     (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 grams/mile:

Target CO2 = [4.72 x f ] + b

Where:

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

------------------------------------------------------------------------
                       Model year                                b
------------------------------------------------------------------------
2012....................................................            50.5
2013....................................................            43.3
2014....................................................            34.8
2015....................................................            23.4
2016 and later..........................................            12.7
------------------------------------------------------------------------

    (ii) Calculation of the fleet average CO2 standard for passenger 
automobiles. In each model year manufacturers must comply with the 
CO2 exhaust emission standard for their passenger automobile 
fleet, calculated for that model year as follows:
    (A) A CO2 target value shall be determined according to 
paragraph (c)(2)(i) of this section for each unique combination of 
model type and footprint value.
    (B) Each CO2 target value, determined for each unique 
combination of model

[[Page 25687]]

type and footprint value, shall be multiplied by the total production 
of that model type/footprint combination for the appropriate model 
year.
    (C) The resulting products shall be summed, and that sum shall be 
divided by the total production of passenger automobiles in that model 
year. The result shall be rounded to the nearest whole gram per mile. 
This result shall be the applicable fleet average CO2 
standard for the manufacturer's passenger automobile fleet.
    (3) Light trucks--(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:

------------------------------------------------------------------------
                                                            CO2 target
                       Model year                          value (grams/
                                                               mile)
------------------------------------------------------------------------
2012....................................................           294.0
2013....................................................           284.0
2014....................................................           275.0
2015....................................................           261.0
2016 and later..........................................           247.0
------------------------------------------------------------------------

     (B) For light trucks with a footprint of greater than 66 square 
feet, the gram/mile CO2 target value shall be selected for 
the appropriate model year from the following table:

------------------------------------------------------------------------
                                                            CO2 target
                       Model year                          value (grams/
                                                               mile)
------------------------------------------------------------------------
2012....................................................           395.0
2013....................................................           385.0
2014....................................................           376.0
2015....................................................           362.0
2016 and later..........................................           348.0
------------------------------------------------------------------------

    (C) For light trucks with a footprint that is greater than 41 
square feet and less than or equal to 66 square feet, the gram/mile 
CO2 target value shall be calculated using the following 
equation and rounded to the nearest 0.1 grams/mile:

Target CO2 = (4.04 x f) + b

Where:

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

------------------------------------------------------------------------
                       Model year                                b
------------------------------------------------------------------------
2012....................................................           128.6
2013....................................................           118.7
2014....................................................           109.4
2015....................................................            95.1
2016 and later..........................................            81.1
------------------------------------------------------------------------

     (ii) Calculation of fleet average CO2 standards for light trucks. 
In each model year manufacturers must comply with the CO2 
exhaust emission standard for their light truck fleet, calculated for 
that model year as follows:
    (A) A CO2 target value shall be determined according to 
paragraph (c)(3)(i) of this section for each unique combination of 
model type and footprint value.
    (B) Each CO2 target value, which represents a unique 
combination of model type and footprint value, shall be multiplied by 
the total production of that model type/footprint combination for the 
appropriate model year.
    (C) The resulting products shall be summed, and that sum shall be 
divided by the total production of light trucks in that model year. The 
result shall be rounded to the nearest whole gram per mile. This result 
shall be the applicable fleet average CO2 standard for the 
manufacturer's light truck fleet.
    (d) In-use CO2 exhaust emission standards. The in-use exhaust 
CO2 emission standard shall be the combined city/highway 
carbon-related exhaust emission value calculated for the appropriate 
vehicle carline/subconfiguration according to the provisions of Sec.  
600.113-08(g)(4) of this chapter multiplied by 1.1 and rounded to the 
nearest whole gram per mile. For in-use vehicle carlines/
subconfigurations for which a combined city/highway carbon-related 
exhaust emission value was not determined under Sec.  600.113(g)(4) of 
this chapter, the in-use exhaust CO2 emission standard shall 
be the combined city/highway carbon-related exhaust emission value 
calculated according to the provisions of Sec.  600.208-12 of this 
chapter for the vehicle model type (except that total model year 
production data shall be used instead of sales projections) multiplied 
by 1.1 and rounded to the nearest whole gram per mile. For vehicles 
that are capable of operating on multiple fuels, including but not 
limited to alcohol dual fuel, natural gas dual fuel and plug-in hybrid 
electric vehicles, a separate in-use standard shall be determined for 
each fuel that the vehicle is capable of operating on. These standards 
apply to in-use testing performed by the manufacturer pursuant to 
regulations at Sec.  86.1845-04 and 86.1846-01 and to in-use testing 
performed by EPA.
    (e) Temporary Lead Time Allowance Alternative Standards. (1) The 
interim fleet average CO2 standards in this paragraph (e) 
are optionally applicable to each qualifying manufacturer, where the 
terms ``sales'' or ``sold'' as used in this paragraph (e) means 
vehicles produced and delivered for sale (or sold) in the states and 
territories of the United States.
    (i) A qualifying manufacturer is a manufacturer with sales of 2009 
model year combined passenger automobiles and light trucks of greater 
than zero and less than 400,000 vehicles.
    (A) If a manufacturer sold less than 400,000 but more than zero 
2009 model year combined passenger automobiles and light trucks while 
under the control of another manufacturer, where those 2009 model year 
passenger automobiles and light trucks bore the brand of the producing 
manufacturer, and where the producing manufacturer became independent 
no later than December 31, 2010, the producing manufacturer is a 
qualifying manufacturer.
    (B) In the case where two or more qualifying manufacturers combine 
as the result of merger or the purchase of 50 percent or more of one or 
more companies by another company, and if the combined 2009 model year 
sales of the merged or combined companies is less than 400,000 but more 
than zero (combined passenger automobiles and light trucks), the 
corporate entity formed by the combination of two or more qualifying 
manufacturers shall continue to be a qualifying manufacturer. The total 
number of vehicles that the corporate entity is allowed to include 
under the Temporary Leadtime Allowance Alternative Standards shall be 
determined by paragraph (e)(2) or (e)(3) of this section where sales is 
the total combined 2009 model year sales of all of the merged or 
combined companies. Vehicles sold by the companies that combined by 
merger/acquisition to form the corporate entity that were subject to 
the Temporary Leadtime Allowance Alternative Standards in paragraph 
(e)(4) of this section prior to the merger/acquisition shall be 
combined to determine the remaining number of vehicles that the 
corporate entity may include under the Temporary Leadtime Allowance 
Alternative Standards in this paragraph (e).
    (C) In the case where two or more manufacturers combine as the 
result of merger or the purchase of 50 percent or more of one or more 
companies by another company, and if the combined 2009 model year sales 
of the merged or combined companies is equal to or greater than 400,000 
(combined passenger automobiles and light trucks), the new corporate 
entity formed by the combination of two or more manufacturers is not a 
qualifying manufacturer. Such a manufacturer shall meet the emission 
standards in paragraph (c) of this section beginning with the model 
year that is numerically

[[Page 25688]]

two years greater than the calendar year in which the merger/
acquisition(s) took place.
    (ii) For the purposes of making the determination in paragraph 
(e)(1)(i) of this section, ``manufacturer'' shall mean that term as 
defined at 49 CFR 531.4 and as that definition was applied to the 2009 
model year for the purpose of determining compliance with the 2009 
corporate average fuel economy standards at 49 CFR parts 531 and 533.
    (iii) A qualifying manufacturer may not use these Temporary 
Leadtime Allowance Alternative Standards until they have used all 
available banked credits and/or credits available for transfer accrued 
under Sec.  86.1865-12(k). A qualifying manufacturer with a net 
positive credit balance calculated under Sec.  86.1865-12(k) in any 
model year after considering all available credits either generated, 
carried forward from a prior model year, transferred from other 
averaging sets, or obtained from other manufacturers, may not use these 
Temporary Leadtime Allowance Alternative Standards in such model year.
    (2) Qualifying manufacturers may select any combination of 2012 
through 2015 model year passenger automobiles and/or light trucks to 
include under the Temporary Leadtime Allowance Alternative Standards 
determined in this paragraph (e) up to a cumulative total of 100,000 
vehicles. Vehicles selected to comply with these standards shall not be 
included in the calculations of the manufacturer's fleet average 
standards under paragraph (c) of this section.
    (3) Qualifying manufacturers with sales of 2009 model year combined 
passenger automobiles and light trucks in the United States of greater 
than zero and less than 50,000 vehicles may select any combination of 
2012 through 2015 model year passenger automobiles and/or light trucks 
to include under the Temporary Leadtime Allowance Alternative Standards 
determined in this paragraph (e) up to a cumulative total of 200,000 
vehicles, and additionally may select up to 50,000 2016 model year 
vehicles to include under the Temporary Leadtime Allowance Alternative 
Standards determined in this paragraph (e). To be eligible for the 
provisions of this paragraph (e)(3) qualifying manufacturers must 
provide annual documentation of good-faith efforts made by the 
manufacturer to purchase credits from other manufacturers. Without such 
documentation, the manufacturer may use the Temporary Leadtime 
Allowance Alternative Standards according to the provisions of 
paragraph (e)(2) of this section, and the provisions of this paragraph 
(e)(3) shall not apply. Vehicles selected to comply with these 
standards shall not be included in the calculations of the 
manufacturer's fleet average standards under paragraph (c) of this 
section.
    (4) To calculate the applicable Temporary Leadtime Allowance 
Alternative Standards, qualifying manufacturers shall determine the 
fleet average standard separately for the passenger automobiles and 
light trucks selected by the manufacturer to be subject to the 
Temporary Leadtime Allowance Alternative Standards, subject to the 
limitations expressed in paragraphs (e)(1) through (3) of this section.
    (i) The Temporary Leadtime Allowance Alternative Standard 
applicable to qualified passenger automobiles as defined in Sec.  
600.002-08 of this chapter shall be the standard calculated using the 
provisions of paragraph (c)(2)(ii) of this section for the appropriate 
model year multiplied by 1.25 and rounded to the nearest whole gram per 
mile. For the purposes of applying paragraph (c)(2)(ii) of this section 
to determine the standard, the passenger automobile fleet shall be 
limited to those passenger automobiles subject to the Temporary 
Leadtime Allowance Alternative Standard.
    (ii) The Temporary Leadtime Allowance Alternative Standard 
applicable to qualified light trucks (i.e. non-passenger automobiles as 
defined in Sec.  600.002-08 of this chapter) shall be the standard 
calculated using the provisions of paragraph (c)(3)(ii) of this section 
for the appropriate model year multiplied by 1.25 and rounded to the 
nearest whole gram per mile. For the purposes of applying paragraph 
(c)(3)(ii) of this section to determine the standard, the light truck 
fleet shall be limited to those light trucks subject to the Temporary 
Leadtime Allowance Alternative Standard.
    (5) Manufacturers choosing to optionally apply these standards are 
subject to the restrictions on credit banking and trading specified in 
Sec.  86.1865-12.
    (f) Nitrous oxide (N2O) and methane (CH4) exhaust emission 
standards for passenger automobiles and light trucks. Each 
manufacturer's fleet of combined passenger automobile and light trucks 
must comply with N2O and CH4 standards using 
either the provisions of paragraph (f)(1) of this section or the 
provisions of paragraph (f)(2) of this section. The manufacturer may 
not use the provisions of both paragraphs (f)(1) and (f)(2) of this 
section in a model year. For example, a manufacturer may not use the 
provisions of paragraph (f)(1) of this section for their passenger 
automobile fleet and the provisions of paragraph (f)(2) for their light 
truck fleet in the same model year.
    (1) Standards applicable to each test group.
    (i) Exhaust emissions of nitrous oxide (N2O) shall not 
exceed 0.010 grams per mile at full useful life, as measured according 
to the Federal Test Procedure (FTP) described in subpart B of this 
part.
    (ii) Exhaust emissions of methane (CH4) shall not exceed 
0.030 grams per mile at full useful life, as measured according to the 
Federal Test Procedure (FTP) described in subpart B of this part.
    (2) Including N2O and CH4 in fleet averaging program. Manufacturers 
may elect to not meet the emission standards in paragraph (f)(1) of 
this section. Manufacturers making this election shall include 
N2O and CH4 emissions in the determination of 
their fleet average carbon-related exhaust emissions, as calculated in 
subpart F of part 600 of this chapter. Manufacturers using this option 
must include both N2O and CH4 full useful life 
values in the fleet average calculations for passenger automobiles and 
light trucks. Use of this option will account for N2O and 
CH4 emissions within the carbon-related exhaust emission 
value determined for each model type according to the provisions part 
600 of this chapter. This option requires the determination of full 
useful life emission values for both the Federal Test Procedure and the 
Highway Fuel Economy Test.

0
18. Section 86.1823-08 is amended by adding paragraph (m) to read as 
follows:

Sec.  86.1823-08  Durability demonstration procedures for exhaust 
emissions.

* * * * *
    (m) Durability demonstration procedures for vehicles subject to the 
greenhouse gas exhaust emission standards specified in Sec.  86.1818-
12.
    (1) CO2. (i) Unless otherwise specified under paragraph (m)(1)(ii) 
of this section, manufacturers may use a multiplicative CO2 
deterioration factor of one or an additive deterioration factor of 
zero.
    (ii) Based on an analysis of industry-wide data, EPA may 
periodically establish and/or update the deterioration factor for 
CO2 emissions including air conditioning and other credit 
related emissions. Deterioration factors established and/or updated 
under this paragraph (m)(1)(ii) will provide adequate lead time for 
manufacturers to plan for the change.

[[Page 25689]]

    (iii) Alternatively, manufacturers may use the whole-vehicle 
mileage accumulation procedures in Sec.  86.1823-08 paragraphs (c) or 
(d)(1) to determine CO2 deterioration factors. In this case, 
each FTP test performed on the durability data vehicle selected under 
Sec.  86.1822-01 of this part must also be accompanied by an HFET test, 
and combined FTP/HFET CO2 results determined by averaging 
the city (FTP) and highway (HFET) CO2 values, weighted 0.55 
and 0.45 respectively. The deterioration factor will be determined for 
this combined CO2 value. Calculated multiplicative 
deterioration factors that are less than one shall be set to equal one, 
and calculated additive deterioration factors that are less than zero 
shall be set to zero.
    (iv) If, in the good engineering judgment of the manufacturer, the 
deterioration factors determined according to paragraphs (m)(1)(i), 
(m)(1)(ii), or (m)(1)(iii) of this section do not adequately account 
for the expected CO2 emission deterioration over the 
vehicle's useful life, the manufacturer may petition EPA to request a 
more appropriate deterioration factor.
    (2) N2O and CH4. (i) For manufacturers complying with the emission 
standards for N2O and CH4 specified in Sec.  
86.1818-12(f)(1), deterioration factors for N2O and 
CH4 shall be determined according to the provisions of 
paragraphs (a) through (l) of this section.
    (ii) For manufacturers complying with the fleet averaging option 
for N2O and CH4 as allowed under Sec.  86.1818-
12(f)(2), separate deterioration factors shall be determined for the 
FTP and HFET test cycles. Therefore each FTP test performed on the 
durability data vehicle selected under Sec.  86.1822-01 of this part 
must also be accompanied by an HFET test.
    (iii) For the 2012 through 2014 model years only, manufacturers may 
use alternative deterioration factors. For N2O, the 
alternative deterioration factor to be used to adjust FTP and HFET 
emissions is the deterioration factor determined for NOX 
emissions according to the provisions of this section. For 
CH4, the alternative deterioration factor to be used to 
adjust FTP and HFET emissions is the deterioration factor determined 
for NMOG or NMHC emissions according to the provisions of this section.
    (3) Other carbon-related exhaust emissions. Deterioration factors 
shall be determined according to the provisions of paragraphs (a) 
through (l) of this section. Optionally, in lieu of determining 
emission-specific FTP and HFET deterioration factors for 
CH3OH (methanol), HCHO (formaldehyde), 
C2H5OH (ethanol), and C2H4O 
(acetaldehyde), manufacturers may use the deterioration factor 
determined for NMOG or NMHC emissions according to the provisions of 
this section.
    (4) Air Conditioning leakage and efficiency or other emission 
credit requirements to comply with exhaust CO2 standards. Manufactures 
will attest to the durability of components and systems used to meet 
the CO2 standards. Manufacturers may submit engineering data 
to provide durability demonstration.

0
19. Section 86.1827-01 is amended by revising paragraph (a)(5) and by 
adding paragraph (f) to read as follows:

Sec.  86.1827-01  Test group determination.

* * * * *
    (a) * * *
    (5) Subject to the same emission standards (except for 
CO2), or FEL in the case of cold temperature NMHC standards, 
except that a manufacturer may request to group vehicles into the same 
test group as vehicles subject to more stringent standards, so long as 
all the vehicles within the test group are certified to the most 
stringent standards applicable to any vehicle within that test group. 
Light-duty trucks and light-duty vehicles may be included in the same 
test group if all vehicles in the test group are subject to the same 
emission standards, with the exception of the CO2 standard 
and/or the total HC standard.
* * * * *
    (f) Unless otherwise approved by the Administrator, a manufacturer 
of electric vehicles must create separate test groups based on the type 
of battery technology, the capacity and voltage of the battery, and the 
type and size of the electric motor.

0
20. Section 86.1829-01 is amended by revising paragraph (b)(1)(i) and 
by adding paragraph (b)(1)(iii)(G) to read as follows:

Sec.  86.1829-01  Durability and emission testing requirements; 
waivers.

* * * * *
    (b) * *
    (1) * * *
    (i) Testing at low altitude. One EDV shall be tested in each test 
group for exhaust emissions using the FTP and SFTP test procedures of 
subpart B of this part and the HFET test procedure of subpart B of part 
600 of this chapter. The configuration of the EDV will be determined 
under the provisions of Sec.  86.1828-01 of this subpart.
* * * * *
    (iii) * * *
    (G) For the 2012 through 2014 model years only, in lieu of testing 
a vehicle for N2O emissions, a manufacturer may provide a 
statement in its application for certification that such vehicles 
comply with the applicable standards. Such a statement must be based on 
previous emission tests, development tests, or other appropriate 
information and good engineering judgment.
* * * * *

0
21. Section 86.1835-01 is amended as follows:
0
a. By revising paragraph (a)(4).
0
b. By revising paragraph (b)(1) introductory text.
0
c. By adding paragraph (b)(1)(vi).
0
d. By revising paragraph (b)(3).
0
e. By revising paragraph (c)(1)(ii).

Sec.  86.1835-01  Confirmatory certification testing.

    (a) * * *
    (4) Retesting for fuel economy reasons or for compliance with 
greenhouse gas exhaust emission standards in Sec.  86.181-12 may be 
conducted under the provisions of Sec.  600.008-08 of this chapter.
    (b) * * *
    (1) If the Administrator determines not to conduct a confirmatory 
test under the provisions of paragraph (a) of this section, 
manufacturers of light-duty vehicles, light-duty trucks, and/or medium-
duty passenger vehicles will conduct a confirmatory test at their 
facility after submitting the original test data to the Administrator 
whenever any of the conditions listed in paragraphs (b)(1)(i) through 
(vi) of this section exist, and complete heavy-duty vehicles 
manufacturers will conduct a confirmatory test at their facility after 
submitting the original test data to the Administrator whenever the 
conditions listed in paragraph (b)(1)(i) or (b)(1)(ii) of this section 
exist, as follows:
* * * * *
    (vi) The exhaust carbon-related exhaust emissions of the test as 
measured in accordance with the procedures in 40 CFR part 600 are lower 
than expected based on procedures approved by the Administrator.
* * * * *
    (3) For light-duty vehicles, light-duty trucks, and medium-duty 
passenger vehicles the manufacturer shall conduct a retest of the FTP 
or highway test if the difference between the fuel economy of the 
confirmatory test and the original manufacturer's test equals or 
exceeds three percent (or such lower percentage to be applied 
consistently to all manufacturer conducted confirmatory testing as 
requested by the manufacturer and approved by the Administrator).

[[Page 25690]]

    (i) For use in the fuel economy and exhaust greenhouse gas fleet 
averaging program described in 40 CFR parts 86 and 600, the 
manufacturer may, in lieu of conducting a retest, accept as official 
the lower of the original and confirmatory test fuel economy results, 
and by doing so will also accept as official the calculated CREE value 
associated with the lower fuel economy test results.
    (ii) The manufacturer shall conduct a second retest of the FTP or 
highway test if the fuel economy difference between the second 
confirmatory test and the original manufacturer test equals or exceeds 
three percent (or such lower percentage as requested by the 
manufacturer and approved by the Administrator) and the fuel economy 
difference between the second confirmatory test and the first 
confirmatory test equals or exceeds three percent (or such lower 
percentage as requested by the manufacturer and approved by the 
Administrator). In lieu of conducting a second retest, the manufacturer 
may accept as official (for use in the fuel economy program and the 
exhaust greenhouse gas fleet averaging program) the lowest fuel economy 
of the original test, the first confirmatory test, and the second 
confirmatory test fuel economy results, and by doing so will also 
accept as official the calculated CREE value associated with the lowest 
fuel economy test results.
    (c) * * *
    (1) * * *
    (ii) Official test results for fuel economy and exhaust 
CO2 emission purposes are determined in accordance with the 
provisions of Sec.  600.008-08 of this chapter.
* * * * *

0
22. Section 86.1841-01 is amended by adding paragraph (a)(3) and 
revising paragraph (b) to read as follows:

Sec.  86.1841-01  Compliance with emission standards for the purpose of 
certification.

    (a) * * *
    (3) Compliance with CO2 exhaust emission standards shall 
be demonstrated at certification by the certification levels on the FTP 
and HFET tests for carbon-related exhaust emissions determined 
according to Sec.  600.113-08 of this chapter.
* * * * *
    (b) To be considered in compliance with the standards for the 
purposes of certification, the certification levels for the test 
vehicle calculated in paragraph (a) of this section shall be less than 
or equal to the standards for all emission constituents to which the 
test group is subject, at both full and intermediate useful life as 
appropriate for that test group.
* * * * *
0
23. Section 86.1845-04 is amended as follows:
0
a. By revising paragraph (a)(1).
0
b. By revising paragraph (b)(5)(i).
0
c. By revising paragraph (c)(5)(i).

Sec.  86.1845-04  Manufacturer in-use verification testing 
requirements.

    (a) * * *
    (1) A manufacturer of LDVs, LDTs, MDPVs and/or complete HDVs must 
test, or cause to have tested, a specified number of LDVs, LDTs, MDPVs 
and complete HDVs. Such testing must be conducted in accordance with 
the provisions of this section. For purposes of this section, the term 
vehicle includes light-duty vehicles, light-duty trucks and medium-duty 
passenger vehicles.
* * * * *
    (b) * * *
    (5) * * *
    (i) Each test vehicle of a test group shall be tested in accordance 
with the Federal Test Procedure and the US06 portion of the 
Supplemental Federal Test Procedure as described in subpart B of this 
part, when such test vehicle is tested for compliance with applicable 
exhaust emission standards under this subpart. Test vehicles subject to 
applicable exhaust CO2 emission standards under this subpart 
shall also be tested in accordance with the highway fuel economy test 
as described in part 600, subpart B of this chapter.
* * * * *
    (c) * * *
    (5) * * *
    (i) Each test vehicle shall be tested in accordance with the 
Federal Test Procedure and the US06 portion of the Supplemental Federal 
Test Procedure as described in subpart B of this part when such test 
vehicle is tested for compliance with applicable exhaust emission 
standards under this subpart. Test vehicles subject to applicable 
exhaust CO2 emission standards under this subpart shall also 
be tested in accordance with the highway fuel economy test as described 
in part 600, subpart B of this chapter. The US06 portion of the SFTP is 
not required to be performed on vehicles certified in accordance with 
the National LEV provisions of subpart R of this part. One test vehicle 
from each test group shall receive a Federal Test Procedure at high 
altitude. The test vehicle tested at high altitude is not required to 
be one of the same test vehicles tested at low altitude. The test 
vehicle tested at high altitude is counted when determining the 
compliance with the requirements shown in Table S04-06 and Table S04-07 
in paragraph (b)(3) of this section or the expanded sample size as 
provided for in this paragraph (c).
* * * * *
0
24. Section 86.1846-01 is amended by revising paragraphs (a)(1) and (b) 
introductory text to read as follows:

Sec.  86.1846-01  Manufacturer in-use confirmatory testing 
requirements.

    (a) * * *
    (1) A manufacturer of LDVs, LDTs and/or MDPVs must test, or cause 
testing to be conducted, under this section when the emission levels 
shown by a test group sample from testing under Sec. Sec.  86.1845-01 
or 86.1845-04, as applicable, exceeds the criteria specified in 
paragraph (b) of this section. The testing required under this section 
applies separately to each test group and at each test point (low and 
high mileage) that meets the specified criteria. The testing 
requirements apply separately for each model year starting with model 
year 2001. These provisions do not apply to heavy-duty vehicles or 
heavy-duty engines prior to the 2007 model year. These provisions do 
not apply to emissions of CO2, CH4, and 
N2O.
* * * * *
    (b) Criteria for additional testing. A manufacturer shall test a 
test group or a subset of a test group as described in paragraph (j) of 
this section when the results from testing conducted under Sec. Sec.  
86.1845-01 and 86.1845-04, as applicable, show mean emissions for that 
test group of any pollutant(s) (except CO2, CH4, 
and N2O) to be equal to or greater than 1.30 times the 
applicable in-use standard and a failure rate, among the test group 
vehicles, for the corresponding pollutant(s) of fifty percent or 
greater.
* * * * *

0
25. Section 86.1848-10 is amended by adding paragraph (c)(9) to read as 
follows:

Sec.  86.1848-10  Certification.

* * * * *
    (c) * * *
    (9) For 2012 and later model year LDVs, LDTs, and MDPVs, all 
certificates of conformity issued are conditional upon compliance with 
all provisions of Sec.  86.1818-12 and Sec.  86.1865-12 both during and 
after model year production. The manufacturer bears the burden of 
establishing to the satisfaction of the Administrator that the terms 
and conditions upon which the certificate(s) was (were) issued were 
satisfied. For recall and warranty purposes, vehicles not covered by a 
certificate of

[[Page 25691]]

conformity will continue to be held to the standards stated or 
referenced in the certificate that otherwise would have applied to the 
vehicles.
    (i) Failure to meet the fleet average CO2 requirements 
will be considered a failure to satisfy the terms and conditions upon 
which the certificate(s) was (were) issued and the vehicles sold in 
violation of the fleet average CO2 standard will not be 
covered by the certificate(s). The vehicles sold in violation will be 
determined according to Sec.  86.1865-12(k)(7).
    (ii) Failure to comply fully with the prohibition against selling 
credits that are not generated or that are not available, as specified 
in Sec.  86.1865-12, will be considered a failure to satisfy the terms 
and conditions upon which the certificate(s) was (were) issued and the 
vehicles sold in violation of this prohibition will not be covered by 
the certificate(s).
* * * * *

0
26. A new Sec.  86.1854-12 is added to read as follows:

Sec.  86.1854-12  Prohibited acts.

