Vehicle Fuel Economy: NHTSA and EPA's Partnership for Setting Fuel Economy and Greenhouse Gas Emissions Standards Improved Analysis and Should Be Maintained
Published: 2010-02-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In May 2009, the U.S. administration announced plans to increase the Department of Transportation's (DOT) National Highway Traffic Safety Administration's (NHTSA) corporate average fuel economy (CAFE) standards and establish the Environmental Protection Agency's (EPA) greenhouse gas (GHG) emissions standards for vehicles. NHTSA redesigned CAFE standards for light trucks for model years 2008 through 2011, and some experts raised questions about the rigor of the computer modeling NHTSA used to develop these standards. GAO was asked to review (1) the design of NHTSA and EPA's proposed standards; (2) how they are collaborating to set these standards; (3) improvements compared to a previous rulemaking, if any, NHTSA made to the modeling; and (4) the extent to which NHTSA analyzed the effects of past light truck standards and the accuracy of data used to set them. GAO reviewed relevant rulemaking and modeling documents, and interviewed agency officials and other experts.
section_title: What GAO Found
paragraphs: NHTSA and EPA have worked to propose CAFE and GHG standards that are generally aligned so manufacturers can build a single fleet of vehicles to comply with both. The standards are based on vehicle size and will cover model years 2012 to 2016. However, differences between the standards still exist because of variation in the legal authorities of each agency. For example, certain flexibility mechanisms designed to reduce compliance costs for manufacturers apply only to GHG standards, which could make aligning them with CAFE standards more difficult. However, potentially stricter penalties for GHG standard noncompliance could improve compliance with CAFE standards. Also, while NHTSA and EPA expect benefits from adopting a standard based on vehicle size, neither standard has a mechanism to ensure that a specific national target will be met. NHTSA and EPA are collaborating by sharing resources and expertise to jointly set CAFE and GHG standards. From fiscal years 1996 through 2001, NHTSA was barred from using appropriated funds to raise CAFE standards. In contrast, EPA has continually expanded its automotive engineering expertise, including at its vehicle testing lab. As a result, EPA was able to contribute several original research studies to the proposed joint standards. Because this collaboration is not formally required and the agencies are not documenting the processes used--a recognized best practice--they may not be able to replicate them in the future. To set the proposed standards, NHTSA improved upon the computer model compared to the version used that had been used to set the CAFE standards for 2008 through 2011 light trucks. One improvement was that NHTSA increased the model's transparency by using publicly available, rather than confidential, data to develop a baseline fleet of vehicles. With EPA's input, NHTSA updated several data inputs such as technology costs and the cost of emissions. While experts GAO interviewed had varying critiques of NHTSA's model, there was no consensus on how NHTSA could further improve it. In particular, experts' opinions differed sharply on two studies, which reported opposing findings concerning the relationship between vehicle weight (a key factor in determining fuel consumption) and safety--suggesting that additional research may be warranted. In part due to resource and data constraints, NHTSA has not yet evaluated its 2008 through 2011 light truck CAFE standards, which have a similar design to the new standards. Retrospective analyses of efforts and data inputs could inform NHTSA on the extent to which the standards met goals and provide means to improve the process of setting standards. Lacking such analysis, NHTSA does not know whether goals of the standards have been met or if changes are needed to the program. NHTSA officials said that while they would like to conduct such analyses, limited resources and time have prevented them from doing so, and they have no definitive plans to conduct them in the future.

section_title: Letter
paragraphs: In May 2009, the U.S. administration announced the National Fuel  Efficiency Policy relating to cars and light trucks, which beginning in 2012,  would not only increase corporate average fuel economy (CAFE)  standards but also establish for the first time greenhouse gas (GHG)  emissions standards. According to the administration, this effort will help  to accomplish several goals. First, by helping to reduce oil consumption,  CAFE standards could decrease the level of oil imports, in turn decreasing  both the nation’s economic vulnerability to oil price shocks and the trade  deficit. Second, the administration intends for CAFE standards and GHG  emissions standards to begin addressing global climate change by  reducing emissions of GHGs such as carbon dioxide from the sector of the  economy that has long been the fastest-growing source of these  emissions—mobile sources like cars and trucks. Finally, this program  represents a coordinated national approach to reducing GHG emissions  and improving fuel economy, allowing auto makers to build a fleet of  vehicles to meet one national standard rather than multiple standards set  by federal and state governments.
Although the proposed standards offer potential benefits, they also impose  costs. Given the nation’s current economic challenges, it is imperative that  in the course of setting new standards, agencies estimate as accurately as  possible the benefits and costs the standards will impose on industry and  consumers—as the standards are in part based on estimates of these costs  and benefits. For example, if costs to consumers from increased standards  are underestimated, then the standards might be too stringent, leading to  high costs imposed on consumers without adequate benefits. The  stringency of these standards—a key factor in generating costs to the  industry and consumers—depends in part on analysis conducted by the  National Highway Traffic Safety Administration (NHTSA), the agency  responsible for regulating CAFE standards, and the Environmental  Protection Agency (EPA), the agency responsible for regulating GHG  emissions standards. Experts raised questions in 2006 when NHTSA set  new CAFE standards for model year 2008 through 2011 light trucks.  Specifically, experts expressed concerns about some of the data in the  model NHTSA used to estimate the potential impact of increasing these  standards. In response, NHTSA made changes to the model in preparation  for establishing new standards for model years 2012 through 2016.
You asked us to review NHTSA and EPA’s joint effort to set CAFE and  GHG emissions standards. Specifically, we reviewed (1) the design of the  proposed CAFE and GHG emissions standards, including similarities and  differences between the two; (2) how NHTSA and EPA are collaborating in  setting CAFE and GHG emissions standards and how the resources of  both agencies are being used; (3) improvements compared to previous  rulemakings, if any, made to NHTSA’s process for setting standards—in  particular, its regulatory impact analysis (the “Volpe model”)—and for  obtaining and validating data used in this model; and (4) the extent to  which NHTSA analyzed the effects of its light truck standards for model  years 2008 through 2011, as well as the accuracy of key data it used to  establish these standards. To describe the design of the proposed CAFE  and GHG emissions standards, we analyzed (1) rulemaking documents  with information on the structure of the standards and how NHTSA and  EPA aligned them and (2) legislation governing CAFE and GHG standards,  as well as associated penalties for noncompliance. To describe how  NHTSA and EPA are collaborating to set CAFE and GHG emissions  standards, we reviewed and analyzed relevant rulemaking documents and  legislation and interviewed NHTSA and EPA officials on their  communication and coordination, analyzing this information against GAO  criteria for evaluating communication and coordination among federal  agencies. To identify improvements made to the Volpe model, we  evaluated (1) documentation about the model against GAO criteria for  developing cost estimates and assessing data reliability and (2) federal  guidance for conducting regulatory and economic analyses. We  interviewed experts and stakeholders with relevant expertise in areas such  as economic modeling and automotive technology costs about data inputs  and the design of the model. We also interviewed automobile industry  stakeholders—including domestic and international automobile  manufacturers and an association representing original equipment  suppliers. Finally, to determine the steps NHTSA has taken to analyze the  effects of the model year 2008 through 2011 light truck standards, we  reviewed documentation related to these standards and interviewed  NHTSA officials to determine whether NHTSA took steps to assess the  outcomes of these standards or the accuracy of data it used to set these  standards.