    (a) The following acts and the causing thereof are prohibited:
    (1) In the case of a manufacturer, as defined by Sec.  86.1803, of 
new motor vehicles or new motor vehicle engines for distribution in 
commerce, the sale, or the offering for sale, or the introduction, or 
delivery for introduction, into commerce, or (in the case of any 
person, except as provided by regulation of the Administrator), the 
importation into the United States of any new motor vehicle or new 
motor vehicle engine subject to this subpart, unless such vehicle or 
engine is covered by a certificate of conformity issued (and in effect) 
under regulations found in this subpart (except as provided in Section 
203(b) of the Clean Air Act (42 U.S.C. 7522(b)) or regulations 
promulgated thereunder).
    (2)(i) For any person to fail or refuse to permit access to or 
copying of records or to fail to make reports or provide information 
required under Section 208 of the Clean Air Act (42 U.S.C. 7542) with 
regard to vehicles.
    (ii) For a person to fail or refuse to permit entry, testing, or 
inspection authorized under Section 206(c) (42 U.S.C. 7525(c)) or 
Section 208 of the Clean Air Act (42 U.S.C. 7542) with regard to 
vehicles.
    (iii) For a person to fail or refuse to perform tests, or to have 
tests performed as required under Section 208 of the Clean Air Act (42 
U.S.C. 7542) with regard to vehicles.
    (iv) For a person to fail to establish or maintain records as 
required under Sec. Sec.  86.1844, 86.1862, 86.1864, and 86.1865 with 
regard to vehicles.
    (v) For any manufacturer to fail to make information available as 
provided by regulation under Section 202(m)(5) of the Clean Air Act (42 
U.S.C. 7521(m)(5)) with regard to vehicles.
    (3)(i) For any person to remove or render inoperative any device or 
element of design installed on or in a vehicle or engine in compliance 
with regulations under this subpart prior to its sale and delivery to 
the ultimate purchaser, or for any person knowingly to remove or render 
inoperative any such device or element of design after such sale and 
delivery to the ultimate purchaser.
    (ii) For any person to manufacture, sell or offer to sell, or 
install, any part or component intended for use with, or as part of, 
any vehicle or engine, where a principal effect of the part or 
component is to bypass, defeat, or render inoperative any device or 
element of design installed on or in a vehicle or engine in compliance 
with regulations issued under this subpart, and where the person knows 
or should know that the part or component is being offered for sale or 
installed for this use or put to such use.
    (4) For any manufacturer of a vehicle or engine subject to 
standards prescribed under this subpart:
    (i) To sell, offer for sale, introduce or deliver into commerce, or 
lease any such vehicle or engine unless the manufacturer has complied 
with the requirements of Section 207(a) and (b) of the Clean Air Act 
(42 U.S.C. 7541(a), (b)) with respect to such vehicle or engine, and 
unless a label or tag is affixed to such vehicle or engine in 
accordance with Section 207(c)(3) of the Clean Air Act (42 U.S.C. 
7541(c)(3)).
    (ii) To fail or refuse to comply with the requirements of Section 
207 (c) or (e) of the Clean Air Act (42 U.S.C. 7541(c) or (e)).
    (iii) Except as provided in Section 207(c)(3) of the Clean Air Act 
(42 U.S.C. 7541(c)(3)), to provide directly or indirectly in any 
communication to the ultimate purchaser or any subsequent purchaser 
that the coverage of a warranty under the Clean Air Act is conditioned 
upon use of any part, component, or system manufactured by the 
manufacturer or a person acting for the manufacturer or under its 
control, or conditioned upon service performed by such persons.
    (iv) To fail or refuse to comply with the terms and conditions of 
the warranty under Section 207(a) or (b) of the Clean Air Act (42 
U.S.C. 7541(a) or (b)).
    (b) For the purposes of enforcement of this subpart, the following 
apply:
    (1) No action with respect to any element of design referred to in 
paragraph (a)(3) of this section (including any adjustment or 
alteration of such element) shall be treated as a prohibited act under 
paragraph (a)(3) of this section if such action is in accordance with 
Section 215 of the Clean Air Act (42 U.S.C. 7549);
    (2) Nothing in paragraph (a)(3) of this section is to be construed 
to require the use of manufacturer parts in maintaining or repairing a 
vehicle or engine. For the purposes of the preceding sentence, the term 
``manufacturer parts'' means, with respect to a motor vehicle engine, 
parts produced or sold by the manufacturer of the motor vehicle or 
motor vehicle engine;
    (3) Actions for the purpose of repair or replacement of a device or 
element of design or any other item are not considered prohibited acts 
under paragraph (a)(3) of this section if the action is a necessary and 
temporary procedure, the device or element is replaced upon completion 
of the procedure, and the action results in the proper functioning of 
the device or element of design;
    (4) Actions for the purpose of a conversion of a motor vehicle or 
motor vehicle engine for use of a clean alternative fuel (as defined in 
title II of the Clean Air Act) are not considered prohibited acts under 
paragraph (a) of this section if:
    (i) The vehicle complies with the applicable standard when 
operating on the alternative fuel; and
    (ii) In the case of engines converted to dual fuel or flexible use, 
the device or element is replaced upon completion of the conversion 
procedure, and the action results in proper functioning of the device 
or element when the motor vehicle operates on conventional fuel.

0
27. A new Sec.  86.1865-12 is added to subpart S to read as follows:

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

    (a) Applicability. (1) Unless otherwise exempted under the 
provisions of Sec.  86.1801-12(j), CO2 fleet average exhaust 
emission standards apply to:
    (i) 2012 and later model year passenger automobiles and light 
trucks.
    (ii) Aftermarket conversion systems as defined in 40 CFR 85.502.
    (iii) Vehicles imported by ICIs as defined in 40 CFR 85.1502.
    (2) The terms ``passenger automobile'' and ``light truck'' as used 
in this section have the meanings as defined in Sec.  86.1818-12.

[[Page 25692]]

    (b) Useful life requirements. Full useful life requirements for 
CO2 standards are defined in Sec.  86.1818-12. There is not 
an intermediate useful life standard for CO2 emissions.
    (c) Altitude. Altitude requirements for CO2 standards 
are provided in Sec.  86.1810-09(f).
    (d) Small volume manufacturer certification procedures. 
Certification procedures for small volume manufacturers are provided in 
Sec.  86.1838-01. Small businesses meeting certain criteria may be 
exempted from the greenhouse gas emission standards in Sec.  86.1818-12 
according to the provisions of Sec.  86.1801-12(j).
    (e) CO2 fleet average exhaust emission standards. The fleet average 
standards referred to in this section are the corporate fleet average 
CO2 standards for passenger automobiles and light trucks set 
forth in Sec.  86.1818-12(c) and (e). The fleet average CO2 
standards applicable in a given model year are calculated separately 
for passenger automobiles and light trucks for each manufacturer and 
each model year according to the provisions in Sec.  86.1818-12. Each 
manufacturer must comply with the applicable CO2 fleet 
average standard on a production-weighted average basis, for each 
separate averaging set, at the end of each model year, using the 
procedure described in paragraph (j) of this section.
    (f) In-use CO2 standards. In-use CO2 exhaust emission 
standards applicable to each model type are provided in Sec.  86.1818-
12(d).
    (g) Durability procedures and method of determining deterioration 
factors (DFs). Deterioration factors for CO2 exhaust 
emission standards are provided in Sec.  86.1823-08(m).
    (h) Vehicle test procedures. (1) The test procedures for 
demonstrating compliance with CO2 exhaust emission standards 
are contained in subpart B of this part and subpart B of part 600 of 
this chapter.
    (2) Testing of all passenger automobiles and light trucks to 
determine compliance with CO2 exhaust emission standards set 
forth in this section must be on a loaded vehicle weight (LVW) basis, 
as defined in Sec.  86.1803-01.
    (3) Testing for the purpose of providing certification data is 
required only at low altitude conditions. If hardware and software 
emission control strategies used during low altitude condition testing 
are not used similarly across all altitudes for in-use operation, the 
manufacturer must include a statement in the application for 
certification, in accordance with Sec.  86.1844-01(d)(11) and Sec.  
86.1810-09(f), stating what the different strategies are and why they 
are used.
    (i) Calculating the fleet average carbon-related exhaust emissions. 
(1) Manufacturers must compute separate production-weighted fleet 
average carbon-related exhaust emissions at the end of the model year 
for passenger automobiles and light trucks, using actual production, 
where production means vehicles produced and delivered for sale, and 
certifying model types to standards as defined in Sec.  86.1818-12. The 
model type carbon-related exhaust emission results determined according 
to 40 CFR part 600 subpart F (in units of grams per mile rounded to the 
nearest whole number) become the certification standard for each model 
type.
    (2) Manufacturers must separately calculate production-weighted 
fleet average carbon-related exhaust emissions levels for the following 
averaging sets according to the provisions of part 600 subpart F of 
this chapter:
    (i) Passenger automobiles subject to the fleet average 
CO2 standards specified in Sec.  86.1818-12(c)(2);
    (ii) Light trucks subject to the fleet average CO2 
standards specified in Sec.  86.1818-12(c)(3);
    (iii) Passenger automobiles subject to the Temporary Leadtime 
Allowance Alternative Standards specified in Sec.  86.1818-12(e), if 
applicable; and
    (iv) Light trucks subject to the Temporary Leadtime Allowance 
Alternative Standards specified in Sec.  86.1818-12(e), if applicable.
    (j) Certification compliance and enforcement requirements for CO2 
exhaust emission standards. (1) Compliance and enforcement requirements 
are provided in Sec.  86.1864-10 and Sec.  86.1848-10(c)(9).
    (2) The certificate issued for each test group requires all model 
types within that test group to meet the in-use emission standards to 
which each model type is certified as outlined in Sec.  86.1818-12(d).
    (3) Each manufacturer must comply with the applicable 
CO2 fleet average standard on a production-weighted average 
basis, at the end of each model year, using the procedure described in 
paragraph (i) of this section.
    (4) Each manufacturer must comply on an annual basis with the fleet 
average standards as follows:
    (i) Manufacturers must report in their annual reports to the Agency 
that they met the relevant corporate average standard by showing that 
their production-weighted average CO2 emissions levels of 
passenger automobiles and light trucks, as applicable, are at or below 
the applicable fleet average standard; or
    (ii) If the production-weighted average is above the applicable 
fleet average standard, manufacturers must obtain and apply sufficient 
CO2 credits as authorized under paragraph (k)(8) of this 
section. A manufacturer must show that they have offset any exceedence 
of the corporate average standard via the use of credits. Manufacturers 
must also include their credit balances or deficits in their annual 
report to the Agency.
    (iii) If a manufacturer fails to meet the corporate average 
CO2 standard for four consecutive years, the vehicles 
causing the corporate average exceedence will be considered not covered 
by the certificate of conformity (see paragraph (k)(8) of this 
section). A manufacturer will be subject to penalties on an individual-
vehicle basis for sale of vehicles not covered by a certificate.
    (iv) EPA will review each manufacturer's production to designate 
the vehicles that caused the exceedence of the corporate average 
standard. EPA will designate as nonconforming those vehicles in test 
groups with the highest certification emission values first, continuing 
until reaching a number of vehicles equal to the calculated number of 
noncomplying vehicles as determined in paragraph (k)(8) of this 
section. In a group where only a portion of vehicles would be deemed 
nonconforming, EPA will determine the actual nonconforming vehicles by 
counting backwards from the last vehicle produced in that test group. 
Manufacturers will be liable for penalties for each vehicle sold that 
is not covered by a certificate.
    (k) Requirements for the CO2 averaging, banking and trading (ABT) 
program. (1) A manufacturer whose CO2 fleet average 
emissions exceed the applicable standard must complete the calculation 
in paragraph (k)(4) of this section to determine the size of its 
CO2 deficit. A manufacturer whose CO2 fleet 
average emissions are less than the applicable standard must complete 
the calculation in paragraph (k)(4) of this section to generate 
CO2 credits. In either case, the number of credits or debits 
must be rounded to the nearest whole number.
    (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 should 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

[[Page 25693]]

requirements of paragraph (l) of this section for CO2 
credits, including early credits. The averaging, banking and trading 
program is enforceable through the certificate of conformity that 
allows the manufacturer to introduce any regulated vehicles into 
commerce.
    (4) Credits are earned on the last day of the model year. 
Manufacturers must calculate, for a given model year and separately for 
passenger automobiles and light trucks, the number of credits or debits 
it has generated according to the following equation, rounded to the 
nearest megagram:

CO2 Credits or Debits (Mg) = [(CO2 Standard--
Manufacturer's Production-Weighted Fleet Average CO2 
Emissions) x (Total Number of Vehicles Produced) x (Vehicle Lifetime 
Miles)] / 1,000,000

Where:

CO2 Standard = the applicable standard for the model year 
as determined by Sec.  86.1818-12;
Manufacturer's Production-Weighted Fleet Average CO2 
Emissions = average calculated according to paragraph (i) of this 
section;
Total Number of Vehicles Produced = The number of vehicles 
domestically produced plus those imported as defined in Sec.  
600.511-80 of this chapter; and
Vehicle Lifetime Miles is 195,264 for passenger automobiles and 
225,865 for light trucks.

    (5) Total credits or debits generated in a model year, maintained 
and reported separately for passenger automobiles and light trucks, 
shall be the sum of the credits or debits calculated in paragraph 
(k)(4) of this section and any of the following credits, if applicable:
    (i) Air conditioning leakage credits earned according to the 
provisions of Sec.  86.1866-12(b);
    (ii) Air conditioning efficiency credits earned according to the 
provisions of Sec.  86.1866-12(c);
    (iii) Off-cycle technology credits earned according to the 
provisions of Sec.  86.1866-12(d).
    (6) Unused CO2 credits shall retain their full value 
through the five subsequent model years after the model year in which 
they were generated. Credits available at the end of the fifth model 
year after the year in which they were generated shall expire.
    (7) Credits may be used as follows:
    (i) Credits generated and calculated according to the method in 
paragraph (k)(4) of this section may not be used to offset deficits 
other than those deficits accrued with respect to the standard in Sec.  
86.1818-12. Credits may be banked and used in a future model year in 
which a manufacturer's average CO2 level exceeds the 
applicable standard. Credits may be exchanged between the passenger 
automobile and light truck fleets of a given manufacturer. Credits may 
also be traded to another manufacturer according to the provisions in 
paragraph (k)(8) of this section. Before trading or carrying over 
credits to the next model year, a manufacturer must apply available 
credits to offset any deficit, where the deadline to offset that credit 
deficit has not yet passed.
    (ii) The use of credits shall not change Selective Enforcement 
Auditing or in-use testing failures from a failure to a non-failure. 
The enforcement of the averaging standard occurs through the vehicle's 
certificate of conformity. A manufacturer's certificate of conformity 
is conditioned upon compliance with the averaging provisions. The 
certificate will be void ab initio if a manufacturer fails to meet the 
corporate average standard and does not obtain appropriate credits to 
cover its shortfalls in that model year or subsequent model years (see 
deficit carry-forward provisions in paragraph (k)(8) of this section).
    (iii) Special provisions for manufacturers using the Temporary 
Leadtime Allowance Alternative Standards. (A) Credits generated by 
vehicles subject to the fleet average CO2 standards 
specified in Sec.  86.1818-12(c) may only be used to offset a deficit 
generated by vehicles subject to the Temporary Leadtime Allowance 
Alternative Standards specified in Sec.  86.1818-12(e).
    (B) Credits generated by a passenger automobile or light truck 
averaging set subject to the Temporary Leadtime Allowance Alternative 
Standards specified in Sec.  86.1818-12(e)(4)(i) or (ii) of this 
section may be used to offset a deficit generated by an averaging set 
subject to the Temporary Leadtime Allowance Alternative Standards 
through the 2015 model year, except that manufacturers qualifying under 
the provisions of Sec.  86.1818-12(e)(3) may use such credits to offset 
a deficit generated by an averaging set subject to the Temporary 
Leadtime Allowance Alternative Standards through the 2016 model year .
    (C) Credits generated by an averaging set subject to the Temporary 
Leadtime Allowance Alternative Standards specified in Sec.  86.1818-
12(e)(4)(i) or (ii) of this section may not be used to offset a deficit 
generated by an averaging set subject to the fleet average 
CO2 standards specified in Sec.  86.1818-12(c)(2) or (3) or 
otherwise transferred to an averaging set subject to the fleet average 
CO2 standards specified in Sec.  86.1818-12(c)(2) or (3).
    (D) Credits generated by vehicles subject to the Temporary Leadtime 
Allowance Alternative Standards specified in Sec.  86.1818-12(e)(4)(i) 
or (ii) may be banked for use in a future model year (to offset a 
deficit generated by an averaging set subject to the Temporary Leadtime 
Allowance Alternative Standards). All such credits shall expire at the 
end of the 2015 model year, except that manufacturers qualifying under 
the provisions of Sec.  86.1818-12(e)(3) may use such credits to offset 
a deficit generated by an averaging set subject to the Temporary 
Leadtime Allowance Alternative Standards through the 2016 model year.
    (E) A manufacturer with any vehicles subject to the Temporary 
Leadtime Allowance Alternative Standards specified in Sec.  86.1818-
12(e)(4)(i) or (ii) of this section in a model year in which that 
manufacturer also generates credits with vehicles subject to the fleet 
average CO2 standards specified in Sec.  86.1818-12(c) may 
not trade or bank credits earned against the fleet average standards in 
Sec.  86.1818-12(c) for use in a future model year.
    (8) The following provisions apply if debits are accrued:
    (i) If a manufacturer calculates that it has negative credits (also 
called ``debits'' or a ``credit deficit'') for a given model year, it 
may carry that deficit forward into the next three model years. Such a 
carry-forward may only occur after the manufacturer exhausts any supply 
of banked credits. At the end of the third model year, the deficit must 
be covered with an appropriate number of credits that the manufacturer 
generates or purchases. Any remaining deficit is subject to a voiding 
of the certificate ab initio, as described in this paragraph (k)(8). 
Manufacturers are not permitted to have a credit deficit for four 
consecutive years.
    (ii) If debits are not offset within the specified time period, the 
number of vehicles not meeting the fleet average CO2 
standards (and therefore not covered by the certificate) must be 
calculated.
    (A) Determine the gram per mile quantity of debits for the 
noncompliant vehicle category by multiplying the total megagram deficit 
by 1,000,000 and then dividing by the vehicle lifetime miles for the 
vehicle category (passenger automobile or light truck) specified in 
paragraph (k)(4) of this section.
    (B) Divide the result by the fleet average standard applicable to 
the model year in which the debits were first incurred and round to the 
nearest whole number to determine the number of vehicles not meeting 
the fleet average CO2 standards.

[[Page 25694]]

    (iii) EPA will determine the vehicles not covered by a certificate 
because the condition on the certificate was not satisfied by 
designating vehicles in those test groups with the highest 
CO2 emission values first and continuing until reaching a 
number of vehicles equal to the calculated number of noncomplying 
vehicles as determined in paragraph (k)(7) of this section. If this 
calculation determines that only a portion of vehicles in a test group 
contribute to the debit situation, then EPA will designate actual 
vehicles in that test group as not covered by the certificate, starting 
with the last vehicle produced and counting backwards.
    (iv)(A) If a manufacturer ceases production of passenger cars and 
light trucks, the manufacturer continues to be responsible for 
offsetting any debits outstanding within the required time period. Any 
failure to offset the debits will be considered a violation of 
paragraph (k)(7)(i) of this section and may subject the manufacturer to 
an enforcement action for sale of vehicles not covered by a 
certificate, pursuant to paragraphs (k)(7)(ii) and (iii) of this 
section.
    (B) If a manufacturer is purchased by, merges with, or otherwise 
combines with another manufacturer, the controlling entity is 
responsible for offsetting any debits outstanding within the required 
time period. Any failure to offset the debits will be considered a 
violation of paragraph (k)(7)(i) of this section and may subject the 
manufacturer to an enforcement action for sale of vehicles not covered 
by a certificate, pursuant to paragraphs (k)(7)(ii) and (iii) of this 
section.
    (v) For purposes of calculating the statute of limitations, a 
violation of the requirements of paragraph (k)(7)(i) of this section, a 
failure to satisfy the conditions upon which a certificate(s) was 
issued and hence a sale of vehicles not covered by the certificate, all 
occur upon the expiration of the deadline for offsetting debits 
specified in paragraph (k)(7)(i) of this section.
    (9) The following provisions apply to CO2 credit 
trading:
    (i) EPA may reject CO2 credit trades if the involved 
manufacturers fail to submit the credit trade notification in the 
annual report.
    (ii) A manufacturer may not sell credits that are not available for 
sale pursuant to the provisions in paragraph (k)(6) of this section.
    (iii) In the event of a negative credit balance resulting from a 
transaction, both the buyer and seller are liable. EPA may void ab 
initio the certificates of conformity of all test groups participating 
in such a trade.
    (iv) (A) If a manufacturer trades a credit that it has not 
generated pursuant to paragraph (k) of this section or acquired from 
another party, the manufacturer will be considered to have generated a 
debit in the model year that the manufacturer traded the credit. The 
manufacturer must offset such debits by the deadline for the annual 
report for that same model year.
    (B) Failure to offset the debits within the required time period 
will be considered a failure to satisfy the conditions upon which the 
certificate(s) was issued and will be addressed pursuant to paragraph 
(k)(7) of this section.
    (v) A manufacturer may only trade credits that it has generated 
pursuant to paragraph (k)(4) of this section or acquired from another 
party.
    (l) Maintenance of records and submittal of information relevant to 
compliance with fleet average CO2 standards--(1) Maintenance 
of records. (i) Manufacturers producing any light-duty vehicles, light-
duty trucks, or medium-duty passenger vehicles subject to the 
provisions in this subpart must establish, maintain, and retain all the 
following information in adequately organized records for each model 
year:
    (A) Model year.
    (B) Applicable fleet average CO2 standards for each 
averaging set as defined in paragraph (i) of this section.
    (C) The calculated fleet average CO2 value for each 
averaging set as defined in paragraph (i) of this section.
    (D) All values used in calculating the fleet average CO2 
values.
    (ii) Manufacturers producing any passenger cars or light trucks 
subject to the provisions in this subpart must establish, maintain, and 
retain all the following information in adequately organized records 
for each passenger car or light truck subject to this subpart:
    (A) Model year.
    (B) Applicable fleet average CO2 standard.
    (C) EPA test group.
    (D) Assembly plant.
    (E) Vehicle identification number.
    (F) Carbon-related exhaust emission standard to which the passenger 
car or light truck is certified.
    (G) In-use carbon-related exhaust emission standard.
    (H) Information on the point of first sale, including the 
purchaser, city, and state.
    (iii) Manufacturers must retain all required records for a period 
of eight years from the due date for the annual report. Records may be 
stored in any format and on any media, as long as manufacturers can 
promptly send EPA organized written records in English if requested by 
the Administrator. Manufacturers must keep records readily available as 
EPA may review them at any time.
    (iv) The Administrator may require the manufacturer to retain 
additional records or submit information not specifically required by 
this section.
    (v) Pursuant to a request made by the Administrator, the 
manufacturer must submit to the Administrator the information that the 
manufacturer is required to retain.
    (vi) EPA may void ab initio a certificate of conformity for 
vehicles certified to emission standards as set forth or otherwise 
referenced in this subpart for which the manufacturer fails to retain 
the records required in this section or to provide such information to 
the Administrator upon request, or to submit the reports required in 
this section in the specified time period.
    (2) Reporting. (i) Each manufacturer must submit an annual report. 
The annual report must contain for each applicable CO2 
standard, the calculated fleet average CO2 value, all values 
required to calculate the CO2 emissions value, the number of 
credits generated or debits incurred, all the values required to 
calculate the credits or debits, and the resulting balance of credits 
or debits.
    (ii) For each applicable fleet average CO2 standard, the 
annual report must also include documentation on all credit 
transactions the manufacturer has engaged in since those included in 
the last report. Information for each transaction must include all of 
the following:
    (A) Name of credit provider.
    (B) Name of credit recipient.
    (C) Date the trade occurred.
    (D) Quantity of credits traded in megagrams.
    (E) Model year in which the credits were earned.
    (iii) Manufacturers calculating early air conditioning leakage and/
or efficiency credits under paragraph Sec.  86.1867-12(b) of this 
section shall include in the 2012 report, the following information for 
each model year separately for passenger automobiles and light trucks 
and for each air conditioning system used to generate credits:
    (A) A description of the air conditioning system.
    (B) The leakage credit value and all the information required to 
determine this value.
    (C) The total credits earned for each averaging set, model year, 
and region, as applicable.
    (iv) Manufacturers calculating early advanced technology vehicle 
credits

[[Page 25695]]

under paragraph Sec.  86.1867-12(c) shall include in the 2012 report, 
separately for each model year and separately for passenger automobiles 
and light trucks, the following information:
    (A) The number of each model type of eligible vehicle sold.
    (B) The cumulative model year production of eligible vehicles 
starting with the 2009 model year.
    (C) The carbon-related exhaust emission value by model type and 
model year.
    (v) Manufacturers calculating early off-cycle technology credits 
under paragraph Sec.  86.1867-12(d) shall include in the 2012 report, 
for each model year and separately for passenger automobiles and light 
trucks, all test results and data required for calculating such 
credits.
    (vi) Unless a manufacturer reports the data required by this 
section in the annual production report required under Sec.  86.1844-
01(e) or the annual report required under Sec.  600.512-12 of this 
chapter, a manufacturer must submit an annual report for each model 
year after production ends for all affected vehicles produced by the 
manufacturer subject to the provisions of this subpart and no later 
than May 1 of the calendar year following the given model year. Annual 
reports must be submitted to: Director, Compliance and Innovative 
Strategies Division, U.S. Environmental Protection Agency, 2000 
Traverwood, Ann Arbor, Michigan 48105.
    (vii) Failure by a manufacturer to submit the annual report in the 
specified time period for all vehicles subject to the provisions in 
this section is a violation of section 203(a)(1) of the Clean Air Act 
(42 U.S.C. 7522 (a)(1)) for each applicable vehicle produced by that 
manufacturer.
    (viii) If EPA or the manufacturer determines that a reporting error 
occurred on an annual report previously submitted to EPA, the 
manufacturer's credit or debit calculations will be recalculated. EPA 
may void erroneous credits, unless traded, and will adjust erroneous 
debits. In the case of traded erroneous credits, EPA must adjust the 
selling manufacturer's credit balance to reflect the sale of such 
credits and any resulting credit deficit.
    (3) Notice of opportunity for hearing. Any voiding of the 
certificate under paragraph (l)(1)(vi) of this section will be made 
only after EPA has offered the affected manufacturer an opportunity for 
a hearing conducted in accordance with Sec.  86.614-84 for light-duty 
vehicles or Sec.  86.1014-84 for light-duty trucks and, if a 
manufacturer requests such a hearing, will be made only after an 
initial decision by the Presiding Officer.

0
28. A new Sec.  86.1866-12 is added to subpart S to read as follows:

Sec.  86.1866-12  CO2 fleet average credit programs.

    (a) Incentive for certification of advanced technology vehicles. 
Electric vehicles, plug-in hybrid electric vehicles, and fuel cell 
vehicles, as those terms are defined in Sec.  86.1803-01, that are 
certified and produced in the 2012 through 2016 model years may be 
eligible for a reduced CO2 emission value under the 
provisions of this paragraph (a) and under the provisions of part 600 
of this chapter.
    (1) Electric vehicles, fuel cell vehicles, and plug-in hybrid 
electric vehicles may use a value of zero (0) grams/mile of 
CO2 to represent the proportion of electric operation of a 
vehicle that is derived from electricity that is generated from sources 
that are not onboard the vehicle.
    (2) The use of zero (0) grams/mile CO2 is limited to the 
first 200,000 combined electric vehicles, plug-in hybrid electric 
vehicles, and fuel cell vehicles produced and delivered for sale by a 
manufacturer in the 2012 through 2016 model years, except that a 
manufacturer that produces and delivers for sale 25,000 or more such 
vehicles in the 2012 model year shall be subject to a limitation on the 
use of zero (0) grams/mile CO2 to the first 300,000 combined 
electric vehicles, plug-in hybrid electric vehicles, and fuel cell 
vehicles produced and delivered for sale by a manufacturer in the 2012 
through 2016 model years.
    (b) Credits for reduction of air conditioning refrigerant leakage. 
Manufacturers may generate credits applicable to the CO2 
fleet average program described in Sec.  86.1865-12 by implementing 
specific air conditioning system technologies designed to reduce air 
conditioning refrigerant leakage over the useful life of their 
passenger cars and/or light trucks. Credits shall be calculated 
according to this paragraph (b) for each air conditioning system that 
the manufacturer is using to generate CO2 credits. 
Manufacturers may also generate early air conditioning refrigerant 
leakage credits under this paragraph (b) for the 2009 through 2011 
model years according to the provisions of Sec.  86.1867-12(b).
    (1) The manufacturer shall calculate an annual rate of refrigerant 
leakage from an air conditioning system in grams per year according to 
the provisions of Sec.  86.166-12.
    (2) The CO2-equivalent gram per mile leakage reduction 
to be used to calculate the total credits generated by the air 
conditioning system shall be determined according to the following 
formulae, rounded to the nearest tenth of a gram per mile:
    (i) Passenger automobiles:

    [GRAPHIC] [TIFF OMITTED] TR07MY10.048
    
Where:

MaxCredit is 12.6 (grams CO2-equivalent/mile) for air 
conditioning systems using HFC-134a, and 13.8 (grams CO2-
equivalent/mile) for air conditioning systems using a refrigerant 
with a lower global warming potential.
Leakage means the annual refrigerant leakage rate determined 
according to the provisions of Sec.  86.166-12(a), except if the 
calculated rate is less than 8.3 grams/year (4.1 grams/year for 
systems using electric compressors) the rate for the purpose of this 
formula shall be 8.3 grams/year (4.1 grams/year for systems using 
electric compressors);
The constant 16.6 is the average passenger car impact of air 
conditioning leakage in units of grams/year;
GWPREF means the global warming potential of the 
refrigerant as indicated in paragraph (b)(5) of this section or as 
otherwise determined by the Administrator;
GWPHFC134a means the global warming potential of HFC-134a 
as indicated in paragraph (b)(5) of this section or as otherwise 
determined by the Administrator.

    (ii) Light trucks:

[[Page 25696]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.049

Where:

MaxCredit is 15.6 (grams CO2-equivalent/mile) for air 
conditioning systems using HFC-134a, and 17.2 (grams CO2-
equivalent/mile) for air conditioning systems using a refrigerant 
with a lower global warming potential.
Leakage means the annual refrigerant leakage rate determined 
according to the provisions of Sec.  86.166-12(a), except if the 
calculated rate is less than 10.4 grams/year (5.2 grams/year for 
systems using electric compressors) the rate for the purpose of this 
formula shall be 10.4 grams/year (5.2 grams/year for systems using 
electric compressors);
The constant 20.7 is the average passenger car impact of air 
conditioning leakage in units of grams/year;
GWPREF means the global warming potential of the 
refrigerant as indicated in paragraph (b)(5) of this section or as 
otherwise determined by the Administrator;
GWPR134a means the global warming potential of HFC-134a 
as indicated in paragraph (b)(5) of this section or as otherwise 
determined by the Administrator.

    (3) The total leakage reduction credits generated by the air 
conditioning system shall be calculated separately for passenger cars 
and light trucks according to the following formula:
Total Credits (megagrams) = (Leakage x Production x VLM) / 1,000,000

Where:

Leakage = the CO2-equivalent leakage credit value in 
grams per mile determined in paragraph (b)(2) of this section.
Production = The total number of passenger cars or light trucks, 
whichever is applicable, produced with the air conditioning system 
to which to the leakage credit value from paragraph (b)(2) of this 
section applies.
VLM = vehicle lifetime miles, which for passenger cars shall be 
195,264 and for light trucks shall be 225,865.

    (4) The results of paragraph (b)(3) of this section, rounded to the 
nearest whole number, shall be included in the manufacturer's credit/
debit totals calculated in Sec.  86.1865-12(k)(5).
    (5) The following values for refrigerant global warming potential 
(GWPREF), or alternative values as determined by the 
Administrator, shall be used in the calculations of this paragraph (b). 
The Administrator will determine values for refrigerants not included 
in this paragraph (b)(5) upon request by a manufacturer.
    (i) For HFC-134a, GWPREF = 1430;
    (ii) For HFC-152a, GWPREF = 124;
    (iii) For HFO-1234yf,: GWPREF = 4;
    (iv) For CO2, GWPREF = 1.
    (c) Credits for improving air conditioning system efficiency. 
Manufacturers may generate credits applicable to the CO2 
fleet average program described in Sec.  86.1865-12 by implementing 
specific air conditioning system technologies designed to reduce air 
conditioning-related CO2 emissions over the useful life of 
their passenger cars and/or light trucks. Credits shall be calculated 
according to this paragraph (c) for each air conditioning system that 
the manufacturer is using to generate CO2 credits. 
Manufacturers may also generate early air conditioning efficiency 
credits under this paragraph (c) for the 2009 through 2011 model years 
according to the provisions of Sec.  86.1867-12(b). For model years 
2012 and 2013 the manufacturer may determine air conditioning 
efficiency credits using the requirements in paragraphs (c)(1) through 
(4) of this section. For model years 2014 and later the eligibility 
requirements specified in paragraph (c)(5) of this section must be met 
before an air conditioning system is allowed to generate credits.
    (1) Air conditioning efficiency credits are available for the 
following technologies in the gram per mile amounts indicated:
    (i) Reduced reheat, with externally-controlled, variable-
displacement compressor (e.g. a compressor that controls displacement 
based on temperature setpoint and/or cooling demand of the air 
conditioning system control settings inside the passenger compartment): 
1.7 g/mi.
    (ii) Reduced reheat, with externally-controlled, fixed-displacement 
or pneumatic variable displacement compressor (e.g. a compressor that 
controls displacement based on conditions within, or internal to, the 
air conditioning system, such as head pressure, suction pressure, or 
evaporator outlet temperature): 1.1 g/mi.
    (iii) Default to recirculated air with closed-loop control of the 
air supply (sensor feedback to control interior air quality) whenever 
the ambient temperature is 75 [deg]F or higher: 1.7 g/mi. Air 
conditioning systems that operated with closed-loop control of the air 
supply at different temperatures may receive credits by submitting an 
engineering analysis to the Administrator for approval.
    (iv) Default to recirculated air with open-loop control air supply 
(no sensor feedback) whenever the ambient temperature is 75 [deg]F or 
higher: 1.1 g/mi. Air conditioning systems that operate with open-loop 
control of the air supply at different temperatures may receive credits 
by submitting an engineering analysis to the Administrator for 
approval.
    (v) Blower motor controls which limit wasted electrical energy 
(e.g. pulse width modulated power controller): 0.9 g/mi.
    (vi) Internal heat exchanger (e.g. a device that transfers heat 
from the high-pressure, liquid-phase refrigerant entering the 
evaporator to the low-pressure, gas-phase refrigerant exiting the 
evaporator): 1.1 g/mi.
    (vii) Improved condensers and/or evaporators with system analysis 
on the component(s) indicating a coefficient of performance improvement 
for the system of greater than 10% when compared to previous industry 
standard designs): 1.1 g/mi.
    (viii) Oil separator: 0.6 g/mi. The manufacturer must submit an 
engineering analysis demonstrating the increased improvement of the 
system relative to the baseline design, where the baseline component 
for comparison is the version which a manufacturer most recently had in 
production on the same vehicle design or in a similar or related 
vehicle model. The characteristics of the baseline component shall be 
compared to the new component to demonstrate the improvement.
    (2) Air conditioning efficiency credits are determined on an air 
conditioning system basis. For each air conditioning system that is 
eligible for a credit based on the use of one or more of the items 
listed in paragraph (c)(1) of this section, the total credit value is 
the sum of the gram per mile values listed in paragraph (c)(1) of this 
section for each item that applies to the air conditioning system. If 
the sum of those values for an air conditioning system is greater than 
5.7 grams per mile, the total credit value is deemed to be 5.7 grams 
per mile.
    (3) The total efficiency credits generated by an air conditioning 
system shall be calculated separately for passenger cars and light 
trucks according to the following formula:

Total Credits (Megagrams) = (Credit x Production x VLM) / 1,000,000
Where:

Credit = the CO2 efficiency credit value in grams per 
mile determined in paragraph

[[Page 25697]]

(c)(2) or (c)(5) of this section, whichever is applicable.
Production = The total number of passenger cars or light trucks, 
whichever is applicable, produced with the air conditioning system 
to which to the efficiency credit value from paragraph (c)(2) of 
this section applies.
VLM = vehicle lifetime miles, which for passenger cars shall be 
195,264 and for light trucks shall be 225,865.

    (4) The results of paragraph (c)(3) of this section, rounded to the 
nearest whole number, shall be included in the manufacturer's credit/
debit totals calculated in Sec.  86.1865-12(k)(5).
    (5) Use of the Air Conditioning Idle Test Procedure is required 
after the 2013 model year as specified in this paragraph (c)(5).
    (i) After the 2013 model year, for each air conditioning system 
selected by the manufacturer to generate air conditioning efficiency 
credits, the manufacturer shall perform the Air Conditioning Idle Test 
Procedure specified in Sec.  86.165-14 of this part.
    (ii) Using good engineering judgment, the manufacturer must select 
the vehicle configuration to be tested that is expected to result in 
the greatest increased CO2 emissions as a result of the 
operation of the air conditioning system for which efficiency credits 
are being sought. If the air conditioning system is being installed in 
passenger automobiles and light trucks, a separate determination of the 
quantity of credits for passenger automobiles and light trucks must be 
made, but only one test vehicle is required to represent the air 
conditioning system, provided it represents the worst-case impact of 
the system on CO2 emissions.
    (iii) For an air conditioning system to be eligible to generate 
credits in the 2014 and later model years, the increased CO2 
emissions as a result of the operation of that air conditioning system 
determined according to the Idle Test Procedure in Sec.  86.165-14 must 
be less than 21.3 grams per minute.
    (A) If the increased CO2 emissions determined from the 
Idle Test Procedure in Sec.  86.165-14 is less than or equal to 14.9 
grams/minute, the total credit value for use in paragraph (c)(3) of 
this section shall be as determined in paragraph (c)(2) of this 
section.
    (B) If the increased CO2 emissions determined from the 
Idle Test Procedure in Sec.  86.165-14 is greater than 14.9 grams/
minute and less than 21.3 grams/minute, the total credit value for use 
in paragraph (c)(3) of this section shall be as determined according to 
the following formula:

[GRAPHIC] [TIFF OMITTED] TR07MY10.050

Where:

TCV = The total credit value for use in paragraph (c)(3) of this 
section;
TCV1 = The total credit value determined according to 
paragraph (c)(2) of this section; and
ITP = the increased CO2 emissions determined from the 
Idle Test Procedure in Sec.  86.165-14.

    (iv) Air conditioning systems with compressors that are solely 
powered by electricity shall submit Air Conditioning Idle Test 
Procedure data to be eligible to generate credits in the 2014 and later 
model years, but such systems are not required to meet a specific 
threshold to be eligible to generate such credits, as long as the 
engine remains off for a period of at least 2 minutes during the air 
conditioning on portion of the Idle Test Procedure in Sec.  86.165-
12(d).
    (6) The following definitions apply to this paragraph (c):
    (i) Reduced reheat, with externally-controlled, variable 
displacement compressor means a system in which compressor displacement 
is controlled via an electronic signal, based on input from sensors 
(e.g., position or setpoint of interior temperature control, interior 
temperature, evaporator outlet air temperature, or refrigerant 
temperature) and air temperature at the outlet of the evaporator can be 
controlled to a level at 41 [deg]F, or higher.
    (ii) Reduced reheat, with externally-controlled, fixed-displacement 
or pneumatic variable displacement compressor means a system in which 
the output of either compressor is controlled by cycling the compressor 
clutch off-and-on via an electronic signal, based on input from sensors 
(e.g., position or setpoint of interior temperature control, interior 
temperature, evaporator outlet air temperature, or refrigerant 
temperature) and air temperature at the outlet of the evaporator can be 
controlled to a level at 41 [deg]F, or higher.
    (iii) Default to recirculated air mode means that the default 
position of the mechanism which controls the source of air supplied to 
the air conditioning system shall change from outside air to 
recirculated air when the operator or the automatic climate control 
system has engaged the air conditioning system (i.e., evaporator is 
removing heat), except under those conditions where dehumidification is 
required for visibility (i.e., defogger mode). In vehicles equipped 
with interior air quality sensors (e.g., humidity sensor, or carbon 
dioxide sensor), the controls may determine proper blend of air supply 
sources to maintain freshness of the cabin air and prevent fogging of 
windows while continuing to maximize the use of recirculated air. At 
any time, the vehicle operator may manually select the non-recirculated 
air setting during vehicle operation but the system must default to 
recirculated air mode on subsequent vehicle operations (i.e., next 
vehicle start). The climate control system may delay switching to 
recirculation mode until the interior air temperature is less than the 
outside air temperature, at which time the system must switch to 
recirculated air mode.
    (iv) Blower motor controls which limit waste energy means a method 
of controlling fan and blower speeds which does not use resistive 
elements to decrease the voltage supplied to the motor.
    (v) Improved condensers and/or evaporators means that the 
coefficient of performance (COP) of air conditioning system using 
improved evaporator and condenser designs is 10 percent higher, as 
determined using the bench test procedures described in SAE J2765 
``Procedure for Measuring System COP of a Mobile Air Conditioning 
System on a Test Bench,'' when compared to a system using standard, or 
prior model year, component designs. SAE J2765 is incorporated by 
reference; see Sec.  86.1. The manufacturer must submit an engineering 
analysis demonstrating the increased improvement of the system relative 
to the baseline design, where the baseline component(s) for comparison 
is the version which a manufacturer most recently had in production on 
the same vehicle design or in a similar or related vehicle model. The 
dimensional characteristics (e.g., tube configuration/thickness/
spacing, and fin density) of the baseline component(s) shall be 
compared to the new component(s) to demonstrate the improvement in 
coefficient of performance.
    (vi) Oil separator means a mechanism which removes at least 50 
percent of the oil entrained in the oil/refrigerant mixture exiting the 
compressor and returns it to the compressor housing or compressor 
inlet, or a compressor design which does not rely on the circulation of 
an oil/refrigerant mixture for lubrication.
    (d) Credits for CO2-reducing technologies where the CO2 reduction 
is not captured on the Federal Test Procedure or the Highway Fuel 
Economy Test. With prior EPA approval, manufacturers may optionally 
generate credits applicable to the CO2 fleet average program 
described in Sec.  86.1865-12 by implementing innovative technologies 
that have a

[[Page 25698]]

measurable, demonstrable, and verifiable real-world CO2 
reduction. These optional credits are referred to as ``off-cycle'' 
credits and may be earned through the 2016 model year.
    (1) Qualification criteria. To qualify for this credit, the 
criteria in this paragraph (d)(1) must be met as determined by the 
Administratory:
    (i) The technology must be an innovative and novel vehicle- or 
engine-based approach to reducing greenhouse gas emissions, and not in 
widespread use.
    (ii) The CO2-reducing impact of the technology must not be 
significantly measurable over the Federal Test Procedure and the 
Highway Fuel Economy Test. The technology must improve CO2 emissions 
beyond the driving conditions of those tests.
    (iii) The technology must be able to be demonstrated to be 
effective for the full useful life of the vehicle. Unless the 
manufacturer demonstrates that the technology is not subject to in-use 
deterioration, the manufacturer must account for the deterioration in 
their analysis.
    (2) Quantifying the CO2 reductions of an off-cycle technology. The 
manufacturer may use one of the two options specified in this paragraph 
(d)(2) to measure the CO2-reducing potential of an innovative off-cycle 
technology. The option described in paragraph (d)(2)(ii) of this 
section may be used only with EPA approval, and to use that option the 
manufacturer must be able to justify to the Administrator why the 5-
cycle option described in paragraph (d)(2)(i) of this section 
insufficiently characterizes the effectiveness of the off-cycle 
technology. The manufacturer should notify EPA in their pre-model year 
report of their intention to generate any credits under paragraph (d) 
of this section.
    (i) Technology demonstration using EPA 5-cycle methodology. To 
demonstrate an off-cycle technology and to determine a CO2 credit using 
the EPA 5-cycle methodology, the manufacturer shall determine 5-cycle 
city/highway combined carbon-related exhaust emissions both with the 
technology installed and operating and without the technology installed 
and/or operating. The manufacturer shall conduct the following steps, 
both with the off-cycle technology installed and operating and without 
the technology operating or installed.
    (A) Determine carbon-related exhaust emissions over the FTP, the 
HFET, the US06, the SC03, and the cold temperature FTP test procedures 
according to the test procedure provisions specified in 40 CFR part 600 
subpart B and using the calculation procedures specified in Sec.  
600.113-08 of this chapter.
    (B) Calculate 5-cycle city and highway carbon-related exhaust 
emissions using data determined in paragraph (d)(2)(i)(A) of this 
section according to the calculation procedures in paragraphs (d) 
through (f) of Sec.  600.114-08 of this chapter.
    (C) Calculate a 5-cycle city/highway combined carbon-related 
exhaust emission value using the city and highway values determined in 
paragraph (d)(2)(i)(B) of this section.
    (D) Subtract the 5-cycle city/highway combined carbon-related 
exhaust emission value determined with the off-cycle technology 
operating from the 5-cycle city/highway combined carbon-related exhaust 
emission value determined with the off-cycle technology not operating. 
The result is the gram per mile credit amount assigned to the 
technology.
    (ii) Technology demonstration using alternative EPA-approved 
methodology. In cases where the EPA 5-cycle methodology described in 
paragraph (d)(2)(i) of this section cannot adequately measure the 
emission reduction attributable to an innovative off-cycle technology, 
the manufacturer may develop an alternative approach. Prior to a model 
year in which a manufacturer intends to seek these credits, the 
manufacturer must submit a detailed analytical plan to EPA. EPA will 
work with the manufacturer to ensure that an analytical plan will 
result in appropriate data for the purposes of generating these 
credits. The alternative demonstration program must be approved in 
advance by the Administrator and should:
    (A) Use modeling, on-road testing, on-road data collection, or 
other approved analytical or engineering methods;
    (B) Be robust, verifiable, and capable of demonstrating the real-
world emissions benefit with strong statistical significance;
    (C) Result in a demonstration of baseline and controlled emissions 
over a wide range of driving conditions and number of vehicles such 
that issues of data uncertainty are minimized;
    (D) Result in data on a model type basis unless the manufacturer 
demonstrates that another basis is appropriate and adequate.
    (iii) Calculation of total off-cycle credits. Total off-cycle 
credits in Megagrams of CO2 (rounded to the nearest whole 
number) shall be calculated separately for passenger automobiles and 
light trucks according to the following formula:

Total Credits (Megagrams) = (Credit x Production x VLM) / 1,000,000

Where:

Credit = the 5-cycle credit value in grams per mile determined in 
paragraph (d)(2)(i)(D) or (d)(2)(ii) of this section.
Production = The total number of passenger cars or light trucks, 
whichever is applicable, produced with the off-cycle technology to 
which to the credit value determined in paragraph (d)(2)(i)(D) or 
(d)(2)(ii) of this section applies.
VLM = vehicle lifetime miles, which for passenger cars shall be 
195,264 and for light trucks shall be 225,865.

    (3) Notice and opportunity for public comment. The Administrator 
will publish a notice of availability in the Federal Register notifying 
the public of a manufacturer's proposed alternative off-cycle credit 
calculation methodology. The notice will include details regarding the 
proposed methodology, but will not include any Confidential Business 
Information. The notice will include instructions on how to comment on 
the methodology. The Administrator will take public comments into 
consideration in the final determination, and will notify the public of 
the final determination. Credits may not be accrued using an approved 
methodology until the model year following the final approval.

0
29. A new Sec.  86.1867-12 is added to subpart S to read as follows:

Sec.  86.1867-12  Optional early CO2 credit programs.

    Manufacturers may optionally generate CO2 credits in the 
2009 through 2011 model years for use in the 2012 and later model years 
subject to EPA approval and to the provisions of this section. 
Manufacturers may generate early fleet average credits, air 
conditioning leakage credits, air conditioning efficiency credits, 
early advanced technology credits, and early off-cycle technology 
credits. Manufacturers generating any credits under this section must 
submit an early credits report to the Administrator as required in this 
section. The terms ``sales'' and ``sold'' as used in this section shall 
mean vehicles produced and delivered for sale in the states and 
territories of the United States.
    (a) Early fleet average CO2 reduction credits. Manufacturers may 
optionally generate credits for reductions in their fleet average 
CO2 emissions achieved in the 2009 through 2011 model years. 
To generate early fleet average CO2 reduction credits, 
manufacturers must select one of the four pathways described in 
paragraphs (a)(1) through (4) of this section. The manufacturer may 
select only one pathway, and that

[[Page 25699]]

pathway must remain in effect for the 2009 through 2011 model years. 
Fleet average credits (or debits) must be calculated and reported to 
EPA for each model year under each selected pathway. Early credits are 
subject to five year carry-forward restrictions based on the model year 
in which the credits are generated.
    (1) Pathway 1. To earn credits under this pathway, the manufacturer 
shall calculate an average carbon-related exhaust emission value to the 
nearest one gram per mile for the classes of motor vehicles identified 
in this paragraph (a)(1), and the results of such calculations will be 
reported to the Administrator for use in determining compliance with 
the applicable CO2 early credit threshold values.
    (i) An average carbon-related exhaust emission value calculation 
will be made for the combined LDV/LDT1 averaging set.
    (ii) An average carbon-related exhaust emission value calculation 
will be made for the combined LDT2/HLDT/MDPV averaging set.
    (iii) Average carbon-related exhaust emission values shall be 
determined according to the provisions of Sec.  600.510-12 of this 
chapter, except that:
    (A) Total U.S. model year sales data will be used, instead of 
production data.
    (B) The average carbon-related exhaust emissions for alcohol fueled 
model types shall be calculated according to the provisions of Sec.  
600.510-12(j)(2)(ii)(B) of this chapter, without the use of the 0.15 
multiplicative factor.
    (C) The average carbon-related exhaust emissions for natural gas 
fueled model types shall be calculated according to the provisions of 
Sec.  600.510-12(j)(2)(iii)(B) of this chapter, without the use of the 
0.15 multiplicative factor.
    (D) The average carbon-related exhaust emissions for alcohol dual 
fueled model types shall be the value measured using gasoline or diesel 
fuel, as applicable, and shall be calculated according to the 
provisions of Sec.  600.510-12(j)(2)(vi) of this chapter, without the 
use of the 0.15 multiplicative factor and with F = 0. For the 2010 and 
2011 model years only, if the California Air Resources Board has 
approved a manufacturer's request to use a non-zero value of F, the 
manufacturer may use such an approved value.
    (E) The average carbon-related exhaust emissions for natural gas 
dual fueled model types shall be the value measured using gasoline or 
diesel fuel, as applicable, and shall be calculated according to the 
provisions of Sec.  600.510-12(j)(2)(vii) of this chapter, without the 
use of the 0.15 multiplicative factor and with F = 0. For the 2010 and 
2011 model years only, if the California Air Resources Board has 
approved a manufacturer's request to use a non-zero value of F, the 
manufacturer may use such an approved value.
    (F) Carbon-related exhaust emission values for electric, fuel cell, 
and plug-in hybrid electric model types shall be included in the fleet 
average determined under paragraph (a)(1) of this section only to the 
extent that such vehicles are not being used to generate early advanced 
technology vehicle credits under paragraph (c) of this section.
    (iv) Fleet average CO2 credit threshold values.

------------------------------------------------------------------------
                                                              LDT2/HLDT/
                  Model year                      LDV/LDT1       MDPV
------------------------------------------------------------------------
2009..........................................          323          439
2010..........................................          301          420
2011..........................................          267          390
------------------------------------------------------------------------

    (v) Credits are earned on the last day of the model year. 
Manufacturers must calculate, for a given model year, the number of 
credits or debits it has generated according to the following equation, 
rounded to the nearest megagram:

CO2 Credits or Debits (Mg) = [(CO2 Credit 
Threshold - Manufacturer's Sales Weighted Fleet Average CO2 
Emissions) x (Total Number of Vehicles Sold) x (Vehicle Lifetime 
Miles)] / 1,000,000

Where:

CO2 Credit Threshold = the applicable credit threshold 
value for the model year and vehicle averaging set as determined by 
paragraph (a)(1)(iv) of this section;
Manufacturer's Sales Weighted Fleet Average CO2 Emissions 
= average calculated according to paragraph (a)(1)(iii) of this 
section;
Total Number of Vehicles Sold = The number of vehicles domestically 
sold as defined in Sec.  600.511-80 of this chapter; and
Vehicle Lifetime Miles is 195,264 for the LDV/LDT1 averaging set and 
225,865 for the LDT2/HLDT/MDPV averaging set.