We conducted this performance audit from June 2009 through February  2010, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. (For more information on  our scope and methodology, see app. I.)
subsections: section_title: Background
paragraphs: The Energy Policy and Conservation Act (EPCA), enacted in 1975,  established CAFE standards with the goal of reducing oil consumption.  EPCA required manufacturers to meet a single fleetwide CAFE standard  for all cars and either a single standard or class standards for light trucks.  The act provided the U.S. Department of Transportation (DOT) with the  authority to administer the CAFE program, and DOT delegated that  authority to NHTSA. In addition, other federal agencies have played a role  in the CAFE program (see table 1). For example, under EPCA, EPA is  responsible for the development of CAFE testing and calculation  procedures. When it was enacted, EPCA specified that the standard for  passenger cars would be 18 miles per gallon (mpg) in 1978, rising to 27.5  mpg by 1985, but it permitted NHTSA to determine the standard for light  trucks through rulemakings. As required in EPCA, NHTSA began setting  CAFE standards for light trucks at the “maximum feasible level” and made  incremental increases to these standards from 1979 through 1996. During  that time, the light truck CAFE standard increased from 17.9 mpg to 20.7  mpg. However, from fiscal years 1996 through 2001, NHTSA was barred  from using appropriated funds made available in DOT’s appropriation to  raise CAFE standards. The CAFE standard for cars remained at the 1985  setting of 27.5 mpg through model year 2010. The first increase in CAFE  standards for cars since 1985 will take place for model year 2011 cars.
After years of little CAFE-related activity or movement in the two  standards, several changes took place. According to NHTSA officials, DOT  requested that the appropriations ban be lifted so that they could raise  CAFE standards. The ban was lifted beginning in fiscal year 2002, and in  2003, NHTSA promulgated increased CAFE standards for light trucks for  model years 2005 to 2007. In 2006, NHTSA issued another rule to increase  and reform the standards for light trucks, which we refer to as the model  year 2008 through 2011 light truck standards. In this light truck  rulemaking, NHTSA transitioned from a single CAFE standard applicable  to each manufacturer’s fleet to a reformed, attribute-based standard based  on a vehicle’s “footprint,” or the size of its wheelbase multiplied by its  average track width. The move from a single standard for all light trucks to  attribute-based standards for each light truck vehicle model based on a  vehicle’s footprint was designed to address a number of downsides to  “unreformed” CAFE standards, including potential safety implications  and consumer choice limitations. The Energy Independence and Security  Act of 2007 (EISA) amended EPCA to require not only light truck but a passenger car standards to be based on an attribute-based curve and for  the fuel economy of the entire industrywide fleet—including cars and light  trucks—to reach an average of 35 mpg by model year 2020. Subsequent to  the enactment of EISA, in 2008, NHTSA proposed CAFE standards based  on vehicle footprints for passenger cars and light trucks for model years   However, a final rule was issued only for model year  2011 through 2015. lso  2011 standards in March 2009—a rulemaking effort and CAFE standard  that we refer to as the model year 2011 CAFE standard. The goal of this  final rule was to reach an estimated fleet average—or target—of 30.2 mpg  for cars and 24.1 mpg for light trucks in model year 2011.
In recent years, public concerns have grown about the relationship  between the emission of GHGs and global climate change. According to  the Intergovernmental Panel on Climate Change—a United Nations  organization—global atmospheric concentrations of GHGs have increased  as a result of human activities, contributing to a warming of the earth’s  climate. If unchecked, this could have serious negative effects, such as  rising sea levels and coastal flooding worldwide.
Automobiles represent a significant share of GHG emissions. According to  EPA, in 2007, personal vehicle use accounted for 17 percent of total GHG  emissions in the U.S. In 2007, the United States Supreme Court ruled that  EPA has the statutory authority to regulate GHG emissions from new  motor vehicles under the Clean Air Act (CAA) because greenhouse gases  meet the CAA’s definition of an air pollutant. Furthermore, the Supreme  Court held that EPA must regulate GHGs as such if EPA finds them to be  an endangerment to public health or welfare. Subsequent to this decision,  EPA issued a final Endangerment Finding of GHG emissions in December  2009, laying the foundation for setting GHG emissions standards for  vehicles.
In addition, in 2005, citing compelling and extraordinary impacts of  climate change on the state, California filed a request with EPA for a  waiver of CAA preemption to set GHG emissions standards for new  motor vehicles starting in the 2009 model year. The CAA directs EPA to  grant a waiver unless EPA finds (1) the state’s protectiveness  determination was arbitrary and capricious, (2) the state’s standards are  not needed to meet “compelling and extraordinary conditions,” or (3) the  state’s standards are inconsistent with section 202(a) of the CAA  (provisions related to technical feasibility and lead time to manufacturers).  Under certain conditions set forth in the CAA, other states may adopt  California’s motor vehicle emissions standards. The automobile industry  brought litigation in several states, including California, alleging, among  other claims, that the state standards were preempted by EPCA (which  preempts state standards relating to fuel economy). Federal district courts  in Vermont and California ruled against such claims, in the only two cases  to be judged on their merits to date. California’s waiver request was  initially denied by the prior administration. EPA determined that  California’s standards were not needed to meet compelling and  extraordinary conditions, as required by the CAA, because global climate  change and local or regional factors represent different causal links  affecting air pollution in California—and previous waivers have addressed  only the local or regional air pollution problems. In addition, EPA found  that the effects of climate change in California are not compelling and  extraordinary when compared to the rest of the country. GAO found in  January 2009 that the “compelling and extraordinary” test had never  before been used to completely deny a waiver request. The current  administration also found that the denial was a historical anomaly,  reconsidered the request, and granted the waiver in June 2009 after finding  that it should not have been denied under any of the statutory factors.  Petition for review of this decision filed by the U.S. Chamber of Commerce  and the National Automobile Dealers Association is now pending in front  of the U.S. Court of Appeals for the District of Columbia Circuit.
In response to the EISA’s call for higher CAFE standards and California  and other states’ desire to establish fuel economy or GHG emissions  standards, the current administration announced its National Fuel  Efficiency Policy in May 2009. This policy involves setting higher CAFE  standards for model years 2012 through 2016 for cars and light trucks, as  well as new GHG emissions standards by EPA during this same period. As  a result, NHTSA and EPA are conducting a joint rulemaking to increase  CAFE standards and set new GHG emissions standards. (See fig. 1 for a  timeline of major CAFE and GHG emissions standards milestones.)
The proposed joint rule would increase CAFE standards to achieve an  estimated fleetwide average of 34.1 mpg and implement GHG emissions  standards to achieve an estimated fleetwide average of 250 grams per mile  (g/mi) of carbon dioxide (CO) by model year 2016. The agencies jointly  issued a Notice of Upcoming Joint Rulemaking in May 2009, issued a  Proposed Rulemaking and held three public hearings across the country in  September 2009, held a 60-day public comment period that ended in  November 2009, and plan to issue the final rules by April 1, 2010. (Fig. 2  shows the changes to CAFE standards over time, including the proposed  e proposed  standards).  standards).
In the proposed rule, NHTSA and EPA estimate that the proposed  standards will result in both benefits and costs:    Potential benefits for consumers and society. The agencies estimate that  the new standards will result in approximately 1.8 billion barrels of oil  savings and 950 million metric tons of carbon dioxide emissions  reductions over the lifetime of vehicles sold in model years 2012 through  2016. In addition, the agencies estimate that new and more fuel-efficient  vehicles will save consumers more than $4,000 in gasoline costs over a  model year 2016 vehicle’s lifetime.
Potential costs for consumers, automobile manufacturers, and others.
The agencies estimate that the proposed standards would require  manufacturers to incorporate additional fuel-saving technology into  vehicles, which would increase the average cost of a model year 2016  vehicle by around $1,100. As a result, this will increase the purchase price  of vehicles for consumers, or manufacturers will receive lower profits  from vehicle sales, or both. However, the agencies estimate that the total  benefits of the proposed standards will outweigh the costs, providing net  benefits to society of nearly $200 billion over the lifetimes of the model  year 2012 to 2016 vehicles. In addition, the estimated lifetime fuel savings  exceeds the $1,100 increase in vehicle cost for a model year 2016 vehicle,  yielding a net savings of about $3,000 for consumers.
section_title: Although NHTSA and EPA Worked to Propose CAFE and GHG Emissions Standards That Are Aligned, the Programs Have Several Key Differences
subsections: section_title: Although the Proposed Standards Based on Vehicle Footprint Should Result in Benefits, Actual Vehicle Sales May Affect the Level of Benefits Realized
paragraphs: Although the proposed CAFE and GHG emissions standards are distinct  and automobile manufacturers will be subject to both sets, EPA and  NHTSA have worked to develop standards that are aligned (what the  agencies refer to as “harmonized”) with the intention that manufacturers  can build one fleet of vehicles to comply with both sets of standards. This  should lower the cost of compliance for manufacturers compared to a  case in which the standards were set separately and without regard for the  other’s design. This harmonization is possible because fuel economy and  GHG emissions have a clear and direct relationship—specifically, vehicle  tailpipe carbon dioxide emissions are directly related to the quantity of  fuel burned. Given the relationship between GHG emissions and fuel  economy, actions to increase fuel economy also necessarily reduce GHG  emissions; therefore, manufacturers can use the same technologies to help  meet both standards.
NHTSA and EPA have proposed standards for both passenger cars and  light trucks that are based on vehicle footprint so that each vehicle is  subject to a target level based on its footprint, with smaller vehicles having  a stricter target (see fig. 3). The footprint-based standard is applied to  individual vehicle models based on the size of each vehicle. Because each  manufacturer sells a different mix of vehicle sizes, under the proposed  standards each manufacturer will have different CAFE and GHG emissions  standards.
NHTSA first adopted a footprint-based approach—as opposed to a single  fleetwide standard—for model year 2008 through 2011 light truck  standards. A number of the experts we interviewed supported the  current approach of subjecting both passenger car and light truck fl eets to  footprint-based standards. In the model year 2008 through 2011 light truck  rule, NHTSA cited several potential benefits of a footprint-based approach  over a single, fleetwide CAFE standard, including the following:    Larger reductions in oil consumption. Oil consumption would be  reduced because automakers would be required to improve the fuel  economy of vehicles of all sizes rather than only those near the standard.
Enhanced safety. Manufacturers would not have an incentive to comply  with CAFE standards by pursuing strategies that compromise safety— such as (1) reducing the size of vehicles (applicable fuel-economy targets  now become higher as size decreases) or (2) designing models to be  classified as light trucks rather than cars, which can increase a vehicle’s  propensity to roll over—in order to comply with CAFE standards. Under a  single standard, manufacturers could reduce vehicle size as one approach  for CAFE compliance.
More even disbursement of the regulatory cost burden. Fuel-economy  improvements would be spread across the industry, instead of  concentrating on manufacturers of heavier, lower fuel-economy vehicles.
Addressing concerns about consumer choice. Manufacturers now must  improve the fuel economy of all light trucks, regardless of size, which  addresses criticisms that single, fleetwide CAFE standards were hindering  the efforts of some companies to offer a mix of vehicles matching  consumer desires. For instance, under the previous system, instead of  installing more fuel-saving technologies across their fleets, manufacturers  might have moved toward building fewer large vehicles and more small  vehicles to meet new CAFE standards, even though consumers typically  have not demanded small vehicles. In a footprint-based standard,  manufacturers must improve the fuel economy of all light trucks, no  matter their size.
The CAFE requirement for each manufacturer—which is the basis for  determining compliance—will be determined at the end of the model  year based on actual production. For example, manufacturers selling a  greater proportion of large vehicles will have a lower average target to  meet than will manufacturers focusing on smaller vehicles. Based on  estimated sales projections, the proposed targets are estimated to achieve  an average of 34.1 mpg across all model year 2016 vehicles sold.
While NHTSA and EPA expect benefits from adopting a standard based on  vehicle footprint and predict that the administration’s goal of a fleetwide  average 34.1 mpg and 250 grams per mile carbon dioxide in 2016 will be  met, there is no guarantee that a specific national target will be achieved.  This is a tradeoff of adopting a footprint standard compared to the single  national CAFE standard NHTSA used in the past. Because the actual  fleetwide fuel-economy levels will depend on actual vehicle sales— specifically, the size of cars consumers buy—there is the possibility that  the actual fleetwide mpg in 2016 will be higher or lower and realized costs  and benefits of the standards will be higher or lower than estimated. For  example, even though all of the vehicles in each manufacturer’s fleet may  be in compliance with its footprint-based requirement, manufacturers may  sell a greater number of large-footprint vehicles than predicted, which  would lower each manufacturer’s CAFE requirement. If this is the case,  the national fleet may not reach the target of 34.1 mpg by 2016, and the  estimated benefits of the standards, which assume achieving a national  fleetwide average of 34.1 mpg, would not be fully realized. The opposite,  however, could also be the case. If a greater number of smaller vehicles  (generally with higher CAFE levels) are sold than expected, manufacturers  will have higher CAFE requirements, the national fleet may exceed the  target of 34.1 mpg, and estimated benefits assuming a fleetwide average of  34.1 mpg would be exceeded (see fig. 4). Similar scenarios could occur  with respect to EPA’s GHG standards.
section_title: Variation in the Standards, Which Result Primarily from Differences in Legal Authorities, May Present Challenges, but GHG Penalties May Increase Compliance
paragraphs: Several key differences between the EPA and NHTSA standards largely  arise from the legal authorities under which the standards are set.  NHTSA’s authority to administer the CAFE program is derived from EPCA,  as amended by EISA, requires that NHTSA, for passenger cars and light  trucks in each future model year, establish standards at “the maximum  feasible average fuel-economy level that it decides manufacturers can  achieve in that model year.” EPCA further directs NHTSA to make this  determination based on 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. However, the law does not direct NHTSA on how to  balance these four factors—which can conflict—thereby giving NHTSA  discretion to define, give weight to, and balance the four factors based on  the circumstances in each CAFE rulemaking. Furthermore, how NHTSA  balances these four factors can vary from rulemaking to rulemaking. For  example, in the model year 2012 through 2016 rulemaking, NHTSA cited  economic practicability concerns—given the state of the economy and the  financial state of automakers—to set standards at a level lower than it  otherwise could have in accordance with Office of Management and  Budget (OMB) guidelines on federal regulatory impact analysis. In  addition to the four statutory factors, NHTSA also considers the potential  for adverse safety consequences and consumer demand when establishing  CAFE standards.
EPA’s authority to set GHG standards is derived from the CAA, which  authorizes EPA to regulate emissions of air pollutants from all mobile  source categories. EPA must prescribe standards for the emission of any  air pollutant from motor vehicles which causes or contributes to air  pollution that endangers public health or welfare. In prescribing these  statutory standards, EPA considers such issues as technology  effectiveness, cost of compliance, the lead time necessary to implement  the technology, safety, energy impacts associated with the use of the  technology, and other impacts on consumers. EPA has the discretion to  consider and weigh these various factors, particularly those related to  issues of technical feasibility and lead time.