    (vi) Deficits generated against the applicable CO2 
credit threshold values in paragraph (a)(1)(iv) of this section in any 
averaging set for any of the 2009-2011 model years must be offset using 
credits accumulated by any averaging set in any of the 2009-2011 model 
years before determining the number of credits that may be carried 
forward to the 2012. Deficit carry forward and credit banking 
provisions of Sec.  86.1865-12 apply to early credits earned under this 
paragraph (a)(1), except that deficits may not be carried forward from 
any of the 2009-2011 model years into the 2012 model year, and credits 
earned in the 2009 model year may not be traded to other manufacturers.
    (2) Pathway 2. To earn credits under this pathway, manufacturers 
shall calculate an average carbon-related exhaust emission value to the 
nearest one gram per mile for the classes of motor vehicles identified 
in paragraph (a)(1) of this section, and the results of such 
calculations will be reported to the Administrator for use in 
determining compliance with the applicable CO2 early credit 
threshold values.
    (i) Credits under this pathway shall be calculated according to the 
provisions of paragraph (a)(1) of this section, except credits may only 
be generated by vehicles sold in a model year in California and in 
states with a section 177 program in effect in that model year. For the 
purposes of this section, ``section 177 program'' means State 
regulations or other laws that apply to vehicle emissions from any of 
the following categories of motor vehicles: Passenger cars, light-duty 
trucks up through 6,000 pounds GVWR, and medium-duty vehicles from 
6,001 to 14,000 pounds GVWR, as these categories of motor vehicles are 
defined in the California Code of Regulations, Title 13, Division 3, 
Chapter 1, Article 1, Section 1900.
    (ii) A deficit in any averaging set for any of the 2009-2011 model 
years must be offset using credits accumulated by any averaging set in 
any of the 2009-2011 model years before determining the number of 
credits that may be carried forward to the 2012 model year. Deficit 
carry forward and credit banking provisions of Sec.  86.1865-12 apply 
to early credits earned under this paragraph (a)(1), except that 
deficits may not be carried forward from any of the 2009-2011 model 
years into the 2012 model year, and credits earned in the 2009 model 
year may not be traded to other manufacturers.
    (3) Pathway 3. Pathway 3 credits are those credits earned under 
Pathway 2 as described in paragraph (a)(2) of this section in 
California and in the section 177 states determined in paragraph 
(a)(2)(i) of this section, combined with additional credits earned in 
the set of states that does not include California and the section 177 
states determined in paragraph (a)(2)(i) of this section and calculated 
according to this paragraph (a)(3).
    (i) Manufacturers shall earn additional credits under Pathway 3 by 
calculating an average carbon-related exhaust emission value to the 
nearest one gram per mile for the classes of

[[Page 25700]]

motor vehicles identified in this paragraph (a)(3). The results of such 
calculations will be reported to the Administrator for use in 
determining compliance with the applicable CO2 early credit 
threshold values.
    (ii) An average carbon-related exhaust emission value calculation 
will be made for the passenger automobile averaging set. The term 
``passenger automobile'' shall have the meaning given by the Department 
of Transportation at 49 CFR 523.4 for the specific model year for which 
the calculation is being made.
    (iii) An average carbon-related exhaust emission value calculation 
will be made for the light truck averaging set. The term ``light 
truck'' shall have the meaning given by the Department of 
Transportation at 49 CFR 523.5 for the specific model year for which 
the calculation is being made.
    (iv) Average carbon-related exhaust emission values shall be 
determined according to the provisions of Sec.  600.510-12 of this 
chapter, except that:
    (A) Total model year sales data will be used, instead of production 
data, except that vehicles sold in the section 177 states determined in 
paragraph (a)(2)(i) of this section shall not be included.
    (B) The average carbon-related exhaust emissions for alcohol fueled 
model types shall be calculated according to the provisions of Sec.  
600.510-12(j)(2)(ii)(B) of this chapter, without the use of the 0.15 
multiplicative factor.
    (C) The average carbon-related exhaust emissions for natural gas 
fueled model types shall be calculated according to the provisions of 
Sec.  600.510-12(j)(2)(iii)(B) of this chapter, without the use of the 
0.15 multiplicative factor.
    (D) The average carbon-related exhaust emissions for alcohol dual 
fueled model types shall be calculated according to the provisions of 
Sec.  600.510-12(j)(2)(vi) of this chapter, without the use of the 0.15 
multiplicative factor and with F = 0.
    (E) The average carbon-related exhaust emissions for natural gas 
dual fueled model types shall be calculated according to the provisions 
of Sec.  600.510-12(j)(2)(vii) of this chapter, without the use of the 
0.15 multiplicative factor and with F = 0.
    (F) Section 600.510-12(j)(3) of this chapter shall not apply. 
Electric, fuel cell, and plug-in hybrid electric model type carbon-
related exhaust emission values shall be included in the fleet average 
determined under paragraph (a)(1) of this section only to the extent 
that such vehicles are not being used to generate early advanced 
technology vehicle credits under paragraph (c) of this section.
    (v) Pathway 3 fleet average CO2 credit threshold values.
    (A) For 2009 and 2010 model year passenger automobiles, the fleet 
average CO2 credit threshold value is 323 grams/mile.
    (B) For 2009 model year light trucks the fleet average 
CO2 credit threshold value is 381 grams/mile, or, if the 
manufacturer chose to optionally meet an alternative manufacturer-
specific light truck fuel economy standard calculated under 49 CFR 
533.5 for the 2009 model year, the gram per mile fleet average 
CO2 credit threshold shall be the CO2 value 
determined by dividing 8887 by that alternative manufacturer-specific 
fuel economy standard and rounding to the nearest whole gram per mile.
    (C) For 2010 model year light trucks the fleet average 
CO2 credit threshold value is 376 grams/mile, or, if the 
manufacturer chose to optionally meet an alternative manufacturer-
specific light truck fuel economy standard calculated under 49 CFR 
533.5 for the 2010 model year, the gram per mile fleet average 
CO2 credit threshold shall be the CO2 value 
determined by dividing 8887 by that alternative manufacturer-specific 
fuel economy standard and rounding to the nearest whole gram per mile.
    (D) For 2011 model year passenger automobiles the fleet average 
CO2 credit threshold value is the value determined by 
dividing 8887 by the manufacturer-specific passenger automobile fuel 
economy standard for the 2011 model year determined under 49 CFR 531.5 
and rounding to the nearest whole gram per mile.
    (E) For 2011 model year light trucks the fleet average 
CO2 credit threshold value is the value determined by 
dividing 8887 by the manufacturer-specific light truck fuel economy 
standard for the 2011 model year determined under 49 CFR 533.5 and 
rounding to the nearest whole gram per mile.
    (vi) Credits are earned on the last day of the model year. 
Manufacturers must calculate, for a given model year, the number of 
credits or debits it has generated according to the following equation, 
rounded to the nearest megagram:

CO2 Credits or Debits (Mg) = [(CO2 Credit 
Threshold - Manufacturer's Sales Weighted Fleet Average CO2 
Emissions) x (Total Number of Vehicles Sold) x (Vehicle Lifetime 
Miles)] / 1,000,000

Where:

CO2 Credit Threshold = the applicable credit threshold 
value for the model year and vehicle averaging set as determined by 
paragraph (a)(3)(vii) of this section;
Manufacturer's Sales Weighted Fleet Average CO2 Emissions 
= average calculated according to paragraph (a)(3)(vi) of this 
section;
Total Number of Vehicles Sold = The number of vehicles domestically 
sold as defined in Sec.  600.511-80 of this chapter except that 
vehicles sold in the section 177 states determined in paragraph 
(a)(2)(i) of this section shall not be included; and
Vehicle Lifetime Miles is 195,264 for the LDV/LDT1 averaging set and 
225,865 for the LDT2/HLDT/MDPV averaging set.

    (vii) Deficits in any averaging set for any of the 2009-2011 model 
years must be offset using credits accumulated by any averaging set in 
any of the 2009-2011 model years before determining the number of 
credits that may be carried forward to the 2012. Deficit carry forward 
and credit banking provisions of Sec.  86.1865-12 apply to early 
credits earned under this paragraph (a)(3), except that deficits may 
not be carried forward from any of the 2009-2011 model years into the 
2012 model year, and credits earned in the 2009 model year may not be 
traded to other manufacturers.
    (4) Pathway 4. Pathway 4 credits are those credits earned under 
Pathway 3 as described in paragraph (a)(3) of this section in the set 
of states that does not include California and the section 177 states 
determined in paragraph (a)(2)(i) of this section and calculated 
according to paragraph (a)(3) of this section. Credits may only be 
generated by vehicles sold in the set of states that does not include 
the section 177 states determined in paragraph (a)(2)(i) of this 
section.
    (b) Early air conditioning leakage and efficiency credits. (1) 
Manufacturers may optionally generate air conditioning refrigerant 
leakage credits according to the provisions of Sec.  86.1866-12(b) and/
or air conditioning efficiency credits according to the provisions of 
Sec.  86.1866-12(c) in model years 2009 through 2011. The early credits 
are subject to five year carry forward limits based on the model year 
in which the credits are generated. Credits must be tracked by model 
type and model year.
    (2) Manufacturers that are required to comply with California 
greenhouse gas requirements in model years 2009-2011 (for California 
and section 177 states) may not generate early air conditioning credits 
for vehicles sold in California and the section 177 states as 
determined in paragraph (a)(2)(i) of this section.
    (c) Early advanced technology vehicle incentive. Vehicles eligible 
for this

[[Page 25701]]

incentive are electric vehicles, fuel cell vehicles, and plug-in hybrid 
electric vehicles, as those terms are defined in Sec.  86.1803-01. If a 
manufacturer chooses to not include electric vehicles, fuel cell 
vehicles, and plug-in hybrid electric vehicles in their fleet averages 
calculated under any of the early credit pathways described in 
paragraph (a) of this section, the manufacturer may generate early 
advanced technology vehicle credits pursuant to this paragraph (c).
    (1) The manufacturer shall record the sales and carbon-related 
exhaust emission values of eligible vehicles by model type and model 
year for model years 2009 through 2011 and report these values to the 
Administrator under paragraph (e) of this section.
    (2) Manufacturers may use the 2009 through 2011 eligible vehicles 
in their fleet average calculations starting with the 2012 model year, 
subject to a five-year carry-forward limitation.
    (i) Eligible 2009 model year vehicles may be used in the 
calculation of a manufacturer's fleet average carbon-related exhaust 
emissions in the 2012 through 2014 model years.
    (ii) Eligible 2010 model year vehicles may be used in the 
calculation of a manufacturer's fleet average carbon-related exhaust 
emissions in the 2012 through 2015 model years.
    (iii) Eligible 2011 model year vehicles may be used in the 
calculation of a manufacturer's fleet average carbon-related exhaust 
emissions in the 2012 through 2016 model years.
    (3)(i) To use the advanced technology vehicle incentive, the 
manufacturer will apply the 2009, 2010, and/or 2011 model type sales 
volumes and their model type emission levels to the manufacturer's 
fleet average calculation.
    (ii) The early advanced technology vehicle incentive must be used 
to offset a deficit in one of the 2012 through 2016 model years, as 
appropriate under paragraph (c)(2) of this section.
    (iii) The advanced technology vehicle sales and emission values may 
be included in a fleet average calculation for passenger automobiles or 
light trucks, but may not be used to generate credits in the model year 
in which they are included or in the averaging set in which they are 
used. Use of early advanced technology vehicle credits is limited to 
offsetting a deficit that would otherwise be generated without the use 
of those credits. Manufacturers shall report the use of such credits in 
their model year report for the model year in which the credits are 
used.
    (4) Manufacturers may use zero grams/mile to represent the carbon-
related exhaust emission values for the electric operation of 2009 
through 2011 model year electric vehicles, fuel cell vehicles, and 
plug-in hybrid electric vehicles subject to the limitations in Sec.  
86.1866-12(a). The 2009 through 2011 model year vehicles using zero 
grams per mile shall count against the 200,000 or 300,000 caps on use 
of this credit value, whichever is applicable under Sec.  86.1866-
12(a).
    (d) Early off-cycle technology credits. Manufacturers may 
optionally generate credits for the implementation of certain 
CO2-reducing technologies according to the provisions of 
Sec.  86.1866-12(d) in model years 2009 through 2011. The early credits 
are subject to five year carry forward limits based on the model year 
in which the credits are generated. Credits must be tracked by model 
type and model year.
    (e) Early credit reporting requirements. Each manufacturer shall 
submit a report to the Administrator, known as the early credits 
report, that reports the credits earned in the 2009 through 2011 model 
years under this section.
    (1) The report shall contain all information necessary for the 
calculation of the manufacturer's early credits in each of the 2009 
through 2011 model years.
    (2) The early credits report shall be in writing, signed by the 
authorized representative of the manufacturer and shall be submitted no 
later than 90 days after the end of the 2011 model year.
    (3) Manufacturers using one of the optional early fleet average 
CO2 reduction credit pathways described in paragraph (a) of 
this section shall report the following information separately for the 
appropriate averaging sets (e.g. LDV/LDT1 and LDT2/HLDT/MDPV averaging 
sets for pathways 1 and 2; LDV, LDT/2011 MDPV, LDV/LDT1 and LDT2/HLDT/
MDPV averaging sets for Pathway 3; LDV and LDT/2011 MDPV averaging sets 
for Pathway 4):
    (i) The pathway that they have selected (1, 2, 3, or 4).
    (ii) A carbon-related exhaust emission value for each model type of 
the manufacturer's product line calculated according to paragraph (a) 
of this section.
    (iii) The manufacturer's average carbon-related exhaust emission 
value calculated according to paragraph (a) of this section for the 
applicable averaging set and region and all data required to complete 
this calculation.
    (iv) The credits earned for each averaging set, model year, and 
region, as applicable.
    (4) Manufacturers calculating early air conditioning leakage and/or 
efficiency credits under paragraph (b) of this section shall report the 
following information for each model year separately for passenger 
automobiles and light trucks and for each air conditioning system used 
to generate credits:
    (i) A description of the air conditioning system.
    (ii) The leakage credit value and all the information required to 
determine this value.
    (iii) The total credits earned for each averaging set, model year, 
and region, as applicable.
    (5) Manufacturers calculating early advanced technology vehicle 
credits under paragraph (c) of this section shall report, for each 
model year and separately for passenger automobiles and light trucks, 
the following information:
    (i) The number of each model type of eligible vehicle sold.
    (ii) The carbon-related exhaust emission value by model type and 
model year.
    (6) Manufacturers calculating early off-cycle technology credits 
under paragraph (d) of this section shall report, for each model year 
and separately for passenger automobiles and light trucks, all test 
results and data required for calculating such credits.

PART 600--FUEL ECONOMY AND CARBON-RELATED EXHAUST EMISSIONS OF 
MOTOR VEHICLES

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

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

0
31. The heading for part 600 is revised as set forth above.

Subpart A--Fuel Economy and Carbon-Related Exhaust Emission 
Regulations for 1977 and Later Model Year Automobiles--General 
Provisions

0
32. The heading for subpart A is revised as set forth above.

0
33. A new Sec.  600.001-12 is added to subpart A to read as follows:

Sec.  600.001-12  General applicability.

    (a) The provisions of this subpart are applicable to 2012 and later 
model year automobiles and to the manufacturers of 2012 and later model 
year automobiles.
    (b) Fuel economy and related emissions data. Unless stated 
otherwise, references to fuel economy or fuel economy data in this 
subpart shall also be interpreted to mean the related exhaust emissions 
of CO2, HC, and CO, and where applicable for alternative 
fuel vehicles, CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC and CH4. References 
to

[[Page 25702]]

average fuel economy shall be interpreted to also mean average carbon-
related exhaust emissions. References to fuel economy data vehicles 
shall also be meant to refer to vehicles tested for carbon-related 
exhaust emissions for the purpose of demonstrating compliance with 
fleet average CO2 standards in Sec.  86.1818-12 of this 
chapter.

0
34. Section 600.002-08 is amended as follows:
0
a. By adding the definition for ``Base tire.''
0
b. By adding the definition for ``Carbon-related exhaust emissions.''
0
c. By adding the definition for ``Electric vehicle.''
0
d. By adding the definition for ``Footprint.''
0
e. By adding the definition for ``Fuel cell.''
0
f. By adding the definition for ``Fuel cell vehicle.''
0
g. By adding the definition for ``Hybrid electric vehicle.''
0
h. By revising the definition for ``Non-passenger automobile.''
0
i. By revising the definition for ``Passenger automobile.''
0
j. By adding the definition for ``Plug-in hybrid electric vehicle.''
0
k. By adding the definition for ``Track width.''
0
l. By adding the definition for ``Wheelbase.''

Sec.  600.002-08  Definitions.

* * * * *
    Base tire means the tire specified as standard equipment by the 
manufacturer.
* * * * *
    Carbon-related exhaust emissions (CREE) means the summation of the 
carbon-containing constituents of the exhaust emissions, with each 
constituent adjusted by a coefficient representing the carbon weight 
fraction of each constituent relative to the CO2 carbon 
weight fraction, as specified in Sec.  600.113-08. For example, carbon-
related exhaust emissions (weighted 55 percent city and 45 percent 
highway) are used to demonstrate compliance with fleet average 
CO2 emission standards outlined in Sec.  86.1818(c) of this 
chapter.
* * * * *
    Electric vehicle has the meaning given in Sec.  86.1803-01 of this 
chapter.
* * * * *
    Footprint has the meaning given in Sec.  86.1803-01 of this 
chapter.
* * * * *
    Fuel cell has the meaning given in Sec.  86.1803-01 of this 
chapter.
    Fuel cell vehicle has the meaning given in Sec.  86.1803-01 of this 
chapter.
* * * * *
    Hybrid electric vehicle (HEV) has the meaning given in Sec.  
86.1803-01 of this chapter.
* * * * *
    Non-passenger automobile has the meaning given by the Department of 
Transportation at 49 CFR 523.5. This term is synonymous with ``light 
truck.''
* * * * *
    Passenger automobile has the meaning given by the Department of 
Transportation at 49 CFR 523.4.
* * * * *
    Plug-in hybrid electric vehicle (PHEV) has the meaning given in 
Sec.  86.1803-01 of this chapter.
* * * * *
    Track width has the meaning given in Sec.  86.1803-01 of this 
chapter.
* * * * *
    Wheelbase has the meaning given in Sec.  86.1803-01 of this 
chapter.
* * * * *

0
35. Section 600.006-08 is amended as follows:
0
a. By revising the section heading.
0
b. By revising paragraph (b)(2)(ii).
0
c. By revising paragraph (b)(2)(iv).
0
d. By revising paragraph (c) introductory text.
0
e. By adding paragraph (c)(5).
0
f. By revising paragraph (e).
0
g. By revising paragraph (g)(3).

Sec.  600.006-08  Data and information requirements for fuel economy 
data vehicles.

* * * * *
    (b) * * *
    (2) * * *
    (ii) In the case of electric vehicles, plug-in hybrid electric 
vehicles, and hybrid electric vehicles, a description of all 
maintenance to electric motor, motor controller, battery configuration, 
or other components performed within 2,000 miles prior to fuel economy 
testing.
* * * * *
    (iv) In the case of electric vehicles, plug-in hybrid electric 
vehicles, and hybrid electric vehicles, a copy of calibrations for the 
electric motor, motor controller, battery configuration, or other 
components on the test vehicle as well as the design tolerances.
* * * * *
    (c) The manufacturer shall submit the following fuel economy data:
* * * * *
    (5) Starting with the 2012 model year, the data submitted according 
to paragraphs (c)(1) through (c)(4) of this section shall include total 
HC, CO, CO2, and, where applicable for alternative fuel 
vehicles, CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC and CH4. 
Manufacturers incorporating N2O and CH4 emissions 
in their fleet average carbon-related exhaust emissions as allowed 
under Sec.  86.1818(f)(2) of this chapter shall also submit 
N2O and CH4 emission data where applicable. The 
fuel economy and CO2 emission test results shall be adjusted 
in accordance with paragraph (g) of this section.
* * * * *
    (e) In lieu of submitting actual data from a test vehicle, a 
manufacturer may provide fuel economy and carbon-related exhaust 
emission values derived from a previously tested vehicle, where the 
fuel economy and carbon-related exhaust emissions are expected to be 
equivalent (or less fuel-efficient and with higher carbon-related 
exhaust emissions). Additionally, in lieu of submitting actual data 
from a test vehicle, a manufacturer may provide fuel economy and 
carbon-related exhaust emission values derived from an analytical 
expression, e.g., regression analysis. In order for fuel economy and 
carbon-related exhaust emission values derived from analytical methods 
to be accepted, the expression (form and coefficients) must have been 
approved by the Administrator.
* * * * *
    (g) * * *
    (3)(i) The manufacturer shall adjust all fuel economy test data 
generated by vehicles with engine-drive system combinations with more 
than 6,200 miles by using the following equation:

FE4,000mi = FET[0.979 + 5.25 x 
10-\6\(mi)]-\1\

Where:

FE4,000mi = Fuel economy data adjusted to 4,000-mile test 
point rounded to the nearest 0.1 mpg.
FET = Tested fuel economy value rounded to the nearest 
0.1 mpg.
mi = System miles accumulated at the start of the test rounded to 
the nearest whole mile.

    (ii)(A) The manufacturer shall adjust all carbon-related exhaust 
emission (CREE) test data generated by vehicles with engine-drive 
system combinations with more than 6,200 miles by using the following 
equation:

CREE4,000mi = CREET[0.979 + 5.25 x 
10-6(mi)]

Where:

CREE4,000mi = CREE emission data adjusted to 4,000-mile 
test point.
CREE T = Tested emissions value of CREE in grams per 
mile.
mi = System miles accumulated at the start of the test rounded to 
the nearest whole mile.

    (B) Emissions test values and results used and determined in the 
calculations in paragraph (g)(3)(ii) of this section

[[Page 25703]]

shall be rounded in accordance with Sec.  86.1837-01 of this chapter as 
applicable. CREE values shall be rounded to the nearest gram per mile.
* * * * *

0
36. Section 600.007-08 is amended as follows:
0
a. By revising paragraph (b)(4) through (6).
0
b. By revising paragraph (c).
0
c. By revising paragraph (f) introductory text.

Sec.  600.007-08  Vehicle acceptability.

* * * * *
    (b) * * *
    (4) Each fuel economy data vehicle must meet the same exhaust 
emission standards as certification vehicles of the respective engine-
system combination during the test in which the city fuel economy test 
results are generated. This may be demonstrated using one of the 
following methods:
    (i) The deterioration factors established for the respective 
engine-system combination per Sec.  86.1841-01 of this chapter as 
applicable will be used; or
    (ii) The fuel economy data vehicle will be equipped with aged 
emission control components according to the provisions of Sec.  
86.1823-08 of this chapter.
    (5) The calibration information submitted under Sec.  600.006(b) 
must be representative of the vehicle configuration for which the fuel 
economy and carbon-related exhaust emissions data were submitted.
    (6) Any vehicle tested for fuel economy or carbon-related exhaust 
emissions purposes must be representative of a vehicle which the 
manufacturer intends to produce under the provisions of a certificate 
of conformity.
* * * * *
    (c) If, based on review of the information submitted under Sec.  
600.006(b), the Administrator determines that a fuel economy data 
vehicle meets the requirements of this section, the fuel economy data 
vehicle will be judged to be acceptable and fuel economy and carbon-
related exhaust emissions data from that fuel economy data vehicle will 
be reviewed pursuant to Sec.  600.008.
* * * * *
    (f) All vehicles used to generate fuel economy and carbon-related 
exhaust emissions data, and for which emission standards apply, must be 
covered by a certificate of conformity under part 86 of this chapter 
before:
* * * * *

0
37. Section 600.008-08 is amended by revising the section heading and 
paragraph (a)(1) to read as follows:

Sec.  600.008-08  Review of fuel economy and carbon-related exhaust 
emission data, testing by the Administrator.

    (a) Testing by the Administrator. (1)(i) The Administrator may 
require that any one or more of the test vehicles be submitted to the 
Agency, at such place or places as the Agency may designate, for the 
purposes of conducting fuel economy tests. The Administrator may 
specify that such testing be conducted at the manufacturer's facility, 
in which case instrumentation and equipment specified by the 
Administrator shall be made available by the manufacturer for test 
operations. The tests to be performed may comprise the FTP, highway 
fuel economy test, US06, SC03, or Cold temperature FTP or any 
combination of those tests. Any testing conducted at a manufacturer's 
facility pursuant to this paragraph shall be scheduled by the 
manufacturer as promptly as possible.
    (ii) Starting with the 2012 model year, evaluations, testing, and 
test data described in this section pertaining to fuel economy shall 
also be performed for carbon-related exhaust emissions, except that 
carbon-related exhaust emissions shall be arithmetically averaged 
instead of harmonically averaged, and in cases where the manufacturer 
selects the lowest of several fuel economy results to represent the 
vehicle, the manufacturer shall select the carbon-related exhaust 
emissions value from the test results associated with the lowest fuel 
economy results.
* * * * *

0
38. Section 600.010-08 is amended by revising paragraph (d) to read as 
follows:

Sec.  600.010-08  Vehicle test requirements and minimum data 
requirements.

* * * * *
    (d) Minimum data requirements for the manufacturer's average fuel 
economy and average carbon-related exhaust emissions. For the purpose 
of calculating the manufacturer's average fuel economy and average 
carbon-related exhaust emissions under Sec.  600.510, the manufacturer 
shall submit FTP (city) and HFET (highway) test data representing at 
least 90 percent of the manufacturer's actual model year production, by 
configuration, for each category identified for calculation under Sec.  
600.510-08(a).

0
39. Section 600.011-93 is amended to read as follows:

Sec.  600.011-93  Reference materials.

    (a) Incorporation by reference. The documents referenced in this 
section have been incorporated by reference in this part. The 
incorporation by reference was approved by the Director of the Federal 
Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies 
may be inspected at the U.S. Environmental Protection Agency, Office of 
Air and Radiation, 1200 Pennsylvania Ave., NW., Washington, DC 20460, 
phone (202) 272-0167, or at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/
federal_register/code_of_federal_regulations/ibr_locations.html 
and is available from the sources listed below:
    (b) ASTM. The following material is available from the American 
Society for Testing and Materials. Copies of these materials may be 
obtained from American Society for Testing and Materials, ASTM 
International, 100 Barr Harbor Drive, P.O. Box C700, West Conshohocken, 
PA 19428-2959, phone 610-832-9585. http://www.astm.org/.
    (1) ASTM E 29-67 (Reapproved 1973) Standard Recommended Practice 
for Indicating Which Places of Figures Are To Be Considered Significant 
in Specified Limiting Values, IBR approved for Sec. Sec.  600.002-93 
and 600.002-08.
    (2) ASTM D 1298-85 (Reapproved 1990) Standard Practice for Density, 
Relative Density (Specific Gravity), or API Gravity of Crude Petroleum 
and Liquid Petroleum Products by Hydrometer Method, IBR approved for 
Sec. Sec.  600.113-93, 600.510-93, 600.113-08, 600.510-08, and 600.510-
12.
    (3) ASTM D 3343-90 Standard Test Method for Estimation of Hydrogen 
Content of Aviation Fuels, IBR approved for Sec. Sec.  600.113-93 and 
600.113-08.
    (4) ASTM D 3338-92 Standard Test Method for Estimation of Net Heat 
of Combustion of Aviation Fuels, IBR approved for Sec. Sec.  600.113-93 
and 600.113-08.
    (5) ASTM D 240-92 Standard Test Method for Heat of Combustion of 
Liquid Hydrocarbon Fuels by Bomb Calorimeter, IBR approved for 
Sec. Sec.  600.113-93, 600.510-93, 600.113-08, and 600.510-08.
    (6) ASTM D975-04c Standard Specification for Diesel Fuel Oils, IBR 
approved for Sec.  600.107-08.
    (7) ASTM D 1945-91 Standard Test Method for Analysis of Natural Gas 
By Gas Chromatography, IBR approved for Sec. Sec.  600.113-93, 600.113-
08.
    (c) SAE Material. The following material is available from the 
Society of

[[Page 25704]]

Automotive Engineers. Copies of these materials may be obtained from 
Society of Automotive Engineers World Headquarters, 400 Commonwealth 
Dr., Warrendale, PA 15096-0001, phone (877) 606-7323 (U.S. and Canada) 
or (724) 776-4970 (outside the U.S. and Canada), or at http://
www.sae.org.
    (1) Motor Vehicle Dimensions--Recommended Practice SAE 1100a 
(Report of Human Factors Engineering Committee, Society of Automotive 
Engineers, approved September 1973 as revised September 1975), IBR 
approved for Sec. Sec.  600.315-08 and 600.315-82.
    (2) [Reserved]

Subpart B--Fuel Economy and Carbon-Related Exhaust Emission 
Regulations for 1978 and Later Model Year Automobiles--Test 
Procedures

0
40. The heading for subpart B is revised as set forth above.
0
41. A new Sec.  600.101-12 is added to subpart B to read as follows:

Sec.  600.101-12  General applicability.