Some differences affect the process each agency must use to set  standards, which in turn leads to key differences between the standards.  For example, EPCA requires that EPA, in testing fuel economy of  passenger vehicles, use 1975 test procedures or procedures that give  comparable results under which air conditioning is not turned on. As a  result, manufacturers cannot realize the benefits of air conditioning  improvements for complying with CAFE standards, and NHTSA has, to  date, not taken into account air conditioning improvements when setting  CAFE standards. Under the CAA, however, EPA is not subject to the  same limitations, and its proposed GHG standards account for air  conditioner improvements. Specifically, the mpg equivalent of EPA’s 2016  target of 250 g/mi of COThis creates potential challenges to harmonization and for manufacturers  attempting to manage the design of a fleet. For example, EPA’s proposed  GHG standards offer a “temporary lead time” mechanism for  manufacturers that sell a limited number of vehicles in the U.S. Although  this specific flexibility does not exist in the CAFE standards, under EPCA,  NHTSA may exempt qualifying small-volume manufacturers (defined as  manufacturers that produce under 10,000 vehicles worldwide annually)  from the passenger car standard for a model year. As a result,  manufacturers that are able to take advantage of EPA’s temporary lead  time mechanism to comply with GHG standards may face challenges in  complying with CAFE standards. Some experts we met with said that  these inconsistencies in flexibility mechanisms between the two sets of  standards may present challenges to some manufacturers in meeting the  harmonized standards.
Mechanisms available for enforcing the standards also differ between the  two agencies due to statutory differences. For example, the Clean Air Act  prohibits the sale of vehicles without a certificate of conformity from EPA  which indicates that the vehicle meets applicable emission standards. If  EPA determines that a vehicle does not meet the emission standards, it  may not issue a certificate, thus preventing the manufacturer from legally  selling the vehicle. The Clean Air Act also gives EPA authority to recall  noncompliant vehicles. NHTSA can take neither of these actions. Because  a CAFE standard applies to a manufacturer’s entire fleet for a model year,  CAFE fines are assessed for the entire noncomplying fleet. Pursuant to  EPCA, fines associated with CAFE noncompliance are currently $5.50 for  every tenth of an mpg a manufacturer’s fuel economy is short of the  standard multiplied by the number of vehicles in a manufacturer’s fleet for  a given model year. NHTSA recognizes that some manufacturers regularly  pay fines instead of complying with CAFE standards; in particular, many  European manufacturers pay fines each year. Fines for CAFE standards  have not been increased since 1997, and GAO has reported that, as a  result, CAFE penalties may not provide a strong enough incentive for  manufacturers to comply with CAFE. NHTSA officials noted that under  EPCA, NHTSA has the authority to raise the fines up to $10 per tenth of an  mpg. However, raising fines requires an analysis finding that substantial  energy conservation would result and that raising fines would not have  substantially deleterious impact on the U.S. economy. GAO has  recommended that agencies collecting penalties regularly conduct these  types of analyses.
In contrast to CAFE fines, penalties for violation of a motor vehicle  emission standard under the CAA, which may be much higher, are  determined on a per-vehicle basis. The CAA gives EPA broad authority to  levy fines and require manufacturers to remedy vehicles if the agency  determines there are a substantial number of noncomplying vehicles.  EPA must consider an assortment of factors, such as the gravity of the  violation, the economic impact of the violation, the violator’s history of  compliance, and other matters, in determining the appropriate penalty.  The CAA does not authorize manufacturers to intentionally pay fines as an  alternative to compliance, and EPA does not include in its standard-setting  modeling analysis the option for manufacturers to pay fines instead of  compliance. Manufacturers may be subject to fines as high as $37,500 per  vehicle under Section 205 of the CAA. Given that fines for noncompliance  with GHG standards may be higher than fines for noncompliance with  CAFE, having harmonized standards may provide incentives to  manufacturers that have traditionally chosen to pay CAFE penalties  instead of complying with standards, to comply with both sets of  standards.
section_title: Although the Agencies Closely Collaborated and Capitalized on EPA’s Recent Research in Setting Standards, Joint Rulemaking for Future Standards Is Not Guaranteed
subsections: section_title: EPA and NHTSA Are Collaborating through a Joint Rulemaking Process, Which Represents an Expansion of EPA’s Role Compared to Previous CAFE Rulemakings
paragraphs: In conducting the joint rulemaking, the agencies have collaborated on  major tasks. For example, the two agencies coordinated time frames so  that key milestones of each rulemaking—such as issuance of the Proposed  Rulemaking and time frames for public comment—happened at the same  time. This enabled manufacturers to learn about both new standards at the  same time and plan appropriately. Officials of both agencies told us that  staff from both agencies met on a regular basis, often daily, to coordinate  their efforts throughout the rulemaking process. In addition, according to  agency officials, the two agencies formed a number of joint technical  teams to examine data used in modeling efforts—for instance, one team  examined data on automotive technology that can improve fuel economy  and reduce GHG emissions—to ensure that both agencies were using  similar data and making similar assumptions to develop standards. As a  result of these efforts, each agency had significant input into the  development of both sets of standards.
EISA mandated NHTSA to consult with both EPA and the Department of  Energy (DOE) in prescribing CAFE standards beginning with model year  2011. NHTSA’s use of EPA’s expertise in environmental issues and DOE’s  expertise in energy efficiency in informing CAFE standards is important  given CAFE’s environmental and energy-security implications. For  example, NHTSA has prepared draft and final environmental impact  statements, as required by the National Environmental Policy Act,  discussing the environmental implications of recent CAFE rulemakings,  and EPA has reviewed and provided input on that work. However, EPA’s  role in the joint CAFE and GHG emissions rulemaking goes beyond the  EISA requirement for consultation. For example, EISA does not require  either EPA or DOE to participate in CAFE rulemaking at as high a level as  EPA has in the current joint CAFE and GHG emissions rulemaking.
This level of EPA involvement in the proposed 2012 through 2016 CAFE  and GHG rulemaking is greater than EPA’s involvement in previous CAFE  rulemakings, particularly prior to NHTSA’s proposal of CAFE standards  for model year 2011. For the model year 2011 proposal, NHTSA and EPA  staff jointly assessed which technologies would be available for those  model years and their effectiveness and cost. They also jointly assessed  key economic and other assumptions affecting the stringency of future  standards. Finally, they worked together in updating and further improving  the model that had been used to help determine the stringency of the  model year 2008 through 2011 light truck standards. However, even in the  rulemaking for model year 2011, EPA did not devote as many resources or  have as much involvement in setting CAFE standards as it did in the model  year 2012 through 2016 proposed CAFE and GHG rulemaking.
The increased involvement by EPA as an equal partner in the proposed  model year 2012 through 2016 CAFE and GHG emissions rulemaking came  at the direction of the current administration, when it announced plans to  increase CAFE standards and introduce GHG emissions standards for  vehicles. EPA officials noted that the involvement of the White House and  clear directives to both the Secretary of Transportation and Administrator  of EPA for a collaborative approach caused both agencies to commit to  the joint process, which officials viewed as successful.
section_title: Both NHTSA and EPA Used Computer-Based Models to Conduct Analyses That Inform the Level of Standards; Results Were Largely Similar
paragraphs: To determine the appropriate level of CAFE and GHG emissions  standards, NHTSA and EPA each conducted its own regulatory impact  analysis using computer models. NHTSA used a model developed by the  Volpe National Transportation Systems Center (referred to as the Volpe  model), earlier versions of which have been used in previous CAFE  rulemakings. The model estimates the costs and benefits to  manufacturers, consumers, and society of differing levels of CAFE  standards. (See app. II for an in-depth description of NHTSA’s Volpe  model.) EPA developed a similar model called the Optimization Model for  Reducing Emissions of Greenhouse Gases from Automobiles (OMEGA) to  conduct a similar analysis of and inform its proposed GHG standards.
While the models are distinct from one another, and NHTSA and EPA each  conducted its own modeling, the two agencies collaborated on and  coordinated this work. In particular, the OMEGA model and Volpe model  generally used consistent data inputs and assumptions—for example, the  same economic assumptions and, to the extent possible given structural  differences between the models, consistent data on vehicle fleets and fuel- saving technologies. According to officials from both agencies, the two  agencies worked closely together to develop these data inputs and  assumptions. NHTSA’s and EPA’s analyses are also structured similarly  and have two components—one that attempts to determine manufacturer  response to the standards and another that estimates the effects of the  proposed standards on manufacturers, consumers, and society.
In addition, although the two models differ in several ways, analyses  conducted with each model produced similar results, helping to validate  each modeling effort. Some differences involve the treatment of  compliance flexibilities or credits—mechanisms created in a standard to  reduce the cost of compliance for manufacturers. Other differences  involve how the models account for manufacturers conducting multiyear  product planning and how technologies were carried over between model  years. Both NHTSA and EPA conducted analyses of the respective effects  of the proposed CAFE and GHG standards. However, despite differences  between the two models, the aggregate results were largely similar.
section_title: Although They Collaborated Closely, the Agencies Provided Differing Levels of Research and Studies to Support Rulemaking
paragraphs: Although NHTSA contributed research to the rulemaking process, it faced  challenges in doing so. NHTSA contributed research on fuel efficiency and  costs. For example, NHTSA officials said that they conducted new  research related to estimating the rebound effect and the costs of oil  imports. In 2008, during the development of the model year 2011 rule,  NHTSA contracted with an automotive consulting firm to review  comments from stakeholders during the public comment period of the  rulemaking, which resulted in some technology costs being updated.  NHTSA officials said that this work helped improve its analysis. NHTSA  also contributed safety research. However, NHTSA has not recently  undertaken new safety research to support the current proposed  standards, despite significant and ongoing controversy over vehicle  safety and CAFE standards, as well as changes in technology available to  reduce vehicle weight. According to NHTSA officials, NHTSA has made  such research a priority for the near-future in order to support future  CAFE rulemaking.
In addition, while NHTSA contracted with the National Academy of  Sciences (NAS) to provide an updated report on the costs of fuel-saving  technologies, and NAS held its first public meeting for this work in  September 2007, this work was not completed in time to support analysis  for the Notice of Proposed Rulemaking. EISA mandated NHTSA to  contract with NAS to receive updates to its earlier report of fuel-saving  technology cost and effectiveness in 5-year intervals until 2025. We noted  in previous work that both experts and NHTSA officials said it would be  ideal to complete and update such work before NHTSA issues a new car or  light truck fuel-economy standard. Also, NAS work on technology costs  in 2002 was generally viewed by a wide range of experts as being thorough  and unbiased. While NAS indicated in a preliminary report that it would  finish its work by spring 2008, according to NAS officials, they required  more time to acquire technology cost data than initially anticipated. As a  result, the final NAS study has not yet been published and was not  available to inform analysis for EPA and NHTSA’s September 2009 Notice  of Proposed Rulemaking.
EPA contributed research in time to provide analysis for the proposed  rule. It also contributed funding to a greater degree, especially when  compared with past CAFE rulemakings where EPA’s role was limited to  consulting. For example, EPA conducted or contracted for three peer- reviewed studies to support the rulemaking and the modeling efforts.  According to EPA officials, these studies included    an ongoing $1.1 million study done in conjunction with a consulting firm to  determine the direct manufacturing costs of fuel-saving and GHG  emissions-reducing technologies—a key input in both agencies’ models;    a $40,000 assessment of indirect costs of manufacturing more fuel-efficient    a $1 million vehicle simulation modeling study done in conjunction with a  consulting firm to refine estimates of emissions reduction and fuel- economy improvements stemming from combinations of technology.
These studies provided the analysis of both CAFE and GHG standards  with updated information and data.
The difference in the extent of new research that NHTSA and EPA  conducted for this rulemaking likely results from differences in resources  available to the agencies in the recent past. As we mentioned previously,  from fiscal years 1996 to 2001—about 6 years—NHTSA was prohibited  from using appropriated funds to change CAFE standards. According to  NHTSA, the agency lost staff with expertise in this area as a result and did  not begin to hire additional automotive engineers until summer 2009. By  comparison, EPA has been able to develop and maintain automotive  engineering expertise. This expertise has proved helpful in setting GHG  emissions standards for automobiles. For example, EPA has been home to  the National Vehicle and Fuel Emissions Laboratory since 1971, and in the  early 1990s, it expanded its activities to conduct research and  development of technologies used to reduce emissions, which are often  marketed and licensed to the automobile industry. Although NHTSA  brings safety expertise to CAFE standards, which has been a concern with  raising CAFE standards in the past, the agency’s primary mission and  expertise is in vehicle safety, not vehicle power train design and the  impact of vehicle emissions on the environment. Thus NHTSA cannot be  expected to have the same level of in-house expertise related to vehicle  power train design and environmental issues as EPA.
section_title: Although the Collaboration between NHTSA and EPA Resulted in Improvements, the Process Is Not Being Formalized or Documented for Future Use
paragraphs: Although the agencies had to work quickly, the joint proposed model year  2012 through 2016 rulemaking has met all of its milestones to date, and the  agencies stated that the collaboration has been successful. This is the first  time NHTSA and EPA are conducting a joint rulemaking together. The  agencies conducted the joint rulemaking under tight time frames and have  met all key milestones, such as publishing information about the rule and  receiving and responding to public comments. However, the fast pace has  left little time or resources to document any effective or efficient  processes so they could be used in the future. From the administration’s  May 2009 release of the Notice of Upcoming Joint Rulemaking to the  expected release of the rule, less than 11 months will have transpired. By  comparison, according to NHTSA officials, other recent CAFE  rulemakings have taken a minimum of 14 months. The accelerated  timeline in the current rulemaking stemmed in part from the statutory  requirement that NHTSA issue new CAFE standards 18 months prior to  the beginning of the model year that will be affected and from the current  administration’s announcement regarding the development of the new  standards in May 2009. In order to issue harmonized standards at the same  time, both EPA and NHTSA had to adhere to an accelerated timeline.
Despite the dual challenge of conducting a joint rulemaking for the first  time and on a compressed timeline, some experts we spoke with thought  that the two agencies worked well with each other and hoped they would  continue to do so. In addition, both agencies found the collaborative  partnership to be successful. The proposed standards cover model years  2012 through 2016, and while it is not clear how fuel economy and GHG  emissions will be regulated after 2016, industry stakeholders and others  have said that they would like NHTSA and EPA to begin working on the  next set of standards in the near future. Officials with the California Air  Resources Board said that the state is already considering state GHG  emissions standards that would take effect in 2017, and depending on the  stringency of federal standards at that time, California may opt to  implement its own more stringent standards. Many industry stakeholders  we interviewed said that they prefer a national program with harmonized  standards over different federal and state standards because multiple  standards could substantially increase compliance costs. Some expressed  interest in EPA and NHTSA considering CAFE and GHG emissions  standards for model years beyond 2016 as soon as possible in order to  better ensure harmonized national standards and to give manufacturers  appropriate lead time to meet standards.