    (a) The provisions of this subpart are applicable to 2012 and later 
model year automobiles and to the manufacturers of 2012 and later model 
year automobiles.
    (b) Fuel economy and carbon-related emissions data. Unless stated 
otherwise, references to fuel economy or fuel economy data in this 
subpart shall also be interpreted to mean the related exhaust emissions 
of CO2, HC, and CO, and where applicable for alternative 
fuel vehicles, CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC and CH4. References 
to average fuel economy shall be interpreted to also mean average 
carbon-related exhaust emissions.
0
42. Section 600.111-08 is amended by revising paragraph (f) to read as 
follows:

Sec.  600.111-08  Test procedures.

* * * * *
    (f) Special Test Procedures. The Administrator may prescribe test 
procedures, other than those set forth in this Subpart B, for any 
vehicle which is not susceptible to satisfactory testing and/or testing 
results by the procedures set forth in this part. For example, special 
test procedures may be used for advanced technology vehicles, 
including, but not limited to battery electric vehicles, fuel cell 
vehicles, plug-in hybrid electric vehicles and vehicles equipped with 
hydrogen internal combustion engines. Additionally, the Administrator 
may conduct fuel economy and carbon-related exhaust emission testing 
using the special test procedures approved for a specific vehicle.

0
43. A new Sec.  600.113-12 is added to subpart B to read as follows:

Sec.  600.113-12  Fuel economy and carbon-related exhaust emission 
calculations for FTP, HFET, US06, SC03 and cold temperature FTP tests.

    The Administrator will use the calculation procedure set forth in 
this paragraph for all official EPA testing of vehicles fueled with 
gasoline, diesel, alcohol-based or natural gas fuel. The calculations 
of the weighted fuel economy and carbon-related exhaust emission values 
require input of the weighted grams/mile values for total hydrocarbons 
(HC), carbon monoxide (CO), and carbon dioxide (CO2); and, 
additionally for methanol-fueled automobiles, methanol 
(CH3OH) and formaldehyde (HCHO); and, additionally for 
ethanol-fueled automobiles, methanol (CH3OH), ethanol 
(C2H5OH), acetaldehyde 
(C2H4O), and formaldehyde (HCHO); and 
additionally for natural gas-fueled vehicles, non-methane hydrocarbons 
(NMHC) and methane (CH4). For manufacturers selecting the 
fleet averaging option for N2O and CH4 as allowed 
under Sec.  86.1818-12(f)(2) of this chapter the calculations of the 
carbon-related exhaust emissions require the input of grams/mile values 
for nitrous oxide (N2O) and methane (CH4). 
Emissions shall be determined for the FTP, HFET, US06, SC03 and cold 
temperature FTP tests. Additionally, the specific gravity, carbon 
weight fraction and net heating value of the test fuel must be 
determined. The FTP, HFET, US06, SC03 and cold temperature FTP fuel 
economy and carbon-related exhaust emission values shall be calculated 
as specified in this section. An example fuel economy calculation 
appears in Appendix II of this part.
    (a) Calculate the FTP fuel economy.
    (1) Calculate the weighted grams/mile values for the FTP test for 
CO2, HC, and CO, and where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC, 
N2O and CH4 as specified in Sec.  86.144(b) of 
this chapter. Measure and record the test fuel's properties as 
specified in paragraph (f) of this section.
    (2) Calculate separately the grams/mile values for the cold 
transient phase, stabilized phase and hot transient phase of the FTP 
test. For vehicles with more than one source of propulsion energy, one 
of which is a rechargeable energy storage system, or vehicles with 
special features that the Administrator determines may have a 
rechargeable energy source, whose charge can vary during the test, 
calculate separately the grams/mile values for the cold transient 
phase, stabilized phase, hot transient phase and hot stabilized phase 
of the FTP test.
    (b) Calculate the HFET fuel economy.
    (1) Calculate the mass values for the highway fuel economy test for 
HC, CO and CO2, and where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC, 
N2O and CH4 as specified in Sec.  86.144(b) of 
this chapter. Measure and record the test fuel's properties as 
specified in paragraph (f) of this section.
    (2) Calculate the grams/mile values for the highway fuel economy 
test for HC, CO and CO2, and where applicable 
CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC, N2O and 
CH4 by dividing the mass values obtained in paragraph (b)(1) 
of this section, by the actual distance traveled, measured in miles, as 
specified in Sec.  86.135(h) of this chapter.
    (c) Calculate the cold temperature FTP fuel economy.
    (1) Calculate the weighted grams/mile values for the cold 
temperature FTP test for HC, CO and CO2, and where 
applicable, CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC, N2O and 
CH4 as specified in Sec.  86.144(b) of this chapter. For 
2008 through 2010 diesel-fueled vehicles, HC measurement is optional.
    (2) Calculate separately the grams/mile values for the cold 
transient phase, stabilized phase and hot transient phase of the cold 
temperature FTP test in Sec.  86.244 of this chapter.
    (3) Measure and record the test fuel's properties as specified in 
paragraph (f) of this section.
    (d) Calculate the US06 fuel economy.
    (1) Calculate the total grams/mile values for the US06 test for HC, 
CO and CO2, and where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC, 
N2O and CH4 as specified in Sec.  86.144(b) of 
this chapter.
    (2) Calculate separately the grams/mile values for HC, CO and 
CO2, and where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC, 
N2O and CH4, for both the US06 City phase and the 
US06 Highway phase of the US06 test as specified in Sec.  86.164 of 
this chapter. In lieu of directly measuring the emissions of the 
separate city and highway phases of the US06 test according to the 
provisions of Sec.  86.159 of this chapter, the manufacturer may, with 
the advance approval of the Administrator and using good engineering 
judgment, optionally analytically determine the grams/mile values for 
the city and highway phases of the US06 test. To analytically determine 
US06 City and US06 Highway phase emission results, the manufacturer 
shall multiply the US06 total grams/mile values determined in paragraph 
(d)(1) of this section by the estimated proportion of fuel use for the 
city and highway phases relative to the total US06 fuel use. The 
manufacturer may estimate the proportion of fuel use

[[Page 25705]]

for the US06 City and US06 Highway phases by using modal 
CO2, HC, and CO emissions data, or by using appropriate OBD 
data (e.g., fuel flow rate in grams of fuel per second), or another 
method approved by the Administrator.
    (3) Measure and record the test fuel's properties as specified in 
paragraph (f) of this section.
    (e) Calculate the SC03 fuel economy.
    (1) Calculate the grams/mile values for the SC03 test for HC, CO 
and CO2, and where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC, 
N2O and CH4 as specified in Sec.  86.144(b) of 
this chapter.
    (2) Measure and record the test fuel's properties as specified in 
paragraph (f) of this section.
    (f) Fuel property determination and analysis.
    (1) Gasoline test fuel properties shall be determined by analysis 
of a fuel sample taken from the fuel supply. A sample shall be taken 
after each addition of fresh fuel to the fuel supply. Additionally, the 
fuel shall be resampled once a month to account for any fuel property 
changes during storage. Less frequent resampling may be permitted if 
EPA concludes, on the basis of manufacturer-supplied data, that the 
properties of test fuel in the manufacturer's storage facility will 
remain stable for a period longer than one month. The fuel samples 
shall be analyzed to determine the following fuel properties:
    (i) Specific gravity measured using ASTM D 1298-85 (Reapproved 
1990) ``Standard Practice for Density, Relative Density (Specific 
Gravity), or API Gravity of Crude Petroleum and Liquid Petroleum 
Products by Hydrometer Method'' (incorporated by reference at Sec.  
600.011-93).
    (ii) Carbon weight fraction measured using ASTM D 3343-90 
``Standard Test Method for Estimation of Hydrogen Content of Aviation 
Fuels'' (incorporated by reference at Sec.  600.011-93).
    (iii) Net heating value (Btu/lb) determined using ASTM D 3338-92 
``Standard Test Method for Estimation of Net Heat of Combustion of 
Aviation Fuels'' (incorporated by reference at Sec.  600.011-93).
    (2) Methanol test fuel shall be analyzed to determine the following 
fuel properties:
    (i) Specific gravity using either:
    (A) ASTM D 1298-85 (Reapproved 1990) ``Standard Practice for 
Density, Relative Density (Specific Gravity), or API Gravity of Crude 
Petroleum and Liquid Petroleum Products by Hydrometer Method'' 
(incorporated by reference at Sec.  600.011-93) for the blend, or:
    (B) ASTM D 1298-85 (Reapproved 1990) ``Standard Practice for 
Density, Relative Density (Specific Gravity), or API Gravity of Crude 
Petroleum and Liquid Petroleum Products by Hydrometer Method'' 
(incorporated by reference at Sec.  600.011-93) for the gasoline fuel 
component and also for the methanol fuel component and combining as 
follows:

SG = SGg x volume fraction gasoline + SGm x volume fraction methanol.

    (ii)(A) Carbon weight fraction using the following equation:

CWF = CWFg x MFg + 0.375 x MFm

Where:

CWFg = Carbon weight fraction of gasoline portion of blend measured 
using ASTM D 3343-90 ``Standard Test Method for Estimation of 
Hydrogen Content of Aviation Fuels'' (incorporated by reference at 
Sec.  600.011-93).
MFg = Mass fraction gasoline = (G x SGg)/(G x SGg + M x SGm)
MFm = Mass fraction methanol = (M x SGm)/(G x SGg + M x SGm)

Where:

G = Volume fraction gasoline.
M = Volume fraction methanol.
SGg = Specific gravity of gasoline as measured using ASTM D 1298-85 
(Reapproved 1990) ``Standard Practice for Density, Relative Density 
(Specific Gravity), or API Gravity of Crude Petroleum and Liquid 
Petroleum Products by Hydrometer Method'' (incorporated by reference 
at Sec.  600.011-93).
SGm = Specific gravity of methanol as measured using ASTM D 1298-85 
(Reapproved 1990) ``Standard Practice for Density, Relative Density 
(Specific Gravity), or API Gravity of Crude Petroleum and Liquid 
Petroleum Products by Hydrometer Method'' (incorporated by reference 
at Sec.  600.011-93).

    (B) Upon the approval of the Administrator, other procedures to 
measure the carbon weight fraction of the fuel blend may be used if the 
manufacturer can show that the procedures are superior to or equally as 
accurate as those specified in this paragraph (f)(2)(ii).
    (3) Natural gas test fuel shall be analyzed to determine the 
following fuel properties:
    (i) Fuel composition measured using ASTM D 1945-91 ``Standard Test 
Method for Analysis of Natural Gas By Gas Chromatography'' 
(incorporated by reference at Sec.  600.011-93).
    (ii) Specific gravity measured as based on fuel composition per 
ASTM D 1945-91 ``Standard Test Method for Analysis of Natural Gas by 
Gas Chromatography'' (incorporated by reference at Sec.  600.011-93).
    (iii) Carbon weight fraction, based on the carbon contained only in 
the hydrocarbon constituents of the fuel. This equals the weight of 
carbon in the hydrocarbon constituents divided by the total weight of 
fuel.
    (iv) Carbon weight fraction of the fuel, which equals the total 
weight of carbon in the fuel (i.e, includes carbon contained in 
hydrocarbons and in CO2) divided by the total weight of 
fuel.
    (4) Ethanol test fuel shall be analyzed to determine the following 
fuel properties:
    (i) Specific gravity using either:
    (A) ASTM D 1298-85 (Reapproved 1990) ``Standard Practice for 
Density, Relative Density (Specific Gravity), or API Gravity of Crude 
Petroleum and Liquid Petroleum Products by Hydrometer Method'' 
(incorporated by reference at Sec.  600.011-93) for the blend. or:
    (B) ASTM D 1298-85 (Reapproved 1990) ``Standard Practice for 
Density, Relative Density (Specific Gravity), or API Gravity of Crude 
Petroleum and Liquid Petroleum Products by Hydrometer Method'' 
(incorporated by reference at Sec.  600.011-93) for the gasoline fuel 
component and also for the methanol fuel component and combining as 
follows.

SG = SGg x volume fraction gasoline + SGm x volume fraction ethanol.

    (ii)(A) Carbon weight fraction using the following equation:

CWF = CWFg x MFg + 0.521 x MFe

Where:

CWFg = Carbon weight fraction of gasoline portion of blend measured 
using ASTM D 3343-90 ``Standard Test Method for Estimation of 
Hydrogen Content of Aviation Fuels'' (incorporated by reference at 
Sec.  600.011-93).
MFg = Mass fraction gasoline = (G x SGg)/(G x SGg + E x SGm)
MFe = Mass fraction ethanol = (E x SGm)/(G x SGg + E x SGm)

Where:

G = Volume fraction gasoline.
E = Volume fraction ethanol.
SGg = Specific gravity of gasoline as measured using ASTM D 1298-85 
(Reapproved 1990) ``Standard Practice for Density, Relative Density 
(Specific Gravity), or API Gravity of Crude Petroleum and Liquid 
Petroleum Products by Hydrometer Method'' (incorporated by reference 
at Sec.  600.011-93).
SGm = Specific gravity of ethanol as measured using ASTM D 1298-85 
(Reapproved 1990) ``Standard Practice for Density, Relative Density 
(Specific Gravity), or API Gravity of Crude Petroleum and Liquid 
Petroleum Products by Hydrometer Method'' (incorporated by reference 
at Sec.  600.011-93).

[[Page 25706]]

    (B) Upon the approval of the Administrator, other procedures to 
measure the carbon weight fraction of the fuel blend may be used if the 
manufacturer can show that the procedures are superior to or equally as 
accurate as those specified in this paragraph (f)(2)(ii).
    (g) Calculate separate FTP, highway, US06, SC03 and Cold 
temperature FTP fuel economy and carbon-related exhaust emissions from 
the grams/mile values for total HC, CO, CO2 and, where 
applicable, CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC, N2O, and 
CH4, and the test fuel's specific gravity, carbon weight 
fraction, net heating value, and additionally for natural gas, the test 
fuel's composition.
    (1) Emission values for fuel economy calculations. The emission 
values (obtained per paragraph (a) through (e) of this section, as 
applicable) used in the calculations of fuel economy in this section 
shall be rounded in accordance with Sec. Sec.  86.094-26(a)(6)(iii) or 
86.1837-01 of this chapter as applicable. The CO2 values 
(obtained per this section, as applicable) used in each calculation of 
fuel economy in this section shall be rounded to the nearest gram/mile.
    (2) Emission values for carbon-related exhaust emission 
calculations.
    (i) If the emission values (obtained per paragraph (a) through (e) 
of this section, as applicable) were obtained from testing with aged 
exhaust emission control components as allowed under Sec.  86.1823-08 
of this chapter, then these test values shall be used in the 
calculations of carbon-related exhaust emissions in this section.
    (ii) If the emission values (obtained per paragraph (a) through (e) 
of this section, as applicable) were not obtained from testing with 
aged exhaust emission control components as allowed under Sec.  
86.1823-08 of this chapter, then these test values shall be adjusted by 
the appropriate deterioration factor determined according to Sec.  
86.1823-08 of this chapter before being used in the calculations of 
carbon-related exhaust emissions in this section. For vehicles within a 
test group, the appropriate NMOG deterioration factor may be used in 
lieu of the deterioration factors for CH3OH, 
C2H5OH, and/or C2H4O 
emissions.
    (iii) The emission values determined in paragraph (g)(2)(A) or (B) 
of this section shall be rounded in accordance with Sec.  86.094-
26(a)(6)(iii) or Sec.  86.1837-01 of this chapter as applicable. The 
CO2 values (obtained per this section, as applicable) used 
in each calculation of carbon-related exhaust emissions in this section 
shall be rounded to the nearest gram/mile.
    (iv) For manufacturers complying with the fleet averaging option 
for N2O and CH4 as allowed under Sec.  86.1818-
12(f)(2) of this chapter, N2O and CH4 emission 
values for use in the calculation of carbon-related exhaust emissions 
in this section shall be the values determined according to paragraph 
(g)(2)(iv)(A), (B), or (C) of this section.
    (A) The FTP and HFET test values as determined for the emission 
data vehicle according to the provisions of Sec.  86.1835-01 of this 
chapter. These values shall apply to all vehicles tested under this 
section that are included in the test group represented by the emission 
data vehicle and shall be adjusted by the appropriate deterioration 
factor determined according to Sec.  86.1823-08 of this chapter before 
being used in the calculations of carbon-related exhaust emissions in 
this section.
    (B) The FTP and HFET test values as determined according to testing 
conducted under the provisions of this subpart. These values shall be 
adjusted by the appropriate deterioration factor determined according 
to Sec.  86.1823-08 of this chapter before being used in the 
calculations of carbon-related exhaust emissions in this section.
    (C) For the 2012 through 2014 model years only, manufacturers may 
use an assigned value of 0.010 g/mi for N2O FTP and HFET 
test values. This value is not required to be adjusted by a 
deterioration factor.
    (3) The specific gravity and the carbon weight fraction (obtained 
per paragraph (f) of this section) shall be recorded using three places 
to the right of the decimal point. The net heating value (obtained per 
paragraph (f) of this section) shall be recorded to the nearest whole 
Btu/lb.
    (4) For the purpose of determining the applicable in-use emission 
standard under Sec.  86.1818-12(d) of this chapter, the combined city/
highway carbon-related exhaust emission value for a vehicle 
subconfiguration is calculated by arithmetically averaging the FTP-
based city and HFET-based highway carbon-related exhaust emission 
values, as determined in Sec.  600.113(a) and (b) of this section for 
the subconfiguration, weighted 0.55 and 0.45 respectively, and rounded 
to the nearest tenth of a gram per mile.
    (h)(1) For gasoline-fueled automobiles tested on test fuel 
specified in Sec.  86.113-04(a) of this chapter, the fuel economy in 
miles per gallon is to be calculated using the following equation and 
rounded to the nearest 0.1 miles per gallon:

mpg = (5174 x 10\4\ x CWF x SG)/[((CWF x HC) + (0.429 x CO) + (0.273 x 
CO2)) x ((0.6 x SG x NHV) + 5471)]

Where:

HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CWF = Carbon weight fraction of test fuel as obtained in paragraph 
(g) of this section.
NHV = Net heating value by mass of test fuel as obtained in 
paragraph (g) of this section.
SG = Specific gravity of test fuel as obtained in paragraph (g) of 
this section.

    (2)(i) For 2012 and later model year gasoline-fueled automobiles 
tested on test fuel specified in Sec.  86.113-04(a) of this chapter, 
the carbon-related exhaust emissions in grams per mile is to be 
calculated using the following equation and rounded to the nearest 1 
gram per mile:

CREE = (CWF/0.273 x HC) + (1.571 x CO) + CO2

Where:

CREE means the carbon-related exhaust emissions as defined in Sec.  
600.002-08.
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CWF = Carbon weight fraction of test fuel as obtained in paragraph 
(g) of this section.

    (ii) For manufacturers complying with the fleet averaging option 
for N2O and CH4 as allowed under Sec.  86.1818-
12(f)(2) of this chapter, the carbon-related exhaust emissions in grams 
per mile for 2012 and later model year gasoline-fueled automobiles 
tested on test fuel specified in Sec.  86.113-04(a) of this chapter is 
to be calculated using the following equation and rounded to the 
nearest 1 gram per mile:

CREE = [(CWF/0.273) x NMHC] + (1.571 x CO) + CO2 + (298 x 
N2O) + (25 x CH4)

Where:

CREE means the carbon-related exhaust emissions as defined in Sec.  
600.002-08.
NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
N2O = Grams/mile N2O as obtained in paragraph 
(g) of this section.
CH4 = Grams/mile CH4 as obtained in paragraph 
(g) of this section.
CWF = Carbon weight fraction of test fuel as obtained in paragraph 
(g) of this section.

[[Page 25707]]

    (i)(1) For diesel-fueled automobiles, calculate the fuel economy in 
miles per gallon of diesel fuel by dividing 2778 by the sum of three 
terms and rounding the quotient to the nearest 0.1 mile per gallon:
    (i)(A) 0.866 multiplied by HC (in grams/miles as obtained in 
paragraph (g) of this section), or
    (B) Zero, in the case of cold FTP diesel tests for which HC was not 
collected, as permitted in Sec.  600.113-08(c);
    (ii) 0.429 multiplied by CO (in grams/mile as obtained in paragraph 
(g) of this section); and
    (iii) 0.273 multiplied by CO2 (in grams/mile as obtained 
in paragraph (g) of this section).
    (2)(i) For 2012 and later model year diesel-fueled automobiles, the 
carbon-related exhaust emissions in grams per mile is to be calculated 
using the following equation and rounded to the nearest 1 gram per 
mile:

CREE = (3.172 x HC) + (1.571 x CO) + CO2

Where:

CREE means the carbon-related exhaust emissions as defined in Sec.  
600.002-08.
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.

    (ii) For manufacturers complying with the fleet averaging option 
for N2O and CH4 as allowed under Sec.  86.1818-
12(f)(2) of this chapter, the carbon-related exhaust emissions in grams 
per mile for 2012 and later model year diesel-fueled automobiles is to 
be calculated using the following equation and rounded to the nearest 1 
gram per mile:

CREE = (3.172 x NMHC) + (1.571 x CO) + CO2 + (298 x 
N2O) + (25 x CH4)

Where:

CREE means the carbon-related exhaust emissions as defined in Sec.  
600.002-08.
NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
N2O = Grams/mile N2O as obtained in paragraph 
(g) of this section.
CH4 = Grams/mile CH4 as obtained in paragraph 
(g) of this section.

    (j)(1) For methanol-fueled automobiles and automobiles designed to 
operate on mixtures of gasoline and methanol, the fuel economy in miles 
per gallon is to be calculated using the following equation:

mpg = (CWF x SG x 3781.8)/((CWFexHC x HC) + (0.429 x CO) + 
(0.273 x CO2) + (0.375 x CH3OH) + (0.400 x HCHO))

Where:

CWF = Carbon weight fraction of the fuel as determined in paragraph 
(f)(2)(ii) of this section.
SG = Specific gravity of the fuel as determined in paragraph 
(f)(2)(i) of this section.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWFg as determined in paragraph (f)(2)(ii) of this 
section (for M100 fuel, CWFexHC = 0.866).
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph (g) of this 
section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (d) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) 
of this section.

    (2)(i) For 2012 and later model year methanol-fueled automobiles 
and automobiles designed to operate on mixtures of gasoline and 
methanol, the carbon-related exhaust emissions in grams per mile is to 
be calculated using the following equation and rounded to the nearest 1 
gram per mile:

CREE = (CWFexHC/0.273 x HC) + (1.571 x CO) + (1.374 x 
CH3OH) + (1.466 x HCHO) + CO2

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWFg as determined in (f)(2)(ii) of this section (for 
M100 fuel, CWFexHC = 0.866).
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (d) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) 
of this section.

    (ii) For manufacturers complying with the fleet averaging option 
for N2O and CH4 as allowed under Sec.  86.1818-
12(f)(2) of this chapter, the carbon-related exhaust emissions in grams 
per mile for 2012 and later model year methanol-fueled automobiles and 
automobiles designed to operate on mixtures of gasoline and methanol is 
to be calculated using the following equation and rounded to the 
nearest 1 gram per mile:

CREE = [(CWFexHC/0.273) x NMHC] + (1.571 x CO) + (1.374 x 
CH3OH) + (1.466 x HCHO) + CO2 + (298 x 
N2O) + (25 x CH4)

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWFg as determined in (f)(2)(ii) of this section (for 
M100 fuel, CWFexHC = 0.866).
NMHC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph (g) of this 
section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (d) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) 
of this section.
N2O = Grams/mile N2O as obtained in paragraph 
(g) of this section.
CH4 = Grams/mile CH4 as obtained in paragraph 
(g) of this section.

    (k)(1) For automobiles fueled with natural gas, the fuel economy in 
miles per gallon of natural gas is to be calculated using the following 
equation:
[GRAPHIC] [TIFF OMITTED] TR07MY10.051

Where:

mpge = miles per equivalent gallon of natural gas.
CWFHC/NG = carbon weight fraction based on the 
hydrocarbon constituents in the natural gas fuel as obtained in 
paragraph (g) of this section.
DNG = density of the natural gas fuel [grams/ft\3\ at 68 
[deg]F (20 [deg]C) and 760 mm Hg (101.3 kPa)] pressure as obtained 
in paragraph (g) of this section.
CH4, NMHC, CO, and CO2 = weighted mass exhaust 
emissions [grams/mile] for methane, non-methane HC, carbon monoxide, 
and carbon dioxide as calculated in Sec.  600.113.
CWFNMHC = carbon weight fraction of the non-methane HC 
constituents in the fuel as determined from the speciated fuel 
composition per paragraph (f)(3) of this section.

[[Page 25708]]

CO2NG = grams of carbon dioxide in the natural gas fuel 
consumed per mile of travel.

CO2NG = FCNG x DNG x WFCO2

Where:
[GRAPHIC] [TIFF OMITTED] TR07MY10.052

= cubic feet of natural gas fuel consumed per mile

Where:

CWFNG = the carbon weight fraction of the natural gas 
fuel as calculated in paragraph (f) of this section.
WFCO2 = weight fraction carbon dioxide of the natural gas 
fuel calculated using the mole fractions and molecular weights of 
the natural gas fuel constituents per ASTM D 1945-91 ``Standard Test 
Method for Analysis of Natural Gas by Gas Chromatography'' 
(incorporated by reference at Sec.  600.011-93).

    (2)(i) For automobiles fueled with natural gas, the carbon-related 
exhaust emissions in grams per mile is to be calculated for 2012 and 
later model year vehicles using the following equation and rounded to 
the nearest 1 gram per mile:

CREE = 2.743 x CH4 + CWFNMHC/0.273 x NMHC + 1.571 
x CO + CO2

Where:
CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08.
CH4 = Grams/mile CH4 as obtained in paragraph 
(g) of this section.
NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CWFNMHC = carbon weight fraction of the non-methane HC 
constituents in the fuel as determined from the speciated fuel 
composition per paragraph (f)(3) of this section.