Although we found interest in NHTSA and EPA developing standards for  model years beyond 2016, two issues could prevent the agencies from  replicating this effort in the future:    The processes for coordinating the rulemaking have not been documented  by either agency. Documented processes that the two agencies would  follow—detailing how each communicated, shared resources, and set  plans—would help ensure that best practices are followed and that  resources are used efficiently. As GAO has reported, such guidance can aid  regulatory programs by improving efficiency and ensure that benchmarks  and time frames are met. In addition, by publishing such documentation, the  agencies can increase the transparency of their programs and processes.  However, the two agencies have not documented the processes for use  during future rulemakings, and officials at both agencies report they  currently have no plans to do so. EPA officials, however, told us that  documenting the processes would be a worthwhile task.
The two agencies are not legally required to continue coordinating in  setting CAFE and GHG emissions standards. As noted, EISA mandated  NHTSA to consult with EPA and DOE in setting CAFE standards beginning  with model year 2011. However, NHTSA is not required to work with EPA  to the extent it has on this joint rule. The collaboration of these two  federal agencies came at the direction of the current administration to  provide regulatory certainty and ensure that a clear set of rules was  established for all automobile manufacturers.
section_title: NHTSA Improved the Analysis It Uses to Help Set CAFE Standards, and although Experts Still Expressed Some Concerns, They Lacked Consensus on Additional Improvements
subsections: section_title: NHTSA Evaluates Potential CAFE Standards Using the Volpe Model, Which Attempts to Simulate How Manufacturers Will Meet the Standards and Then Measures the Effects of the Standards
paragraphs: In part because NHTSA has previous experience in setting CAFE  standards, we were asked to review any improvements NHTSA made to its  process for setting CAFE standards. We did so by looking in depth at  NHTSA’s regulatory impact analysis using the Volpe model, which has  been used in previous rulemakings as well as the current proposed rule. It  has been criticized by some experts in previous rulemakings for, among  other things, a lack of transparency that limited public review. Because  EPA is setting GHG emissions standards for the first time, we did not  conduct a similar review of their modeling efforts using the OMEGA  model.
The first key component of the Volpe model is a simulation of how  manufacturers might comply with proposed CAFE standards. The  “compliance simulation” of the Volpe model attempts to simulate each  manufacturer’s most cost-effective strategy to make its fleet comply with a  more stringent CAFE standard by incorporating technologies until the  manufacturer achieves compliance, exhausts all available technologies, or  pays fines for noncompliance when it becomes more cost-effective than  incorporating additional technologies. It relies on several key sources of  data, including  the “baseline vehicle fleet,” a forecast of the vehicle models manufacturers  will produce for sale in the U.S. in future model years;    a list of available fuel-saving technologies, categorized into five groups;    estimates of the costs, effectiveness in reducing fuel consumption,  applicability, and availability of these technologies; and    pathways that estimate available fuel-saving technologies and the order in  which manufacturers could take advantage of these technologies to most  cost-effectively meet new CAFE standards.
This technology simulation is run for each vehicle model in the baseline  fleet and produces an estimate of each vehicle’s new fuel economy,  weight, and total cost after the manufacturer has modified the vehicle in  response to the CAFE standard. The compliance simulation’s output is a  forecast of model years 2012 through 2016 vehicles—namely, a re- engineered fleet of vehicles with new prices, fuel types, fuel-economy  values, and weights to reflect the changes manufacturers would make to  their vehicles to meet the proposed model year 2012 through 2016 CAFE  standards. The data for each vehicle in the forecasted model year 2012  through 2016 fleet is then used in the second portion of the analysis.
This “calculation of effects” is the second key component of the Volpe  model, which uses the compliance simulation data to estimate the costs  and benefits of potential changes to the CAFE standard to manufacturers,  consumers, and society as a whole. It uses a variety of data inputs,  including fuel prices projected for the lifetimes of the vehicles in the fleet,  the economic costs of fuel consumption, and damage costs for criteria  pollutants. This analysis produces information on the estimated benefits  and costs of higher CAFE standards, such as the benefit to consumers of  fuel savings from driving more fuel-efficient vehicles, increases in new  vehicle prices, changes in the number of vehicle miles traveled, and the  societal benefits of reductions in carbon dioxide emissions. The estimated  costs and benefits are used by NHTSA to set CAFE standards at a level  that appropriately balances their costs and the benefits.
section_title: NHTSA Made Several Improvements to Its Analysis That Could Help NHTSA Better Estimate the Costs and Benefits of Increasing CAFE Standards
subsections: section_title: Transparency
paragraphs: To increase the transparency of inputs to the Volpe model for the 2012  through 2016 rulemaking, NHTSA used publicly available data to develop  the model’s baseline vehicle fleet. In previous rulemakings, NHTSA  developed its baseline fleet by using confidential product plans submitted  by manufacturers that described the vehicles manufacturers planned to  sell in the U.S. in future years. However, manufacturers submitted these  plans to NHTSA as confidential business information, and NHTSA could  not make these plans available to the public. Comments submitted as  part of prior CAFE rulemakings, as well as several experts we spoke to,  indicated that the lack of transparency regarding NHTSA’s use of product  plans was troublesome because researchers could not replicate NHTSA’s  analysis. In developing their respective models for the joint rulemaking,  NHTSA and EPA used a baseline fleet that drew primarily from public and  commercially available information to make their analyses more  transparent and provide additional validation of the results of their  analyses. Specifically, NHTSA and EPA relied almost entirely on  information sources such as model year 2008 vehicle sales data, EPA’s  emission certification and fuel-economy database, and vehicle sales  forecasts from several public sources.
There are several advantages of using public and commercially available  data more extensively than product plans. First, federal regulatory analysis  from OMB recommends that analyses be transparent to allow third parties  to determine how the model produces its estimates and conclusions. By  increasing the transparency of the baseline vehicle fleet, NHTSA allowed  outside experts the opportunity to review the model’s inputs and outputs  and replicate the results of the model to better ensure that its analysis is  thorough and sound. Second, because the submission of product plans is  strictly voluntary, NHTSA has not consistently received complete  information from all manufacturers with U.S. sales, which has inhibited its  ability to forecast the future vehicle fleet across manufacturers using that  data. Although several companies submit nearly complete product plans,  others submit only partial plans, while still others do not submit any  information. NHTSA also indicated it could save staff time by not having to  correct errors in the manufacturers’ submissions that NHTSA does  receive. Third, by using actual fuel-economy test data from model year  2008 vehicles, NHTSA would be able to use this verified fuel-economy  information, rather than the estimates of the fuel-economy performance  from vehicles’ manufacturers.
Despite these advantages, there are some disadvantages to using the  publicly available model year 2008 data to establish the baseline vehicle  fleet. For example, by forecasting the model year 2012 through 2016  vehicle fleet using model year 2008 vehicle data, NHTSA and EPA’s  baseline includes vehicles that have been eliminated or for which  production has been reduced, such as the Chrysler PT Cruiser and  Hummer H2. It also does not include several vehicle models and  technologies that manufacturers have recently introduced or plan to  introduce, such as Ford’s EcoBoost system (a package of engine  technologies that in combination significantly improve fuel economy), the  Honda Insight (a conventional hybrid), Chevrolet Volt (a plug-in hybrid  electric vehicle), or Nissan’s all-electric LEAF. In addition to specific  vehicles, NHTSA’s baseline vehicle fleet forecast does not account for  broad-scale changes to vehicle lines that manufacturers have started, such  as Chrysler’s plans to use Fiat power trains to offer small and medium- sized cars. Finally, NHTSA has found it difficult to determine, from either  public or commercial sources, a number of specific data used in the  baseline, such as information on electric power steering and reduced  rolling-resistance tires. Consequently, NHTSA has had to use a small  amount of data from product plans submitted in spring 2009 to fill these  data gaps. NHTSA is also consulting with manufacturers regarding the  possible release of model year 2010 or model year 2011 product plans that  NHTSA could use in its development and analysis of the final model year  2012 through 2016 standards. Despite these disadvantages, NHTSA, EPA,  and several experts we spoke to believe that the new transparency of its  analysis outweighs the limitations of using public and commercially  available data to establish its baseline.
section_title: Technology Data and Economic Inputs
paragraphs: emission control  and fuel economy, such as papers published by the Society of Automotive Engineers and  the American Society of Mechanical Engineers. In addition, confidential data submitted by  vehicle manufacturers in response to NHTSA’s request for product plans, and confidential  information shared by automotive industry component suppliers in meetings with EPA and  NHTSA staff held during the second half of the 2007 calendar year were used as a cross- check of the public data mentioned above but not as a significant basis for the proposed  model year 2012 through 2016 rule. technologies. For example, NHTSA revised the cost of turbocharging and  downsizing an engine—a cost range of $512 to $1,098, depending on  engine type, compared to the range of $822 to $1,129 used for the model  year 2011 CAFE standards—using data available from EPA’s ongoing  teardown study with FEV, an automotive research, design, and  development company. It also revised the costs of several other key  technologies such as cylinder deactivation—a cost range of $28 to $190,  compared to the range of $306 to $400 used for the model year 2011 CAFE  standards. However, despite this concerted effort, NHTSA and EPA were  not able to make further refinements because the anticipated NAS study of  vehicle technology was not completed on schedule.
Indirect costs to manufacturers. NHTSA adopted research that EPA had  contracted for to refine estimates of the indirect costs to manufacturers of  manufacturing more fuel-efficient vehicles. These costs include research  and development and marketing costs associated with the introduction of  a new technology and give decision makers a more comprehensive view of  the total costs a manufacturer would incur for implementing new  technology than direct costs alone can provide. EPA supplemented an  initial contractor report on this subject with an additional in-house study,  which involved significant staff resources.
The social cost of carbon dioxide emissions. NHTSA adopted an estimate  of the damage resulting from carbon dioxide emissions that is more in-line  with recent scientific and economic research, leading to a better reflection  of the estimated benefits of increased CAFE standards related to  reductions in GHG emissions. In the model year 2008 through 2011 light  truck rule, NHTSA declined to include an economic value for reducing  GHG emissions, citing the wide variation in published estimates of GHG  emissions costs. However, a November 2007 federal court decision found  that NHTSA’s decision to not provide a monetized estimate of the benefit  of reducing GHG emissions was arbitrary and capricious. For the  proposed model year 2012 through 2016 standards, NHTSA is using  estimates of $5, $10, $20, $34, and $56 per metric ton of carbon dioxide— with an emphasis on the $20 value. These values, also adopted by EPA in  its analysis, reflect the current administration’s interim set of estimates of  the social cost of carbon for agencies to use in regulatory analyses until a  federal interagency working group develops a more comprehensive  estimate for use in future economic and regulatory analyses.
Projected fuel prices. NHTSA used the most recent and updated  projections of fuel prices provided by the Energy Information  Administration (EIA) to place a value on the fuel-saving costs and benefits  of different CAFE standards. Among other things, the monetized benefits  of the new CAFE standards are more sensitive to changes in fuel prices,  meaning that the estimated benefits of more stringent CAFE standards will  increase or decrease to a greater extent in response to changes in the price  of fuel compared to changes in other variables. For the current proposal,  NHTSA is using a range of prices from $2.50 in 2011 to $3.82 in 2030, which  is consistent with the EIA’s 2009 main fuel price projections, and is  focusing on an average retail gas price of $3.77 per gallon in 2007 dollars.  In addition, NHTSA is reviewing the EIA’s high and low fuel price  projections to determine a range of potential costs and benefits, a best  practice recommended by OMB guidance. In projecting fuel prices, EIA  considers recent and likely future developments in the world oil market,  the effect of the current geopolitical situation on oil supply and prices, and  conditions in the domestic fuel supply industry that affect pump prices.  However, EIA projections have at times underestimated gas prices, most  recently in 2008 during the price spike. Several experts we spoke to noted  that gas prices are extremely difficult to predict. However, most of the  experts we spoke to also indicated that despite its limitations, EIA is the  most credible source for projected fuel prices. Although EIA officials told  us they do not issue guidance to agencies on how to use EIA projections in  regulatory impact analyses, they expect agencies to consider that events  EIA cannot predict will impact energy demand and fuel prices.
By applying the best research available, NHTSA should obtain better  estimates of the benefits and costs of higher CAFE standards and allow  standards to be set at a level better reflecting those benefits and costs.
section_title: More Thorough Analysis
paragraphs: In line with OMB guidance on federal regulatory analysis, NHTSA  conducted more thorough analyses in the proposed model year 2012  through 2016 standards than in previous CAFE rulemakings, including the  model year 2008 through 2011 light truck rule. First, NHTSA tested and  compared the benefits and costs of a greater number of CAFE levels set at  different stringencies (also known as alternative scenarios) than it has in  the past. By doing so, NHTSA gives decision makers a better picture of  which level of CAFE standards provides the best balance between costs  and benefits. NHTSA doubled the number of alternative CAFE scenarios it  has tested from four to eight since the model year 2008 through 2011 light  truck final rule. Specifically, NHTSA considered scenarios in which fuel- economy levels are increased at an annual average rate ranging from 3 to 7  percent, as well as scenarios in which the benefits are modified—for  example, selecting a level at which the total costs of new CAFE standards  are equal to their total benefits or a level that maximizes the net benefits of  new CAFE standards to society. As a result, NHTSA was able to provide  more comprehensive information for decision makers and increase public  understanding of NHTSA’s process for setting standards.
However, NHTSA also considered factors external to the model in  determining the level of the proposed model year 2012 through 2016  standards. Although OMB guidance on regulatory analysis specifies that  agencies should select the scenario that maximizes the net benefits of the  regulatory action to society, NHTSA did not propose to select the  “maximum net benefits” scenario as its preferred alternative for the  standards in the proposed rule. Instead, NHTSA proposed to select a  scenario in which CAFE standards increase at an average rate of 4.3  percent per year. According to NHTSA officials, that decision was justified  because the four statutory factors that they must weigh when setting  CAFE standards outweigh OMB guidance. Several experts we spoke to  said that NHTSA’s decision was justified because selecting the “maximum  net benefits” scenario would have resulted in CAFE standards that  automobile manufacturers could not realistically meet without making  significant tradeoffs. For instance, one expert thought manufacturers  would have to change their fleet mix to build and sell smaller vehicles and  would have to pass on substantial costs to consumers, which could reduce  vehicle sales. In addition, another expert thought that if lead time is not  sufficient, manufacturers will not be able to hire staff quickly enough to  handle the additional work.