    (ii) For manufacturers complying with the fleet averaging option 
for N2O and CH4 as allowed under Sec.  86.1818-
12(f)(2) of this chapter, the carbon-related exhaust emissions in grams 
per mile for 2012 and later model year automobiles fueled with natural 
gas is to be calculated using the following equation and rounded to the 
nearest 1 gram per mile:

CREE = (25 x CH4) + [(CWFNMHC/0.273) x NMHC] + 
(1.571 x CO) + CO2 + (298 x N2O)

Where:
CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08.
CH4 = Grams/mile CH4 as obtained in paragraph 
(g) of this section.
NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CWFNMHC = carbon weight fraction of the non-methane HC 
constituents in the fuel as determined from the speciated fuel 
composition per paragraph (f)(3) of this section.
N2O = Grams/mile N2O as obtained in paragraph 
(g) of this section.

    (l)(1) For ethanol-fueled automobiles and automobiles designed to 
operate on mixtures of gasoline and ethanol, the fuel economy in miles 
per gallon is to be calculated using the following equation:

mpg = (CWF x SG x 3781.8)/((CWFexHC x HC) + (0.429 x CO) + 
(0.273 x CO2) + (0.375 x CH3OH) + (0.400 x HCHO) 
+ (0.521 x C2H5OH) + (0.545 x 
C2H4O))

Where:

CWF = Carbon weight fraction of the fuel as determined in paragraph 
(f)(4) of this section.
SG = Specific gravity of the fuel as determined in paragraph (f)(4) 
of this section.
CWFexHC= Carbon weight fraction of exhaust hydrocarbons = 
CWFg as determined in (f)(4) of this section.
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (d) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) 
of this section.
C2H5OH = Grams/mile 
C2H5OH (ethanol) as obtained in paragraph (d) 
of this section.
C2H4O = Grams/mile C2H4O 
(acetaldehyde) as obtained in paragraph (d) of this section.

    (2)(i) For 2012 and later model year ethanol-fueled automobiles and 
automobiles designed to operate on mixtures of gasoline and ethanol, 
the carbon-related exhaust emissions in grams per mile is to be 
calculated using the following equation and rounded to the nearest 1 
gram per mile:

CREE = (CWFexHC/0.273 x HC) + (1.571 x CO) + (1.374 x 
CH3OH) + (1.466 x HCHO) + (1.911 x 
C2H5OH) + (1.998 x C2H4O) + 
CO2

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWFg as determined in (f)(4) of this section.
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph (g) of this 
section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (d) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) 
of this section.
C2H5OH = Grams/mile 
C2H5OH (ethanol) as obtained in paragraph (d) 
of this section.

C2H4O = Grams/mile C2H4O 
(acetaldehyde) as obtained in paragraph (d) of this section.
    (ii) For manufacturers complying with the fleet averaging option 
for N2O and CH4 as allowed under Sec.  86.1818-
12(f)(2) of this chapter, the carbon-related exhaust emissions in grams 
per mile for 2012 and later model year ethanol-fueled automobiles and 
automobiles designed to operate on mixtures of gasoline and ethanol is 
to be calculated using the following equation and rounded to the 
nearest 1 gram per mile:

CREE = [(CWFexHC/0.273) x NMHC] + (1.571 x CO) + (1.374 x 
CH3OH) + (1.466 x HCHO) + (1.911 x 
C2H5OH) + (1.998 x C2H4O) + 
CO2 + (298 x N2O) + (25 x CH4)

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWFg as determined in paragraph (f)(4) of this section.
NMHC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph (g) of this 
section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (d) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) 
of this section.
C2H5OH = Grams/mile 
C2H5OH (ethanol) as obtained in paragraph (d) 
of this section.
C2H4O = Grams/mile C2H4O 
(acetaldehyde) as obtained in paragraph (d) of this section.
N2O = Grams/mile N2O as obtained in paragraph 
(g) of this section.

[[Page 25709]]

CH4 = Grams/mile CH4 as obtained in paragraph 
(g) of this section.

    (m) Carbon-related exhaust emissions for electric vehicles, fuel 
cell vehicles and plug-in hybrid electric vehicles. Manufacturers shall 
determine carbon-related exhaust emissions for electric vehicles, fuel 
cell vehicles, and plug-in hybrid electric vehicles according to the 
provisions of this paragraph (m). Subject to the limitations described 
in Sec.  86.1866-12(a) of this chapter, the manufacturer may be allowed 
to use a value of 0 grams/mile to represent the emissions of fuel cell 
vehicles and the proportion of electric operation of electric vehicles 
and plug-in hybrid electric vehicles that is derived from electricity 
that is generated from sources that are not onboard the vehicle, as 
described in paragraphs (m)(1) through (3) of this section.
    (1) For 2012 and later model year electric vehicles, but not 
including fuel cell vehicles, the carbon-related exhaust emissions in 
grams per mile is to be calculated using the following equation and 
rounded to the nearest one gram per mile:

CREE = CREEUP-CREEGAS

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08, which may be set equal to zero for eligible 2012 
through 2016 model year electric vehicles as described in Sec.  
86.1866-12(a) of this chapter.

CREEUP = 0.7670 x EC, and
CREEGAS = 0.2485 x TargetCO2,

Where:

EC = The vehicle energy consumption in watt-hours per mile, 
determined according to procedures established by the Administrator 
under Sec.  600.111-08(f).
TargetCO2 = The CO2 Target Value determined 
according to Sec.  86.1818-12(c)(2) of this chapter for passenger 
automobiles and according to Sec.  86.1818-12(c)(3) of this chapter 
for light trucks.

    (2) For 2012 and later model year plug-in hybrid electric vehicles, 
the carbon-related exhaust emissions in grams per mile is to be 
calculated using the following equation and rounded to the nearest one 
gram per mile:

CREE = CREECD + CREECS,

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08.
CREECS = The carbon-related exhaust emissions determined 
for charge-sustaining operation according to procedures established 
by the Administrator under Sec.  600.111-08(f); and
CREECD = (ECF x CREECDEC) + [(1 - ECF) x 
CREECDGAS]
Where:

CREECD = The carbon-related exhaust emissions determined 
for charge-depleting operation determined according to the 
provisions of this section for the applicable fuel and according to 
procedures established by the Administrator under Sec.  600.111-
08(f);
CREECDEC = The carbon-related exhaust emissions 
determined for electricity consumption during charge-depleting 
operation, which shall be determined using the method specified in 
paragraph (m)(1) of this section and according to procedures 
established by the Administrator under Sec.  600.111-08(f), and 
which may be set equal to zero for eligible 2012 through 2016 model 
year vehicles as described in Sec.  86.1866-12(a) of this chapter;
CREECDGAS = The carbon-related exhaust emissions 
determined for charge-depleting operation determined according to 
the provisions of this section for the applicable fuel and according 
to procedures established by the Administrator under Sec.  600.111-
08(f); and
ECF = Electricity consumption factor as determined by the 
Administrator under Sec.  600.111-08(f).

    (3) For 2012 and later model year fuel cell vehicles, the carbon-
related exhaust emissions in grams per mile shall be calculated using 
the method specified in paragraph (m)(1) of this section, except that 
CREEUP shall be determined according to procedures 
established by the Administrator under Sec.  600.111-08(f). As 
described in Sec.  86.1866-12(a) of this chapter the value of CREE may 
be set equal to zero for eligible 2012 through 2016 model year fuel 
cell vehicles.
    (n) Equations for fuels other than those specified in paragraphs 
(h) through (l) of this section may be used with advance EPA approval. 
Alternate calculation methods for fuel economy and carbon-related 
exhaust emissions may be used in lieu of the methods described in this 
section if shown to yield equivalent or superior results and if 
approved in advance by the Administrator.

0
44. Section 600.114-08 is amended as follows:
0
a. By revising the section heading.
0
b. By revising the introductory text.
0
c. By adding paragraphs (d) through (f).

Sec.  600.114-08  Vehicle-specific 5-cycle fuel economy and carbon-
related exhaust emission calculations.

    Paragraphs (a) through (c) of this section apply to data used for 
fuel economy labeling under Subpart D of this part. Paragraphs (d) 
through (f) of this section are used to calculate 5-cycle carbon-
related exhaust emissions values for the purpose of determining 
optional technology-based CO2 emissions credits under the 
provisions of paragraph (d) of Sec.  86.1866-12 of this chapter.
* * * * *
    (d) City carbon-related exhaust emission value. For each vehicle 
tested, determine the 5-cycle city carbon-related exhaust emissions 
using the following equation:

(1) CityCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(i) StartCREE =
[GRAPHIC] [TIFF OMITTED] TR07MY10.053

Where:

StartCREEX = 3.6 x (Bag1CREEX - 
Bag3CREEX)

Where:

Bag Y CREEX = the carbon-related exhaust emissions in 
grams per mile during the specified bag of the FTP test conducted at 
an ambient temperature of 75 [deg]F or 20 [deg]F.
(ii) Running CREE =
0.82 x [(0.48 x Bag275CREE) + (0.41 x 
BAG375CREE) + (0.11x US06 CityCREE)] +
0.18 x [(0.5 x Bag220CREE) + (0.5 x 
Bag320CREE)] +
0.144 x [SC03 CREE - ((0.61 x Bag375CREE) + (0.39 x 
Bag275CREE))]

Where:

BagYXCREE = carbon-related exhaust emissions in grams per 
mile over Bag Y at temperature X.
US06 City CREE = carbon-related exhaust emissions in grams per mile 
over the ``city'' portion of the US06 test.
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test.

    (e) Highway carbon-related exhaust emissions. For each vehicle 
tested, determine the 5-cycle highway carbon-related exhaust emissions 
using the following equation:

[[Page 25710]]

HighwayCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(1) StartCREE =
[GRAPHIC] [TIFF OMITTED] TR07MY10.054

Where:

StartCREEX = 3.6 x (BagCREEX - 
Bag3CREEX)
(2) Running CREE =
1.007 x [(0.79 x US06 Highway CREE) + (0.21 x HFET CREE)] + 0.045 x 
[SC03 CREE - ((0.61 x Bag375CREE) + (0.39 x 
Bag275CREE))]

Where:

BagYXCREE = carbon-related exhaust emissions in grams per 
mile over Bag Y at temperature X,
US06 Highway CREE = carbon-related exhaust emissions in grams per 
mile over the highway portion of the US06 test,
HFET CREE = carbon-related exhaust emissions in grams per mile over 
the HFET test,
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test.

    (f) Carbon-related exhaust emissions calculations for hybrid 
electric vehicles. Hybrid electric vehicles shall be tested according 
to California test methods which require FTP emission sampling for the 
75 [deg]F FTP test over four phases (bags) of the UDDS (cold-start, 
transient, warm-start, transient). Optionally, these four phases may be 
combined into two phases (phases 1 + 2 and phases 3 + 4). Calculations 
for these sampling methods follow.
    (1) Four-bag FTP equations. If the 4-bag sampling method is used, 
manufacturers may use the equations in paragraphs (a) and (b) of this 
section to determine city and highway carbon-related exhaust emissions 
values. If this method is chosen, it must be used to determine both 
city and highway carbon-related exhaust emissions. Optionally, the 
following calculations may be used, provided that they are used to 
determine both city and highway carbon-related exhaust emissions 
values:
    (i) City carbon-related exhaust emissions.

CityCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(A) StartCREE =
[GRAPHIC] [TIFF OMITTED] TR07MY10.055

Where:

(1) StartCREE75 =
3.6 x (Bag1CREE75 - Bag3CREE75) + 3.9 x 
(Bag2CREE75 - Bag4CREE75)

and

(2) StartCREE20 =
3.6 x (Bag1CREE20 - Bag3CREE20)
(B) RunningCREE =
0.82 x [(0.48 x Bag475CREE) + (0.41 x 
Bag375CREE) + (0.11 x US06 City CREE)] + 0.18 x [(0.5 x 
Bag220CREE) + (0.5 x Bag320CREE)] + 0.144 x 
[SC03 CREE - ((0.61 x Bag375CREE) + (0.39 x 
Bag475CREE))]

Where:

US06 Highway CREE = carbon-related exhaust emissions in grams per 
mile over the city portion of the US06 test.
US06 Highway CREE = carbon-related exhaust emissions in miles per 
gallon over the Highway portion of the US06 test.
HFET CREE = carbon-related exhaust emissions in grams per mile over 
the HFET test.
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test.

    (ii) Highway carbon-related exhaust emissions.

HighwayCREE = 0.905 x (StartCREE + RunningCREE)
Where:

(A) StartCREE =
[GRAPHIC] [TIFF OMITTED] TR07MY10.056

Where:

StartCREE75 = 3.6 x (Bag1CREE75 - 
Bag3CREE75) + 3.9 x (Bag2CREE75 - 
Bag4CREE75)

and

StartCREE20 = 3.6 x (Bag1CREE20 - 
Bag3CREE20)
(B) RunningCREE =
1.007 x [(0.79 x US06 Highway CREE) + (0.21 x HFET CREE)] + 0.045 x 
[SC03 CREE - ((0.61 x Bag375CREE) + (0.39 x 
Bag475CREE))]

Where:

US06 Highway CREE = carbon-related exhaust emissions in grams per 
mile over the Highway portion of the US06 test,
HFET CREE = carbon-related exhaust emissions in grams per mile over 
the HFET test,
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test.

    (2) Two-bag FTP equations. If the 2-bag sampling method is used for 
the 75 [deg]F FTP test, it must be used to determine both city and 
highway carbon-related exhaust emissions. The following calculations 
must be used to determine both city and highway carbon-related exhaust 
emissions:
    (i) City carbon-related exhaust emissions.

CityCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(A) StartCREE =

[[Page 25711]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.057

Where:

Start CREE75 = 3.6 x (Bag \1/2\ CREE75 - Bag 
\3/4\ CREE75)
 and
Start CREE20 = 3.6 x (Bag1CREE20 - 
Bag3CREE20)
Where:

Bag Y FE20 = the carbon-related exhaust emissions in 
grams per mile of fuel during Bag 1 or Bag 3 of the 20 [deg]F FTP 
test, and
Bag X/Y FE75 = carbon-related exhaust emissions in grams 
per mile of fuel during combined phases 1 and 2 or phases 3 and 4 of 
the FTP test conducted at an ambient temperature of 75 [deg]F.
(B) RunningCREE =
0.82 x [(0.90 x Bag\3/4\75CREE) + (0.10 x US06 City 
CREE)] + 0.18 x [(0.5 x Bag220CREE) + (0.5 x 
Bag320CREE)] + 0.144 x [SC03 CREE - (Bag\3/
4\75CREE)]
Where:

US06 City CREE = carbon-related exhaust emissions in grams per mile 
over the city portion of the US06 test, and
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test, and
Bag X/Y FE75 = carbon-related exhaust emissions in grams 
per mile of fuel during combined phases 1 and 2 or phases 3 and 4 of 
the FTP test conducted at an ambient temperature of 75 [deg]F.

    (ii) Highway carbon-related exhaust emissions.

HighwayCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(A) StartCREE =
[GRAPHIC] [TIFF OMITTED] TR07MY10.058

Where:

Start CREE75 = 7.5 x (Bag\1/2\CREE75 - Bag\3/
4\CREE75)

and

Start CREE20 = 3.6 x (Bag1CREE20 - 
Bag3CREE20)
(B) RunningCREE =
1.007 x [(0.79 x US06 Highway CREE) + (0.21 x HFET CREE)] + 0.045 x 
[SC03 CREE - Bag\3/4\75CREE]
Where:

US06 Highway CREE = carbon-related exhaust emissions in grams per 
mile over the city portion of the US06 test, and
SC03 CREE = carbon-related exhaust emissions in gram per mile over 
the SC03 test, and
Bag Y FE20 = the carbon-related exhaust emissions in 
grams per mile of fuel during Bag 1 or Bag 3 of the 20 [deg]F FTP 
test, and
Bag X/Y FE75 = carbon-related exhaust emissions in grams 
per mile of fuel during phases 1 and 2 or phases 3 and 4 of the FTP 
test conducted at an ambient temperature of 75 [deg]F.

Subpart C--Procedures for Calculating Fuel Economy and Carbon-
Related Exhaust Emission Values for 1977 and Later Model Year 
Automobiles

0
45. The heading for subpart C is revised as set forth above.

0
46. A new Sec.  600.201-12 is added to subpart C to read as follows:

Sec.  600.201-12  General applicability.

    The provisions of this subpart are applicable to 2012 and later 
model year automobiles and to the manufacturers of 2012 and later model 
year automobiles.

0
47. A new Sec.  600.206-12 is added to subpart C to read as follows:

Sec.  600.206-12  Calculation and use of FTP-based and HFET-based fuel 
economy and carbon-related exhaust emission values for vehicle 
configurations.

    (a) Fuel economy and carbon-related exhaust emissions values 
determined for each vehicle under Sec.  600.113(a) and (b) and as 
approved in Sec.  600.008-08(c), are used to determine FTP-based city, 
HFET-based highway, and combined FTP/Highway-based fuel economy and 
carbon-related exhaust emission values for each vehicle configuration 
for which data are available.
    (1) If only one set of FTP-based city and HFET-based highway fuel 
economy values is accepted for a vehicle configuration, these values, 
rounded to the nearest tenth of a mile per gallon, comprise the city 
and highway fuel economy values for that configuration. If only one set 
of FTP-based city and HFET-based highway carbon-related exhaust 
emission values is accepted for a vehicle configuration, these values, 
rounded to the nearest gram per mile, comprise the city and highway 
carbon-related exhaust emission values for that configuration.
    (2) If more than one set of FTP-based city and HFET-based highway 
fuel economy and/or carbon-related exhaust emission values are accepted 
for a vehicle configuration:
    (i) All data shall be grouped according to the subconfiguration for 
which the data were generated using sales projections supplied in 
accordance with Sec.  600.208-12(a)(3).
    (ii) Within each group of data, all fuel economy values are 
harmonically averaged and rounded to the nearest 0.0001 of a mile per 
gallon and all carbon-related exhaust emission values are 
arithmetically averaged and rounded to the nearest tenth of a gram per 
mile in order to determine FTP-based city and HFET-based highway fuel 
economy and carbon-related exhaust emission values for each 
subconfiguration at which the vehicle configuration was tested.
    (iii) All FTP-based city fuel economy and carbon-related exhaust 
emission values and all HFET-based highway fuel economy and carbon-
related exhaust emission values calculated in paragraph (a)(2)(ii) of 
this section are (separately for city and highway) averaged in 
proportion to the sales fraction (rounded to the nearest 0.0001) within 
the vehicle configuration (as provided to the Administrator by the 
manufacturer) of vehicles of each tested subconfiguration. Fuel economy 
values shall be harmonically averaged and carbon-related exhaust 
emission values shall be arithmetically averaged. The resultant fuel 
economy values, rounded to the nearest 0.0001 mile per gallon, are the 
FTP-based city and HFET-based highway fuel economy values for the 
vehicle configuration. The resultant carbon-related exhaust emission 
values, rounded to the nearest tenth of a gram per mile, are the FTP-
based city and HFET-based highway carbon-related exhaust emission 
values for the vehicle configuration.
    (3)(i) For the purpose of determining average fuel economy under 
Sec.  600.510-08, the combined fuel economy value for a vehicle 
configuration is calculated by harmonically averaging the FTP-based 
city and HFET-based highway fuel economy values, as determined in 
paragraph (a)(1) or (2) of this section,

[[Page 25712]]

weighted 0.55 and 0.45 respectively, and rounded to the nearest 0.0001 
mile per gallon. A sample of this calculation appears in Appendix II of 
this part.
    (ii) For the purpose of determining average carbon-related exhaust 
emissions under Sec.  600.510-08, the combined carbon-related exhaust 
emission value for a vehicle configuration is calculated by 
arithmetically averaging the FTP-based city and HFET-based highway 
carbon-related exhaust emission values, as determined in paragraph 
(a)(1) or (2) of this section, weighted 0.55 and 0.45 respectively, and 
rounded to the nearest tenth of gram per mile.
    (4) For alcohol dual fuel automobiles and natural gas dual fuel 
automobiles the procedures of paragraphs (a)(1) or (2) of this section, 
as applicable, shall be used to calculate two separate sets of FTP-
based city, HFET-based highway, and combined fuel economy and carbon-
related exhaust emission values for each configuration.
    (i) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
gasoline or diesel test fuel.
    (ii) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
alcohol or natural gas test fuel.
    (b) If only one equivalent petroleum-based fuel economy value 
exists for an electric vehicle configuration, that value, rounded to 
the nearest tenth of a mile per gallon, will comprise the petroleum-
based fuel economy for that configuration.
    (c) If more than one equivalent petroleum-based fuel economy value 
exists for an electric vehicle configuration, all values for that 
vehicle configuration are harmonically averaged and rounded to the 
nearest 0.0001 mile per gallon for that configuration.

0
48. A new Sec.  600.208-12 is added to subpart C to read as follows:

Sec.  600.208-12  Calculation of FTP-based and HFET-based fuel economy 
and carbon-related exhaust emission values for a model type.

    (a) Fuel economy and carbon-related exhaust emission values for a 
base level are calculated from vehicle configuration fuel economy and 
carbon-related exhaust emission values as determined in Sec.  600.206-
12(a), (b), or (c) as applicable, for low-altitude tests.
    (1) If the Administrator determines that automobiles intended for 
sale in the State of California are likely to exhibit significant 
differences in fuel economy and carbon-related exhaust emission values 
from those intended for sale in other states, she will calculate fuel 
economy and carbon-related exhaust emission values for each base level 
for vehicles intended for sale in California and for each base level 
for vehicles intended for sale in the rest of the states.
    (2) In order to highlight the fuel efficiency and carbon-related 
exhaust emission values of certain designs otherwise included within a 
model type, a manufacturer may wish to subdivide a model type into one 
or more additional model types. This is accomplished by separating 
subconfigurations from an existing base level and placing them into a 
new base level. The new base level is identical to the existing base 
level except that it shall be considered, for the purposes of this 
paragraph, as containing a new basic engine. The manufacturer will be 
permitted to designate such new basic engines and base level(s) if:
    (i) Each additional model type resulting from division of another 
model type has a unique car line name and that name appears on the 
label and on the vehicle bearing that label;
    (ii) The subconfigurations included in the new base levels are not 
included in any other base level which differs only by basic engine 
(i.e., they are not included in the calculation of the original base 
level fuel economy values); and
    (iii) All subconfigurations within the new base level are 
represented by test data in accordance with Sec.  600.010-08(c)(1)(ii).
    (3) The manufacturer shall supply total model year sales 
projections for each car line/vehicle subconfiguration combination.
    (i) Sales projections must be supplied separately for each car 
line-vehicle subconfiguration intended for sale in California and each 
car line/vehicle subconfiguration intended for sale in the rest of the 
states if required by the Administrator under paragraph (a)(1) of this 
section.
    (ii) Manufacturers shall update sales projections at the time any 
model type value is calculated for a label value.
    (iii) The provisions of paragraph (a)(3) of this section may be 
satisfied by providing an amended application for certification, as 
described in Sec.  86.1844-01 of this chapter.
    (4) Vehicle configuration fuel economy and carbon-related exhaust 
emission values, as determined in Sec.  600.206-12 (a), (b) or (c), as 
applicable, are grouped according to base level.
    (i) If only one vehicle configuration within a base level has been 
tested, the fuel economy and carbon-related exhaust emission values 
from that vehicle configuration will constitute the fuel economy and 
carbon-related exhaust emission values for that base level.
    (ii) If more than one vehicle configuration within a base level has 
been tested, the vehicle configuration fuel economy values are 
harmonically averaged in proportion to the respective sales fraction 
(rounded to the nearest 0.0001) of each vehicle configuration and the 
resultant fuel economy value rounded to the nearest 0.0001 mile per 
gallon; and the vehicle configuration carbon-related exhaust emission 
values are arithmetically averaged in proportion to the respective 
sales fraction (rounded to the nearest 0.0001) of each vehicle 
configuration and the resultant carbon-related exhaust emission value 
rounded to the nearest gram per mile.
    (5) The procedure specified in paragraph (a)(1) through (4) of this 
section will be repeated for each base level, thus establishing city, 
highway, and combined fuel economy and carbon-related exhaust emission 
values for each base level.
    (6) For the purposes of calculating a base level fuel economy or 
carbon-related exhaust emission value, if the only vehicle 
configuration(s) within the base level are vehicle configuration(s) 
which are intended for sale at high altitude, the Administrator may use 
fuel economy and carbon-related exhaust emission data from tests 
conducted on these vehicle configuration(s) at high altitude to 
calculate the fuel economy or carbon-related exhaust emission value for 
the base level.
    (7) For alcohol dual fuel automobiles and natural gas dual fuel 
automobiles, the procedures of paragraphs (a)(1) through (6) of this 
section shall be used to calculate two separate sets of city, highway, 
and combined fuel economy and carbon-related exhaust emission values 
for each base level.
    (i) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
gasoline or diesel test fuel.
    (ii) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
alcohol or natural gas test fuel.
    (b) For each model type, as determined by the Administrator, a 
city, highway, and combined fuel economy value and a carbon-related 
exhaust emission value will be calculated by using the projected sales 
and fuel economy and carbon-related exhaust emission values for each 
base level

[[Page 25713]]

within the model type. Separate model type calculations will be done 
based on the vehicle configuration fuel economy and carbon-related 
exhaust emission values as determined in Sec.  600.206-12 (a), (b) or 
(c), as applicable.
    (1) If the Administrator determines that automobiles intended for 
sale in the State of California are likely to exhibit significant 
differences in fuel economy and carbon-related exhaust emission values 
from those intended for sale in other states, she will calculate fuel 
economy and carbon-related exhaust emission values for each model type 
for vehicles intended for sale in California and for each model type 
for vehicles intended for sale in the rest of the states.
    (2) The sales fraction for each base level is calculated by 
dividing the projected sales of the base level within the model type by 
the projected sales of the model type and rounding the quotient to the 
nearest 0.0001.
    (3)(i) The FTP-based city fuel economy values of the model type 
(calculated to the nearest 0.0001 mpg) are determined by dividing one 
by a sum of terms, each of which corresponds to a base level and which 
is a fraction determined by dividing:
    (A) The sales fraction of a base level; by
    (B) The FTP-based city fuel economy value for the respective base 
level.
    (ii) The FTP-based city carbon-related exhaust emission value of 
the model type (calculated to the nearest gram per mile) are determined 
by a sum of terms, each of which corresponds to a base level and which 
is a product determined by multiplying:
    (A) The sales fraction of a base level; by
    (B) The FTP-based city carbon-related exhaust emission value for 
the respective base level.
    (4) The procedure specified in paragraph (b)(3) of this section is 
repeated in an analogous manner to determine the highway and combined 
fuel economy and carbon-related exhaust emission values for the model 
type.
    (5) For alcohol dual fuel automobiles and natural gas dual fuel 
automobiles, the procedures of paragraphs (b)(1) through (4) of this 
section shall be used to calculate two separate sets of city, highway, 
and combined fuel economy values and two separate sets of city, 
highway, and combined carbon-related exhaust emission values for each 
model type.
    (i) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
gasoline or diesel test fuel.
    (ii) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
alcohol or natural gas test fuel.

Subpart D--[Amended]

0
49. A new Sec.  600.301-12 is added to subpart D to read as follows:

Sec.  600.301-12  General applicability.

    (a) Unless otherwise specified, the provisions of this subpart are 
applicable to 2012 and later model year automobiles.
    (b) [Reserved]

Subpart F--Fuel Economy Regulations for Model Year 1978 Passenger 
Automobiles and for 1979 and Later Model Year Automobiles (Light 
Trucks and Passenger Automobiles)--Procedures for Determining 
Manufacturer's Average Fuel Economy and Manufacturer's Average 
Carbon-Related Exhaust Emissions

0
50. The heading for subpart F is revised as set forth above.

0
51. A new Sec.  600.501-12 is added to subpart F to read as follows:

Sec.  600.501-12  General applicability.

    The provisions of this subpart are applicable to 2012 and later 
model year passenger automobiles and light trucks and to the 
manufacturers of 2012 and later model year passenger automobiles and 
light trucks. The provisions of this subpart are applicable to medium-
duty passenger vehicles and to manufacturers of such vehicles.

0
52. A new Sec.  600.507-12 is added to subpart F to read as follows:

Sec.  600.507-12  Running change data requirements.

    (a) Except as specified in paragraph (d) of this section, the 
manufacturer shall submit additional running change fuel economy and 
carbon-related exhaust emissions data as specified in paragraph (b) of 
this section for any running change approved or implemented under 
Sec. Sec.  86.079-32, 86.079-33, 86.082-34, or 86.1842-01 of this 
chapter, as applicable, which:
    (1) Creates a new base level or,
    (2) Affects an existing base level by:
    (i) Adding an axle ratio which is at least 10 percent larger (or, 
optionally, 10 percent smaller) than the largest axle ratio tested.
    (ii) Increasing (or, optionally, decreasing) the road-load 
horsepower for a subconfiguration by 10 percent or more for the 
individual running change or, when considered cumulatively, since 
original certification (for each cumulative 10 percent increase using 
the originally certified road-load horsepower as a base).
    (iii) Adding a new subconfiguration by increasing (or, optionally, 
decreasing) the equivalent test weight for any previously tested 
subconfiguration in the base level.
    (iv) Revising the calibration of an electric vehicle, fuel cell 
vehicle, hybrid electric vehicle, plug-in hybrid electric vehicle or 
other advanced technology vehicle in such a way that the city or 
highway fuel economy of the vehicle (or the energy consumption of the 
vehicle, as may be applicable) is expected to become less fuel 
efficient (or optionally, more fuel efficient) by 4.0 percent or more 
as compared to the original fuel economy label values for fuel economy 
and/or energy consumption, as applicable.
    (b)(1) The additional running change fuel economy and carbon-
related exhaust emissions data requirement in paragraph (a) of this 
section will be determined based on the sales of the vehicle 
configurations in the created or affected base level(s) as updated at 
the time of running change approval.
    (2) Within each newly created base level as specified in paragraph 
(a)(1) of this section, the manufacturer shall submit data from the 
highest projected total model year sales subconfiguration within the 
highest projected total model year sales configuration in the base 
level.
    (3) Within each base level affected by a running change as 
specified in paragraph (a)(2) of this section, fuel economy and carbon-
related exhaust emissions data shall be submitted for the vehicle 
configuration created or affected by the running change which has the 
highest total model year projected sales. The test vehicle shall be of 
the subconfiguration created by the running change which has the 
highest projected total model year sales within the applicable vehicle 
configuration.
    (c) The manufacturer shall submit the fuel economy data required by 
this section to the Administrator in accordance with Sec.  600.314(b).
    (d) For those model types created under Sec.  600.208-12(a)(2), the 
manufacturer shall submit fuel economy and carbon-related exhaust 
emissions data for each subconfiguration added by a running change.

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53. A new Sec.  600.509-12 is added to subpart F to read as follows:

Sec.  600.509-12  Voluntary submission of additional data.

    (a) The manufacturer may optionally submit data in addition to the 
data required by the Administrator.

[[Page 25714]]

    (b) Additional fuel economy and carbon-related exhaust emissions 
data may be submitted by the manufacturer for any vehicle configuration 
which is to be tested as required in Sec.  600.507 or for which fuel 
economy and carbon-related exhaust emissions data were previously 
submitted under paragraph (c) of this section.
    (c) Within a base level, additional fuel economy and carbon-related 
exhaust emissions data may be submitted by the manufacturer for any 
vehicle configuration which is not required to be tested by Sec.  
600.507.

0
54. A new Sec.  600.510-12 is added to subpart F to read as follows:

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

    (a)(1) Average fuel economy will be calculated to the nearest 0.1 
mpg for the categories of automobiles identified in this section, and 
the results of such calculations will be reported to the Secretary of 
Transportation for use in determining compliance with the applicable 
fuel economy standards.
    (i) An average fuel economy calculation will be made for the 
category of passenger automobiles as determined by the Secretary of 
Transportation. For example, categories may include, but are not 
limited to domestically manufactured and/or non-domestically 
manufactured passenger automobiles as determined by the Secretary of 
Transportation.
    (ii) [Reserved]
    (iii) An average fuel economy calculation will be made for the 
category of trucks as determined by the Secretary of Transportation. 
For example, categories may include, but are not limited to 
domestically manufactured trucks, non-domestically manufactured trucks, 
light-duty trucks, medium-duty passenger vehicles, and/or heavy-duty 
trucks as determined by the Secretary of Transportation.
    (iv) [Reserved]
    (2) Average carbon-related exhaust emissions will be calculated to 
the nearest one gram per mile for the categories of automobiles 
identified in this section, and the results of such calculations will 
be reported to the Administrator for use in determining compliance with 
the applicable CO2 emission standards.
    (i) An average carbon-related exhaust emissions calculation will be 
made for passenger automobiles.
    (ii) An average carbon-related exhaust emissions calculation will 
be made for light trucks.
    (b) For the purpose of calculating average fuel economy under 
paragraph (c) of this section and for the purpose of calculating 
average carbon-related exhaust emissions under paragraph (j) of this 
section:
    (1) All fuel economy and carbon-related exhaust emissions data 
submitted in accordance with Sec.  600.006(e) or Sec.  600.512(c) shall 
be used.
    (2) The combined city/highway fuel economy and carbon-related 
exhaust emission values will be calculated for each model type in 
accordance with Sec.  600.208-12 of this section except that:
    (i) Separate fuel economy values will be calculated for model types 
and base levels associated with car lines for each category of 
passenger automobiles and light trucks as determined by the Secretary 
of Transportation pursuant to paragraph (a)(1) of this section.
    (ii) Total model year production data, as required by this subpart, 
will be used instead of sales projections;
    (iii) [Reserved]
    (iv) The fuel economy value will be rounded to the nearest 0.1 mpg;
    (v) The carbon-related exhaust emission value will be rounded to 
the nearest gram per mile; and
    (vi) At the manufacturer's option, those vehicle configurations 
that are self-compensating to altitude changes may be separated by 
sales into high-altitude sales categories and low-altitude sales 
categories. These separate sales categories may then be treated (only 
for the purpose of this section) as separate configurations in 
accordance with the procedure of Sec.  600.208-12(a)(4)(ii).
    (3) The fuel economy and carbon-related exhaust emission values for 
each vehicle configuration are the combined fuel economy and carbon-
related exhaust emissions calculated according to Sec.  600.206-
08(a)(3) except that:
    (i) Separate fuel economy values will be calculated for vehicle 
configurations associated with car lines for each category of passenger 
automobiles and light trucks as determined by the Secretary of 
Transportation pursuant to paragraph (a)(1) of this section.
    (ii) Total model year production data, as required by this subpart 
will be used instead of sales projections; and
    (iii) The fuel economy value of diesel-powered model types will be 
multiplied by the factor 1.0 to convert gallons of diesel fuel to 
equivalent gallons of gasoline.
    (c) Except as permitted in paragraph (d) of this section, the 
average fuel economy will be calculated individually for each category 
identified in paragraph (a)(1) of this section as follows:
    (1) Divide the total production volume of that category of 
automobiles; by
    (2) A sum of terms, each of which corresponds to a model type 
within that category of automobiles and is a fraction determined by 
dividing the number of automobiles of that model type produced by the 
manufacturer in the model year; by
    (i) For gasoline-fueled and diesel-fueled model types, the fuel 
economy calculated for that model type in accordance with paragraph 
(b)(2) of this section; or
    (ii) For alcohol-fueled model types, the fuel economy value 
calculated for that model type in accordance with paragraph (b)(2) of 
this section divided by 0.15 and rounded to the nearest 0.1 mpg; or
    (iii) For natural gas-fueled model types, the fuel economy value 
calculated for that model type in accordance with paragraph (b)(2) of 
this section divided by 0.15 and rounded to the nearest 0.1 mpg; or
    (iv) For alcohol dual fuel model types, for model years 1993 
through 2019, the harmonic average of the following two terms; the 
result rounded to the nearest 0.1 mpg:
    (A) The combined model type fuel economy value for operation on 
gasoline or diesel fuel as determined in Sec.  600.208-12(b)(5)(i); and
    (B) The combined model type fuel economy value for operation on 
alcohol fuel as determined in Sec.  600.208-12(b)(5)(ii) divided by 
0.15 provided the requirements of Sec.  600.510(g) are met; or
    (v) For natural gas dual fuel model types, for model years 1993 
through 2019, the harmonic average of the following two terms; the 
result rounded to the nearest 0.1 mpg:
    (A) The combined model type fuel economy value for operation on 
gasoline or diesel as determined in Sec.  600.208-12(b)(5)(i); and
    (B) The combined model type fuel economy value for operation on 
natural gas as determined in Sec.  600.208-12(b)(5)(ii) divided by 0.15 
provided the requirements of paragraph (g) of this section are met.
    (d) The Administrator may approve alternative calculation methods 
if they are part of an approved credit plan under the provisions of 15 
U.S.C. 2003.
    (e) For passenger automobile categories identified in paragraph 
(a)(1) of this section, the average fuel economy calculated in 
accordance with paragraph (c) of this section shall be adjusted using 
the following equation:

AFEadj = AFE[((0.55 x a x c) + (0.45 x c) + (0.5556 x a) + 
0.4487)/((0.55 x a) + 0.45)] + IW

[[Page 25715]]

Where:

AFEadj = Adjusted average combined fuel economy, rounded 
to the nearest 0.1 mpg;
AFE = Average combined fuel economy as calculated in paragraph (c) 
of this section, rounded to the nearest 0.0001 mpg;
a = Sales-weight average (rounded to the nearest 0.0001 mpg) of all 
model type highway fuel economy values (rounded to the nearest 0.1 
mpg) divided by the sales-weighted average (rounded to the nearest 
0.0001 mpg) of all model type city fuel economy values (rounded to 
the nearest 0.1 mpg). The quotient shall be rounded to 4 decimal 
places. These average fuel economies shall be determined using the 
methodology of paragraph (c) of this section.
c = 0.0014;
IW = (9.2917 x 10-3 x SF3IWC x 
FE3IWC) - (3.5123 x 10-3 x SF4ETW x 
FE4IWC).

    Note: Any calculated value of IW less than zero shall be set 
equal to zero.

SF3IWC = The 3000 lb. inertia weight class sales divided 
by total sales. The quotient shall be rounded to 4 decimal places.
SF4ETW = The 4000 lb. equivalent test weight category 
sales divided by total sales. The quotient shall be rounded to 4 
decimal places.
FE4IWC = The sales-weighted average combined fuel economy 
of all 3000 lb. inertia weight class base levels in the compliance 
category. Round the result to the nearest 0.0001 mpg.
FE4IWC = The sales-weighted average combined fuel economy 
of all 4000 lb. inertia weight class base levels in the compliance 
category. Round the result to the nearest 0.0001 mpg.

    (f) The Administrator shall calculate and apply additional average 
fuel economy adjustments if, after notice and opportunity for comment, 
the Administrator determines that, as a result of test procedure 
changes not previously considered, such correction is necessary to 
yield fuel economy test results that are comparable to those obtained 
under the 1975 test procedures. In making such determinations, the 
Administrator must find that:
    (1) A directional change in measured fuel economy of an average 
vehicle can be predicted from a revision to the test procedures;
    (2) The magnitude of the change in measured fuel economy for any 
vehicle or fleet of vehicles caused by a revision to the test 
procedures is quantifiable from theoretical calculations or best 
available test data;
    (3) The impact of a change on average fuel economy is not due to 
eliminating the ability of manufacturers to take advantage of 
flexibility within the existing test procedures to gain measured 
improvements in fuel economy which are not the result of actual 
improvements in the fuel economy of production vehicles;
    (4) The impact of a change on average fuel economy is not solely 
due to a greater ability of manufacturers to reflect in average fuel 
economy those design changes expected to have comparable effects on in-
use fuel economy;
    (5) The test procedure change is required by EPA or is a change 
initiated by EPA in its laboratory and is not a change implemented 
solely by a manufacturer in its own laboratory.
    (g)(1) Alcohol dual fuel automobiles and natural gas dual fuel 
automobiles must provide equal or greater energy efficiency while 
operating on alcohol or natural gas as while operating on gasoline or 
diesel fuel to obtain the CAFE credit determined in paragraphs 
(c)(2)(iv) and (v) of this section or to obtain the carbon-related 
exhaust emissions credit determined in paragraphs (j)(2)(ii) and (iii). 
The following equation must hold true:

Ealt/Epet> or = 1

Where:

Ealt = [FEalt/(NHValt x 
Dalt)] x 10\6\ = energy efficiency while operating on 
alternative fuel rounded to the nearest 0.01 miles/million BTU.
Epet = [FEpet/(NHVpet x 
Dpet)] x 10\6\ = energy efficiency while operating on 
gasoline or diesel (petroleum) fuel rounded to the nearest 0.01 
miles/million BTU.
FEalt is the fuel economy [miles/gallon for liquid fuels 
or miles/100 standard cubic feet for gaseous fuels] while operated 
on the alternative fuel as determined in Sec.  600.113-08(a) and 
(b);
FEpet is the fuel economy [miles/gallon] while operated 
on petroleum fuel (gasoline or diesel) as determined in Sec.  
600.113(a) and (b);
NHValt is the net (lower) heating value [BTU/lb] of the 
alternative fuel;
NHVpet is the net (lower) heating value [BTU/lb] of the 
petroleum fuel;
Dalt is the density [lb/gallon for liquid fuels or lb/100 
standard cubic feet for gaseous fuels] of the alternative fuel;
Dpet is the density [lb/gallon] of the petroleum fuel.

    (i) The equation must hold true for both the FTP city and HFET 
highway fuel economy values for each test of each test vehicle.
    (ii)(A) The net heating value for alcohol fuels shall be 
premeasured using a test method which has been approved in advance by 
the Administrator.
    (B) The density for alcohol fuels shall be premeasured using ASTM D 
1298-85 (Reapproved 1990) ``Standard Practice for Density, Relative 
Density (Specific Gravity), or API Gravity of Crude Petroleum and 
Liquid Petroleum Products by Hydrometer Method'' (incorporated by 
reference at Sec.  600.011-93).
    (iii) The net heating value and density of gasoline are to be 
determined by the manufacturer in accordance with Sec.  600.113(f).
    (2) [Reserved]
    (3) Alcohol dual fuel passenger automobiles and natural gas dual 
fuel passenger automobiles manufactured during model years 1993 through 
2019 must meet the minimum driving range requirements established by 
the Secretary of Transportation (49 CFR part 538) to obtain the CAFE 
credit determined in paragraphs (c)(2)(iv) and (v) of this section.
    (h) For model years 1993 and later, and for each category of 
automobile identified in paragraph (a)(1) of this section, the maximum 
increase in average fuel economy determined in paragraph (c) of this 
section attributable to alcohol dual fuel automobiles and natural gas 
dual fuel automobiles shall be as follows:

------------------------------------------------------------------------
                                                        Maximum increase
                      Model year                              (mpg)
------------------------------------------------------------------------
1993-2014.............................................               1.2
2015..................................................               1.0
2016..................................................               0.8
2017..................................................               0.6
2018..................................................               0.4
2019..................................................               0.2
2020 and later........................................               0.0
------------------------------------------------------------------------

     (1) The Administrator shall calculate the increase in average fuel 
economy to determine if the maximum increase provided in paragraph (h) 
of this section has been reached. The Administrator shall calculate the 
average fuel economy for each category of automobiles specified in 
paragraph (a)(1) of this section by subtracting the average fuel 
economy values calculated in accordance with this section by assuming 
all alcohol dual fuel and natural gas dual fuel automobiles are 
operated exclusively on gasoline (or diesel) fuel from the average fuel 
economy values determined in paragraph (c) of this section. The 
difference is limited to the maximum increase specified in paragraph 
(h) of this section.
    (2) [Reserved]
    (i) For model years 2012 through 2015, and for each category of 
automobile identified in paragraph (a)(1) of this section, the maximum 
decrease in average carbon-related exhaust emissions determined in 
paragraph (j) of this section attributable to alcohol dual fuel 
automobiles and natural gas dual fuel automobiles shall be calculated 
using the following

[[Page 25716]]

formula, and rounded to the nearest tenth of a gram per mile:
[GRAPHIC] [TIFF OMITTED] TR07MY10.059

Where:

FltAvg = The fleet average CREE value for passenger automobiles or 
light trucks determined for the applicable model year according to 
paragraph (j) of this section, except by assuming all alcohol dual 
fuel and natural gas dual fuel automobiles are operated exclusively 
on gasoline (or diesel) fuel.
MPGMAX = The maximum increase in miles per gallon 
determined for the appropriate model year in paragraph (h) of this 
section.

    (1) The Administrator shall calculate the decrease in average 
carbon-related exhaust emissions to determine if the maximum decrease 
provided in this paragraph (i) has been reached. The Administrator 
shall calculate the average carbon-related exhaust emissions for each 
category of automobiles specified in paragraph (a) of this section by 
subtracting the average carbon-related exhaust emission values 
determined in paragraph (j) of this section from the average carbon-
related exhaust emission values calculated in accordance with this 
section by assuming all alcohol dual fuel and natural gas dual fuel 
automobiles are operated exclusively on gasoline (or diesel) fuel. The 
difference is limited to the maximum decrease specified in paragraph 
(i) of this section.
    (2) [Reserved]
    (j) The average carbon-related exhaust emissions will be calculated 
individually for each category identified in paragraph (a)(1) of this 
section as follows:
    (1) Divide the total production volume of that category of 
automobiles into:
    (2) A sum of terms, each of which corresponds to a model type 
within that category of automobiles and is a product determined by 
multiplying the number of automobiles of that model type produced by 
the manufacturer in the model year by:
    (i) For gasoline-fueled and diesel-fueled model types, the carbon-
related exhaust emissions value calculated for that model type in 
accordance with paragraph (b)(2) of this section; or
    (ii)(A) For alcohol-fueled model types, for model years 2012 
through 2015, the carbon-related exhaust emissions value calculated for 
that model type in accordance with paragraph (b)(2) of this section 
multiplied by 0.15 and rounded to the nearest gram per mile, except 
that manufacturers complying with the fleet averaging option for 
N2O and CH4 as allowed under Sec.  86.1818-
12(f)(2) of this chapter must perform this calculation such that 
N2O and CH4 values are not multiplied by 0.15; or
    (B) For alcohol-fueled model types, for model years 2016 and later, 
the carbon-related exhaust emissions value calculated for that model 
type in accordance with paragraph (b)(2) of this section; or
    (iii)(A) For natural gas-fueled model types, for model years 2012 
through 2015, the carbon-related exhaust emissions value calculated for 
that model type in accordance with paragraph (b)(2) of this section 
multiplied by 0.15 and rounded to the nearest gram per mile, except 
that manufacturers complying with the fleet averaging option for 
N2O and CH4 as allowed under Sec.  86.1818-
12(f)(2) of this chapter must perform this calculation such that 
N2O and CH4 values are not multiplied by 0.15; or
    (B) For natural gas-fueled model types, for model years 2016 and 
later, the carbon-related exhaust emissions value calculated for that 
model type in accordance with paragraph (b)(2) of this section; or
    (iv) For alcohol 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:
    (A) The combined model type carbon-related exhaust emissions value 
for operation on gasoline or diesel fuel as determined in Sec.  
600.208-12(b)(5)(i); and
    (B) The combined model type carbon-related exhaust emissions value 
for operation on alcohol fuel as determined in Sec.  600.208-
12(b)(5)(ii) multiplied by 0.15 provided the requirements of paragraph 
(g) of this section are met, except that manufacturers complying with 
the fleet averaging option for N2O and CH4 as 
allowed under Sec.  86.1818-12(f)(2) of this chapter must perform this 
calculation such that N2O and CH4 values are not 
multiplied by 0.15; or
    (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:
    (A) The combined model type carbon-related exhaust emissions value 
for operation on gasoline or diesel as determined in Sec.  600.208-
12(b)(5)(i); and
    (B) The combined model type carbon-related exhaust emissions value 
for operation on natural gas as determined in Sec.  600.208-
12(b)(5)(ii) multiplied by 0.15 provided the requirements of paragraph 
(g) of this section are met, except that manufacturers complying with 
the fleet averaging option for N2O and CH4 as 
allowed under Sec.  86.1818-12(f)(2) of this chapter must perform this 
calculation such that N2O and CH4 values are not 
multiplied by 0.15.
    (vi) For alcohol dual fuel model types, for model years 2016 and 
later, the combined model type carbon-related exhaust emissions value 
determined according to the following formula and rounded to the 
nearest gram per mile:

CREE = (F x CREEalt) + ((1-F) x CREEgas)

Where:

F = 0.00 unless otherwise approved by the Administrator according to 
the provisions of paragraph (k) of this section;
CREEalt = The combined model type carbon-related exhaust 
emissions value for operation on alcohol fuel as determined in Sec.  
600.208-12(b)(5)(ii); and
CREEgas = The combined model type carbon-related exhaust 
emissions value for operation on gasoline or diesel fuel as 
determined in Sec.  600.208-12(b)(5)(i).

    (vii) For natural gas dual fuel model types, for model years 2016 
and later, the combined model type carbon-related exhaust emissions 
value determined according to the following formula and rounded to the 
nearest gram per mile:

CREE = (F x CREEalt) + ((1-F) x CREEgas)

Where:

F = 0.00 unless otherwise approved by the Administrator according to 
the provisions of paragraph (k) of this section;
CREEalt = The combined model type carbon-related exhaust 
emissions value for operation on natural gas as determined in Sec.  
600.208-12(b)(5)(ii); and
CREEgas = The combined model type carbon-related exhaust 
emissions value for

[[Page 25717]]

operation on gasoline or diesel fuel as determined in Sec.  600.208-
12(b)(5)(i).

    (k) Alternative in-use weighting factors for dual fuel model types. 
Using one of the methods in either paragraph (k)(1) or (2) of this 
section, manufacturers may request the use of alternative values for 
the weighting factor F in the equations in paragraphs (j)(2)(vi) and 
(vii) of this section. Unless otherwise approved by the Administrator, 
the manufacturer must use the value of F that is in effect in 
paragraphs (j)(2)(vi) and (vii) of this section.
    (1) Upon written request from a manufacturer, the Administrator 
will determine and publish by written guidance an appropriate value of 
F for each requested alternative fuel based on the Administrator's 
assessment of real-world use of the alternative fuel. Such published 
values would be available for any manufacturer to use. The 
Administrator will periodically update these values upon written 
request from a manufacturer.
    (2) The manufacturer may optionally submit to the Administrator its 
own demonstration regarding the real-world use of the alternative fuel 
in their vehicles and its own estimate of the appropriate value of F in 
the equations in paragraphs (j)(2)(vi) and (vii) of this section. 
Depending on the nature of the analytical approach, the manufacturer 
could provide estimates of F that are model type specific or that are 
generally applicable to the manufacturer's dual fuel fleet. The 
manufacturer's analysis could include use of data gathered from on-
board sensors and computers, from dual fuel vehicles in fleets that are 
centrally fueled, or from other sources. The analysis must be based on 
sound statistical methodology and must account for analytical 
uncertainty. Any approval by the Administrator will pertain to the use 
of values of F for the model types specified by the manufacturer.

0
55. A new Sec.  600.512-12 is added to subpart F to read as follows:

Sec.  600.512-12  Model year report.

    (a) For each model year, the manufacturer shall submit to the 
Administrator a report, known as the model year report, containing all 
information necessary for the calculation of the manufacturer's average 
fuel economy and all information necessary for the calculation of the 
manufacturer's average carbon-related exhaust emissions.
    (1) The results of the manufacturer calculations and summary 
information of model type fuel economy values which are contained in 
the average fuel economy calculation shall also be submitted to the 
Secretary of the Department of Transportation, National Highway and 
Traffic Safety Administration.
    (2) The results of the manufacturer calculations and summary 
information of model type carbon-related exhaust emission values which 
are contained in the average calculation shall be submitted to the 
Administrator.
    (b)(1) The model year report shall be in writing, signed by the 
authorized representative of the manufacturer and shall be submitted no 
later than 90 days after the end of the model year.
    (2) The Administrator may waive the requirement that the model year 
report be submitted no later than 90 days after the end of the model 
year. Based upon a request by the manufacturer, if the Administrator 
determines that 90 days is insufficient time for the manufacturer to 
provide all additional data required as determined in Sec.  600.507, 
the Administrator shall establish an alternative date by which the 
model year report must be submitted.
    (3) Separate reports shall be submitted for passenger automobiles 
and light trucks (as identified in Sec.  600.510).
    (c) The model year report must include the following information:
    (1)(i) All fuel economy data used in the FTP/HFET-based model type 
calculations under Sec.  600.208-12, and subsequently required by the 
Administrator in accordance with Sec.  600.507;
    (ii) All carbon-related exhaust emission data used in the FTP/HFET-
based model type calculations under Sec.  600.208-12, and subsequently 
required by the Administrator in accordance with Sec.  600.507;
    (2)(i) All fuel economy data for certification vehicles and for 
vehicles tested for running changes approved under Sec.  86.1842-01 of 
this chapter;
    (ii) All carbon-related exhaust emission data for certification 
vehicles and for vehicles tested for running changes approved under 
Sec.  86.1842-01 of this chapter;
    (3) Any additional fuel economy and carbon-related exhaust emission 
data submitted by the manufacturer under Sec.  600.509;
    (4)(i) A fuel economy value for each model type of the 
manufacturer's product line calculated according to Sec.  
600.510(b)(2);
    (ii) A carbon-related exhaust emission value for each model type of 
the manufacturer's product line calculated according to Sec.  
600.510(b)(2);
    (5)(i) The manufacturer's average fuel economy value calculated 
according to Sec.  600.510(c);
    (ii) The manufacturer's average carbon-related exhaust emission 
value calculated according to Sec.  600.510(j);
    (6) A listing of both domestically and nondomestically produced car 
lines as determined in Sec.  600.511 and the cost information upon 
which the determination was made; and
    (7) The authenticity and accuracy of production data must be 
attested to by the corporation, and shall bear the signature of an 
officer (a corporate executive of at least the rank of vice-president) 
designated by the corporation. Such attestation shall constitute a 
representation by the manufacturer that the manufacturer has 
established reasonable, prudent procedures to ascertain and provide 
production data that are accurate and authentic in all material 
respects and that these procedures have been followed by employees of 
the manufacturer involved in the reporting process. The signature of 
the designated officer shall constitute a representation by the 
required attestation.
    (8) For 2008-2010 light truck model year reports, the average fuel 
economy standard or the ``required fuel economy level'' pursuant to 49 
CFR part 533, as applicable. Model year reports for light trucks 
meeting required fuel economy levels pursuant to 49 CFR 533.5(g) and 
(h) shall include information in sufficient detail to verify the 
accuracy of the calculated required fuel economy level. Such 
information is expected to include but is not limited to, production 
information for each unique footprint within each model type contained 
in the model year report and the formula used to calculate the required 
fuel economy level. Model year reports for required fuel economy levels 
shall include a statement that the method of measuring vehicle track 
width, measuring vehicle wheelbase and calculating vehicle footprint is 
accurate and complies with applicable Department of Transportation 
requirements.
    (9) For 2011 and later model year reports, the ``required fuel 
economy level'' pursuant to 49 CFR parts 531 or 533, as applicable. 
Model year reports shall include information in sufficient detail to 
verify the accuracy of the calculated required fuel economy level, 
including but is not limited to, production information for each unique 
footprint within each model type contained in the model year report and 
the formula used to calculate the required fuel economy level. Model 
year reports shall include a statement that the method of measuring 
vehicle track

[[Page 25718]]

width, measuring vehicle wheelbase and calculating vehicle footprint is 
accurate and complies with applicable Department of Transportation 
requirements.
    (10) For 2012 and later model year reports, the ``required fuel 
economy level'' pursuant to 49 CFR parts 531 or 533 as applicable, and 
the applicable fleet average CO2 emission standards. Model 
year reports shall include information in sufficient detail to verify 
the accuracy of the calculated required fuel economy level and fleet 
average CO2 emission standards, including but is not limited 
to, production information for each unique footprint within each model 
type contained in the model year report and the formula used to 
calculate the required fuel economy level and fleet average 
CO2 emission standards. Model year reports shall include a 
statement that the method of measuring vehicle track width, measuring 
vehicle wheelbase and calculating vehicle footprint is accurate and 
complies with applicable Department of Transportation and EPA 
requirements.
    (11) For 2012 and later model year reports, a detailed (but easy to 
understand) list of vehicle models and the applicable in-use CREE 
emission standard. The list of models shall include the applicable 
carline/subconfiguration parameters (including carline, equivalent test 
weight, road-load horsepower, axle ratio, engine code, transmission 
class, transmission configuration and basic engine); the test 
parameters (ETW and a, b, c, dynamometer coefficients) and the 
associated CREE emission standard. The manufacturer shall provide the 
method of identifying EPA engine code for applicable in-use vehicles.

0
56. A new Sec.  600.514-12 is added to subpart F to read as follows:

Sec.  600.514-12  Reports to the Environmental Protection Agency.

    This section establishes requirements for automobile manufacturers 
to submit reports to the Environmental Protection Agency regarding 
their efforts to reduce automotive greenhouse gas emissions.
    (a) General Requirements. (1) For each model year, each 
manufacturer shall submit a pre-model year report.
    (2) The pre-model year report required by this section for each 
model year must be submitted before the model year begins and before 
the certification of any test group, no later than December 31 of the 
calendar year two years before the model year. For example the pre-
model year report for the 2012 model year must be submitted no later 
than December 31, 2010.
    (3) Each report required by this section must:
    (i) Identify the report as a pre-model year report;
    (ii) Identify the manufacturer submitting the report;
    (iii) State the full name, title, and address of the official 
responsible for preparing the report;
    (iv) Be submitted to: Director, Compliance and Innovative 
Strategies Division, U.S. Environmental Protection Agency, 2000 
Traverwood, Ann Arbor, Michigan 48105;
    (v) Identify the current model year;
    (vi) Be written in the English language; and
    (vii) Be based upon all information and data available to the 
manufacturer approximately 30 days before the report is submitted to 
the Administrator.
    (b) Content of pre-model year reports. (1) Each pre-model year 
report must include the following information for each compliance 
category for the applicable future model year and to the extent 
possible, two model years into the future:
    (i) The manufacturer's estimate of its footprint-based fleet 
average CO2 standards (including temporary lead time 
allowance alternative standards, if applicable);
    (ii) Projected total and model-level production volumes for each 
applicable standard category;
    (iii) Projected fleet average CO2 compliance level for 
each applicable standard category; and the model-level CO2 
emission values which form the basis of the projection;
    (iv) Projected fleet average CO2 credit/debit status for 
each applicable standard category;
    (v) A description of the various credit, transfer and trading 
options that will be used to comply with each applicable standard 
category, including the amount of credit the manufacturer intends to 
generate for air conditioning leakage, air conditioning efficiency, 
off-cycle technology, and various early credit programs;
    (vi) A description of the method which will be used to calculate 
the carbon-related exhaust emissions for any electric vehicles, fuel 
cell vehicles and plug-in hybrid vehicles;
    (vii) A summary by model year (beginning with the 2009 model year) 
of the number of electric vehicles, fuel cell vehicles and plug-in 
hybrid vehicles using (or projected to use) the advanced technology 
vehicle incentives program;
    (viii) The methodology which will be used to comply with 
N2O and CH4 emission standards; and
    (ix) Other information requested by the Administrator.
    (2) Manufacturers must submit, in the pre-model year report for 
each model year in which a credit deficit is generated (or projected to 
be generated), a compliance plan demonstrating how the manufacturer 
will comply with the fleet average CO2 standard by the end 
of the third year after the deficit occurred.

Department of Transportation

49 CFR Chapter V

    In consideration of the foregoing, under the authority of 49 U.S.C. 
32901, 32902, 32903, and 32907, and delegation of authority at 49 CFR 
1.50, NHTSA amends 49 CFR Chapter V as follows:

PART 531--PASSENGER AUTOMOBILE AVERAGE FUEL ECONOMY STANDARDS

0
1. The authority citation for part 531 continues to read as follows:

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

0
2. Amend Sec.  531.5 as follows:
0
a. By revising paragraph (a) introductory text.
0
b. By revising paragraph (c).
0
c. By redesignating paragraph (d) as paragraph (e).
0
d. By adding a new paragraph (d).

Sec.  531.5  Fuel economy standards.

    (a) Except as provided in paragraph (e) of this section, each 
manufacturer of passenger automobiles shall comply with the average 
fuel economy standards in Table I, expressed in miles per gallon, in 
the model year specified as applicable:
* * * * *
    (c) For model years 2012-2016, a manufacturer's passenger 
automobile fleet shall comply with the fuel economy level calculated 
for that model year according to Figure 2 and the appropriate values in 
Table III.

[[Page 25719]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.060

Where:

CAFErequired is the required level for a given fleet (domestic 
passenger automobiles or import passenger automobiles),
Subscript i is a designation of multiple groups of automobiles, 
where each group's designation, i.e., i = 1, 2, 3, etc., represents 
automobiles that share a unique model type and footprint within the 
applicable fleet, either domestic passenger automobiles or import 
passenger automobiles.
    Productioni is the number of passenger automobiles produced for 
sale in the United States within each ith designation, i.e., which 
shares the same model type and footprint.
    TARGETi is the fuel economy target in miles per 
gallon (mpg) applicable to the footprint of passenger automobiles 
within each ith designation, i.e., which shares the same model type 
and footprint, calculated according to Figure 3 and rounded to the 
nearest hundredth of a mpg, i.e., 35.455 = 35.46 mpg, and the 
summations in the numerator and denominator are both performed over 
all models in the fleet in question.
[GRAPHIC] [TIFF OMITTED] TR07MY10.061

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet),
Parameters a, b, c, and d are defined in Table III, and
The MIN and MAX functions take the minimum and maximum, 
respectively, of the included values.

                     Table III--Parameters for the Passenger Automobile Fuel Economy Targets
----------------------------------------------------------------------------------------------------------------
                                                                            Parameters
                   Model year                    ---------------------------------------------------------------
                                                         a               b               c               d
----------------------------------------------------------------------------------------------------------------
2012............................................           35.95           27.95       0.0005308        0.006057
2013............................................           36.80           28.46       0.0005308        0.005410
2014............................................           37.75           29.03       0.0005308        0.004725
2015............................................           39.24           29.90       0.0005308        0.003719
2016............................................           41.09           30.96       0.0005308        0.002573
----------------------------------------------------------------------------------------------------------------

    (d) In addition to the requirement of paragraphs (b) and (c) of 
this section, each manufacturer shall also meet the minimum standard 
for domestically manufactured passenger automobiles expressed in Table 
IV:

                                Table IV
------------------------------------------------------------------------
                                                              Minimum
                       Model year                            standard
------------------------------------------------------------------------
2011....................................................            27.8
2012....................................................            30.7
2013....................................................            31.4
2014....................................................            32.1
2015....................................................            33.3
2016....................................................            34.7
------------------------------------------------------------------------

* * * * *

0
3. Add Appendix A to Part 531 to read as follows:

Appendix A to Part 531--Example of Calculating Compliance Under Sec.  
531.5(c)

    Assume a hypothetical manufacturer (Manufacturer X) produces a 
fleet of domestic passenger automobiles in MY 2012 as follows:

[[Page 25720]]

Appendix A, Table 1

----------------------------------------------------------------------------------------------------------------
                           Model type
----------------------------------------------------------------                      Actual
                                  Basic engine    Transmission     Description     measured fuel      Volume
     Group        Carline name         (L)            class                        economy (mpg)
----------------------------------------------------------------------------------------------------------------
1.............  PC A FWD.......             1.8              A5  2-door sedan...            34.0           1,500
2.............  PC A FWD.......             1.8              M6  2-door sedan...            34.6           2,000
3.............  PC A FWD.......             2.5              A6  4-door wagon...            33.8           2,000
4.............  PC A AWD.......             1.8              A6  4-door wagon...            34.4           1,000
5.............  PC A AWD.......             2.5              M6  2-door                     32.9           3,000
                                                                  hatchback.
6.............  PC B RWD.......             2.5              A6  4-door wagon...            32.2           8,000
7.............  PC B RWD.......             2.5              A7  4-door sedan...            33.1           2,000
8.............  PC C AWD.......             3.2              A7  4-door sedan...            30.6           5,000
9.............  PC C FWD.......             3.2              M6  2-door coupe...            28.5           3,000
----------------------------------------------------------------------------------------------------------------
    Total.......................................................................................          27,500
----------------------------------------------------------------------------------------------------------------

    Note to Appendix A, Table 1.  Manufacturer X's required 
corporate average fuel economy level standard under Sec.  531.5(c) 
would first be calculated by determining the fuel economy targets 
applicable to each unique model type and footprint combination for 
model type groups 1-9 as illustrated in Appendix A, Table 2:

[[Page 25721]]

Appendix A, Table 2

    Manufacturer X calculates a fuel economy target standard for each 
unique model type and footprint combination.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                           Model type                                                                                                             Fuel
-----------------------------------------------------------------                                               Track                           economy
                                           Basic                      Description      Base tire   Wheelbase  width F&R  Footprint    Volume     target
     Group            Carline name         engine   Transmission                          size      (inches)   average    (ft\2\)               standard
                                            (L)         class                                                  (inches)                          (mpg)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1a............  PC A FWD...............        1.8           A5   2-door sedan......    205/75R14       99.8       61.2       42.4        900      35.01
1b............  PC A FWD...............        1.8           A5   2-door sedan......    215/70R15       99.8       60.9       42.2        600      35.14
2.............  PC A FWD...............        1.8           M6   2-door sedan......    215/70R15       99.8       60.9       42.2      2,000      35.14
3.............  PC A FWD...............        2.5           A6   4-door wagon......    215/70R15      100.0       60.9       42.3      2,000      35.08
4.............  PC A AWD...............        1.8           A6   4-door wagon......    235/60R15      100.0       61.2       42.5      1,000      35.95
5.............  PC A AWD...............        2.5           M6   2-door hatchback..    225/65R16       99.6       59.5       41.2      3,000      35.81
6a............  PC B RWD...............        2.5           A6   4-door wagon......    235/65R16      109.2       67.2       51.0      4,000      30.19
6b............  PC B RWD...............        2.5           A6   4-door wagon......    265/55R18      109.2       66.8       50.7      4,000      30.33
7.............  PC B RWD...............        2.5           A7   4-door sedan......    235/65R17      109.2       67.8       51.4      2,000      29.99
8.............  PC C AWD...............        3.2           A7   4-door sedan......    265/55R18      111.3       67.8       52.4      5,000      29.52
9.............  PC C FWD...............        3.2           M6   2-door coupe......    225/65R16      111.3       67.2       51.9      3,000      29.76
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total.........................................................................................................................     27,500
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Note to Appendix A, Table 2. With the appropriate fuel economy 
targets determined for each unique model type and footprint 
combination, Manufacturer X's required fuel economy target standard 
would be calculated as illustrated in Appendix A, Figure 1.

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[[Page 25722]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.062

[[Page 25723]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.063

BILLING CODE 6560-50-C

    Note to Appendix A, Figure 2. Since the actual average fuel 
economy of Manufacturer X's fleet is 32.0 mpg, as compared to its 
required fuel economy level of 31.8 mpg, Manufacturer X complied 
with the CAFE standard for MY 2012 as set forth in Sec.  531.5(c).

PART 533--LIGHT TRUCK FUEL ECONOMY STANDARDS

0
4. The authority citation for part 533 continues to read as follows:

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

0
5. Amend Sec.  533.5 by adding Figures 2 and 3 and Table VI at the end 
of paragraph (a), and adding paragraph (i), to read as follows:

Sec.  533.5  Requirements.

    (a) * * *
* * * * *
[GRAPHIC] [TIFF OMITTED] TR07MY10.064

Where:

CAFErequired is the required level for a given fleet,
Subscript i is a designation of multiple groups of light trucks, 
where each group's designation, i.e., i = 1, 2, 3, etc., represents 
light trucks that share a unique model type and footprint within the 
applicable fleet.

[[Page 25724]]

Productioni is the number of units of light trucks produced for sale 
in the United States within each ith designation, i.e., which share 
the same model type and footprint.
TARGETi is the fuel economy target in miles per gallon (mpg) 
applicable to the footprint of light trucks within each ith 
designation, i.e., which shares the same model type and footprint, 
calculated according to Figure 3 and rounded to the nearest 
hundredth of a mpg, i.e., 35.455 = 35.46 mpg, and the summations in 
the numerator and denominator are both performed over all models in 
the fleet in question.
[GRAPHIC] [TIFF OMITTED] TR07MY10.065

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet),
Parameters a, b, c, and d are defined in Table VI, and
The MIN and MAX functions take the minimum and maximum, respectively 
of the included values.

                          Table VI--Parameters for the Light Truck Fuel Economy Targets
----------------------------------------------------------------------------------------------------------------
                                                                            Parameters
                   Model year                    ---------------------------------------------------------------
                                                         a               b               c               d
----------------------------------------------------------------------------------------------------------------
2012............................................           29.82           22.27       0.0004546        0.014900
2013............................................           30.67           22.74       0.0004546        0.013968
2014............................................           31.38           23.13       0.0004546        0.013225
2015............................................           32.72           23.85       0.0004546        0.011920
2016............................................           34.42           24.74       0.0004546        0.010413
----------------------------------------------------------------------------------------------------------------

* * * * *
    (i) For model years 2012-2016, a manufacturer's light truck fleet 
shall comply with the fuel economy level calculated for that model year 
according to Figures 2 and 3 and the appropriate values in Table VI.

0
6. Amend Appendix A to Part 533 by revising Tables 1 and 2 and Figures 
1 and 2 to read as follows:

Appendix A to Part 533--Example of Calculating Compliance Under Sec.  
533.5(i)

    Assume a hypothetical manufacturer (Manufacturer X) produces a 
fleet of light trucks in MY 2012 as follows:

Appendix A, Table 1

----------------------------------------------------------------------------------------------------------------
                           Model type
----------------------------------------------------------------                      Actual
                                  Basic engine    Transmission     Description     measured fuel      Volume
     Group        Carline name         (L)            class                        economy (mpg)
----------------------------------------------------------------------------------------------------------------
1.............  Pickup A 2WD...               4              A5  Reg cab, MB....            27.1             800
2.............  Pickup B 2WD...               4              M5  Reg cab, MB....            27.6             200
3.............  Pickup C 2WD...             4.5              A5  Reg cab, LB....            23.9             300
4.............  Pickup C 2WD...               4              M5  Ext cab, MB....            23.7             400
5.............  Pickup C 4WD...             4.5              A5  Crew cab, SB...            23.5             400
6.............  Pickup D 2WD...             4.5              A6  Crew cab, SB...            23.6             400
7.............  Pickup E 2WD...               5              A6  Ext cab, LB....            22.7             500
8.............  Pickup E 2WD...               5              A6  Crew cab, MB...            22.5             500
9.............  Pickup F 2WD...             4.5              A5  Reg cab, LB....            22.5           1,600
10............  Pickup F 4WD...             4.5              A5  Ext cab, MB....            22.3             800
11............  Pickup F 4WD...             4.5              A5  Crew cab, SB...            22.2             800
----------------------------------------------------------------------------------------------------------------
    Total.......................................................................................           6,700
----------------------------------------------------------------------------------------------------------------

    Note to Appendix A, Table 1.  Manufacturer X's required 
corporate average fuel economy level under Sec.  533.5(i) would 
first be calculated by determining the fuel economy targets 
applicable to each unique model type and footprint combination for 
model type groups (1-11) illustrated in Appendix A, Table 2:

[[Page 25725]]

Appendix A, Table 2

    Manufacturer X calculates a fuel economy target standard value for 
each unique model type and footprint combination.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                           Model type                                                                                                             Fuel
-----------------------------------------------------------------                                               Track                           economy
                                           Basic                      Description      Base tire   Wheelbase  width F&R  Footprint    Volume     target
     Group            Carline name         engine   Transmission                          size      (inches)   average    (ft\2\)               standard
                                            (L)         class                                                  (inches)                          (mpg)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.............  Pickup A 2WD...........          4           A5   Reg cab, MB.......    235/75R15      100.0       68.8       47.8        800      27.30
2a............  Pickup B 2WD...........          4           M5   Reg cab, MB.......    235/75R15      100.0       68.2       47.4        100      27.44
2b............  Pickup B 2WD...........          4           M5   Reg cab, MB.......    235/70R16      100.0       68.4       47.5        100      27.40
3.............  Pickup C 2WD...........        4.5           A5   Reg cab, LB.......    255/70R17      125.0       68.8       59.7        300      23.79
4.............  Pickup C 2WD...........          4           M5   Ext cab, MB.......    255/70R17      125.0       68.8       59.7        400      23.79
5.............  Pickup C 4WD...........        4.5           A5   Crew cab, SB......    275/70R17      150.0       69.0       71.9        400      22.27
6a............  Pickup D 2WD...........        4.5           A6   Crew cab, SB......    255/70R17      125.0       68.8       59.7        200      23.79
6b............  Pickup D 2WD...........        4.5           A6   Crew cab, SB......    285/70R17      125.0       69.2       60.1        200      23.68
7.............  Pickup E 2WD...........          5           A6   Ext cab, LB.......    255/70R17      125.0       68.8       59.7        500      23.79
8.............  Pickup E 2WD...........          5           A6   Crew cab, MB......    285/70R17      125.0       69.2       60.1        500      23.68
9.............  Pickup F 2WD...........        4.5           A5   Reg cab, LB.......    255/70R17      125.0       68.9       59.8      1,600      23.76
10............  Pickup F 4WD...........        4.5           A5   Ext cab, MB.......    275/70R17      150.0       69.0       71.9        800      22.27
11............  Pickup F 4WD...........        4.5           A5   Crew cab, SB......    285/70R17      150.0       69.2       72.1        800      22.27
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total.........................................................................................................................      6,700
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Note to Appendix A, Table 2.  With the appropriate fuel economy 
targets determined for each unique model type and footprint 
combination, Manufacturer X's required fuel economy target standard 
would be calculated as illustrated in Appendix A, Figure 1.

BILLING CODE 6560-50-P

[[Page 25726]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.066

[[Page 25727]]

[GRAPHIC] [TIFF OMITTED] TR07MY10.067

BILLING CODE 6560-50-C

    Note to Appendix A, Figure 2.  Since the actual average fuel 
economy of Manufacturer X's fleet is 23.3 mpg, as compared to its 
required fuel economy level of 23.5 mpg, Manufacturer X did not 
comply with the CAFE standard for MY 2012 as set forth in section 
533.5(i).

PART 536--TRANSFER AND TRADING OF FUEL ECONOMY CREDITS

0
7. The authority citation for part 563 continues to read as follows:

    Authority: Sec. 104, Pub. L. 110-140 (49 U.S.C. 32903); 
delegation of authority at 49 CFR 1.50.

0
8. Amend Sec.  536.3 by revising the definition of ``Transfer'' in 
paragraph (b) to read as follows:

Sec.  536.3  Definitions.

* * * * *
    (b) * * *
    Transfer means the application by a manufacturer of credits earned 
by that manufacturer in one compliance category or credits acquired be 
trade (and originally earned by another manufacturer in that category) 
to achieve compliance with fuel economy standards with respect to a 
different compliance category. For example, a manufacturer may purchase 
light truck credits from another manufacturer, and transfer them to 
achieve compliance in the manufacturer's domestically manufactured 
passenger car fleet. Subject to the credit transfer limitations of 49 
U.S.C. 32903(g)(3), credits can also be transferred across compliance 
categories and banked or saved in that category to be carried forward 
or backwards later to address a credit shortfall.
* * * * *

0
9. Amend Sec.  536.4 by revising the values for the terms VMTe and VMTu 
in paragraph (c) to read as follows:

Sec.  536.4  Credits.

* * * * *
    (c) * * *
    VMTe = Lifetime vehicle miles traveled as provided in the following

[[Page 25728]]

table for the model year and compliance category in which the credit 
was earned.
    VMTu = Lifetime vehicle miles traveled as provided in the following 
table for the model year and compliance category in which the credit is 
used for compliance.

----------------------------------------------------------------------------------------------------------------
                                                       Lifetime Vehicle Miles Traveled (VMT)
           Model year            -------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................         177,238         177,366         178,652         180,497         182,134
Light Trucks....................         208,471         208,537         209,974         212,040         213,954
----------------------------------------------------------------------------------------------------------------

* * * * *

PART 537--AUTOMOTIVE FUEL ECONOMY REPORTS

0
10. The authority citation for part 537 continues to read as follows:

    Authority: 49 U.S.C. 32907, delegation of authority at 49 CFR 
1.50.

0
11. Amend Sec.  537.5 by revising paragraph (c)(4) to read as follows:

Sec.  537.5  General requirements for reports.

* * * * *
    (c) * * *
    (4) Be submitted in 5 copies to: Administrator, National Highway 
Traffic Safety Administration, 1200 New Jersey Avenue, SE., Washington, 
DC 20590, or submitted electronically to the following secure e-mail 
address: cafe@dot.gov. Electronic submissions should be provided in a 
pdf format.
* * * * *

Sec.  537.6  [Amended]

0
12. Amend Sec.  537.6 by removing paragraph (c)(1) and redesignating 
paragraph (c)(2) as paragraph (c).

0
13. Amend Sec.  537.7 by revising paragraphs (c)(4)(xvi)(A)(4) and 
(c)(4)(xvi)(B)(4) to read as follows:

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

* * * * *
    (c) * * *
    (4) * * *
    (xvi)(A) * * *
    (4) Beginning model year 2010, front axle, rear axle and average 
track width as defined in 49 CFR 523.2,
* * * * *
    (B) * * *
    (4) Beginning model year 2010, front axle, rear axle and average 
track width as defined in 49 CFR 523.2,
* * * * *

0
14. Amend Sec.  537.8 by revising paragraph (c)(1) and removing and 
reserving paragraph (c)(2) to read as follows:

Sec.  537.8  Supplementary reports.

* * * * *
    (c)(1) Each report required by paragraph (a)(1), (2), or (3) of 
this section must be submitted in accordance with Sec.  537.5(c) not 
more than 45 days after the date on which the manufacturer determined, 
or could have determined with reasonable diligence, that a report is 
required under paragraph (a)(1), (2), or (3) of this section.
    (2) [Reserved]
* * * * *

0
15. Amend Sec.  537.9 by revising paragraph (c) to read as follows:

Sec.  537.9  Determination of fuel economy values and average fuel 
economy.

* * * * *
    (c) Average fuel economy. Average fuel economy must be based upon 
fuel economy values calculated under paragraph (b) of this section for 
each model type and must be calculated in accordance with subpart F of 
40 CFR part 600, except that fuel economy values for running changes 
and for new base levels are required only for those changes made or 
base levels added before the average fuel economy is required to be 
submitted under this part.
* * * * *

PART 538--MANUFACTURING INCENTIVES FOR ALTERNATIVE FUEL VEHICLES

0
16. The authority citation for part 538 continues to read as follows:

    Authority: 49 U.S.C. 32901, 32905, and 32906; delegation of 
authority at 49 CFR 1.50.

0
17. Revise Sec.  538.1 to read as follows:

Sec.  538.1  Scope.

    This part establishes minimum driving range criteria to aid in 
identifying passenger automobiles that are dual-fueled automobiles. It 
also establishes gallon equivalent measurements for gaseous fuels other 
than natural gas.

0
18. Revise Sec.  538.2 to read as follows:

Sec.  538.2  Purpose.

    The purpose of this part is to specify one of the criteria in 49 
U.S.C. chapter 329 ``Automobile Fuel Economy'' for identifying dual-
fueled passenger automobiles that are manufactured in model years 1993 
through 2019. The fuel economy of a qualifying vehicle is calculated in 
a special manner so as to encourage its production as a way of 
facilitating a manufacturer's compliance with the Corporate Average 
Fuel Economy standards set forth in part 531 of this chapter. The 
purpose is also to establish gallon equivalent measurements for gaseous 
fuels other than natural gas.

0
19. Amend Sec.  538.7 by revising paragraph (b)(1) to read as follows:

Sec.  538.7  Petitions for reduction of minimum driving range.

* * * * *
    (b) * * *
    (1) Be addressed to: Administrator, National Highway Traffic Safety 
Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590.
* * * * *

    Dated: April 1, 2010.
Ray LaHood,
Secretary, Department of Transportation.
    Dated: April 1, 2010.
Lisa P. Jackson,
Administrator, Environmental Protection Agency.
[FR Doc. 2010-8159 Filed 5-6-10; 8:45 am]
BILLING CODE 6560-50-P