Additionally, as provided for in OMB guidance, NHTSA expanded its use of  two types of uncertainty analysis, which differs from previous  rulemakings. Specifically, relative to previous rulemakings, NHTSA  expanded its sensitivity testing and probabilistic uncertainty analyses,  both of which assess the uncertainty associated with key assumptions and  inputs in its analysis, in comparison to previous rulemakings. NHTSA’s  sensitivity analysis and probabilistic uncertainty analysis test whether  variability in the values of key model inputs would dramatically affect the  costs and benefits of a potential CAFE level. The variability of key inputs  may arise from different estimates of credible studies or simply be the  result of limited current knowledge. These sensitivity and uncertainty  analyses provide decision makers with a sense of which potential CAFE  level, despite the variability of key inputs, will best balance benefits and  costs. In comparison to the model year 2008 through 2011 light truck rule,  NHTSA’s current sensitivity and probabilistic uncertainty analyses  considered more case scenarios focusing on a number of critical inputs,  including projections of fuel prices, the rebound effect, the value of  reducing carbon dioxide emissions, and the military security benefits of  reducing fuel consumption, of which variability in one input or a  combination of inputs may affect the results of the overall analysis.
section_title: Experts Continue to Have Concerns about the Model, but Do Not Agree on How to Further Improve Inputs to the Model
paragraphs: As part of this work, we spoke with a number of experts familiar with the  Volpe model about their assessment of the data used in the model.  Although they provided criticism, they did not agree on what needed to be  improved (see app. I for information on experts with whom we consulted).  In general, nearly all of the experts we spoke to offered some critique of  the model and its data. For instance, some, but not all, experts said that  NHTSA was too cautious in updating the values for variables such as the  social cost of carbon dioxide emissions, given the state of current  research. These experts said that NHTSA was underestimating the social  cost of carbon dioxide emissions, which would lead to an underestimation  of the benefits of CAFE standards and the establishment of standards set  at a lower than ideal level. However, we could not find general consensus  among experts we spoke to that NHTSA should have modified values for  specific variables or made other improvements to the model. For example,  NHTSA used a lower value for the rebound effect (10 percent) to more  closely align with values identified in recent research. Several experts  thought that NHTSA should have adopted the value (5 percent) identified  in the research, which was even lower than what NHTSA used, while  others thought that NHTSA’s more cautious approach was appropriate  until additional studies using different data sets verified the findings.
We did find considerable controversy among experts over the potential  safety impact of weight reduction in vehicles—much more so than for  other variables assessed in the Volpe model. While some experts stated  that manufacturers could safely reduce vehicle weight while maintaining  the size of the vehicle by substituting lightweight but durable materials for  heavier materials (material substitution), other experts maintained that  any effort to reduce vehicle weight would adversely affect safety. Two  studies, one developed by NHTSA (Kahane study) and a second  conducted by an automotive engineering consulting firm (Dynamic  Research, Inc., study), came to different conclusions on this issue, and to  date, no subsequent study has been conducted in a manner designed to  resolve the conflict. DOE has sponsored research through the Lawrence  Berkeley National Laboratory that examines the relationship between  vehicle weight and driver casualty risk using police-reported crash data  and CAFE compliance records, but given the high level of ongoing  controversy, this approach may not satisfy all the experts invested in this  issue. In addition, neither the Kahane study nor the Dynamic Research,  Inc., study were able to assess directly how material substitution as a  particular approach to weight reduction could affect safety because the  vehicles analyzed in the two studies were limited to model years 1985  through 1999. During this period, CAFE standards were not attribute- based, and manufacturers had a greater incentive to improve fuel economy  by reducing vehicle size rather than by reducing vehicle weight through  material substitution. In addition, several experts noted that by using the  Kahane study in its current work, NHTSA may be overestimating the safety  implications of higher CAFE standards because the study does not  consider technology solutions like material substitution as an option that  could improve fuel economy without negatively affecting safety. Because  NHTSA accounts for the safety effects of proposed standards by  estimating their safety implications, relying on this research in the future  could result in standards being set at a lower level. In the past, concerns  about safety have prevented non-attribute-based CAFE standards from  being increased.
We also learned from experts that vehicle safety is challenging to address  because the safety tradeoff between larger, heavier vehicles and smaller,  lighter vehicles does not lend itself to a clear policy solution. Generally,  larger and heavier vehicles, which enhance the safety of their passengers  as a result of their size and weight, pose a greater safety threat to other  vehicles on the roadways than smaller, lighter cars do. Conversely,  although smaller, lighter cars pose less of a threat to other vehicles on the  road, they cannot provide the same degree of safety to their passengers  that larger, heavier vehicles do. The degree of difference in the size and  weight of vehicles has some bearing on passenger safety: larger, heavier  vehicles provide their passengers safety benefits and impose on others  safety costs, while smaller, lighter vehicles provide others safety benefits  and impose on their passengers safety costs. Several experts with whom  we spoke thought that additional research was needed to better  understand the relationship between vehicle size, weight, and safety, as  well as to identify how best to reduce the weight of vehicles in a manner  that creates the least risk. Experts recommended several different  methodological approaches to assess this relationship, including future  studies that examined material substitution in accident outcomes once  vehicles with this technology became more prevalent in the fleet. Others  recommended the use of computer crash simulation modeling to identify  best practices in the use of material substitution.
section_title: Largely Due to Resource Constraints, NHTSA Has Limited Plans to Assess the Model Year 2008 through 2011 Light Truck CAFE Standards or Key Data Used to Develop the Standards
paragraphs: Federal agencies can use retrospective analyses of rulemakings to help  determine the extent to which the expected costs, benefits, and goals of a  regulation are being realized. A retrospective analysis of CAFE standards  could help NHTSA and Congress determine the extent to which goals of  the standards—such as improvements in fuel economy—are being met  and provide insight into ways to improve the standards. In addition, a  retrospective analysis of key data inputs could help determine if there are  systematic issues with the estimation of those data and identify means to  improve the data in the future. EPA officials noted that they have used  retrospective analyses of other regulatory programs to assess the accuracy  of program costs. For example, in 2002, EPA issued a retrospective cost  analysis of a large number of light-duty vehicle criteria pollutant standards  and mobile source fuel standards implemented between 1992 and 2001.  However, because EPA has not previously issued GHG emissions  standards for automobiles, it would not be able to conduct these types of  analyses for GHG emissions standards at this time.
With respect to the model year 2008 through 2011 light truck CAFE  standards, the following retrospective analyses could be conducted by  NHTSA:    An overall analysis of the standards to determine the extent to which the  new, footprint-based standards met intended goals (e.g., increases in fuel  economy and reductions in fuel consumption). As the proposed model  year 2012 through 2016 CAFE standards are also to be based on vehicle  footprint, this analysis could help determine if the move to the footprint  based standard provided the intended benefits or imposed unexpected  costs.
An analysis of the accuracy of key data inputs, including the baseline fleet  and technology cost estimates. NHTSA has been criticized in the past for  not adequately estimating these two sets of data, which provide crucial  information for determining the effects of the proposed standards, and  thus need to be as accurate as possible.
Although NHTSA officials we spoke with recognize the value of these  analyses and hope to conduct them, they report that resource limitations  have prevented them from doing so in the past and will prevent them from  doing so in the near future. In addition, NHTSA is not required to do any of  these analyses. A discussion of NHTSA officials’ responses regarding  retrospective analyses and the resource limitations that have prevented  them from being conducted follows:    Model year 2008 through 2011 light truck standards. NHTSA staff said  that such retrospective analysis of the model year 2008 through 2011 light  truck standards would be worthwhile and informative. However,  according to NHTSA officials, in recent months the agency has devoted all  of its dedicated CAFE staff’s time to the proposed model year 2012  through 2016 CAFE rule and, as a result, has not been able to devote  resources to conducting a retrospective analysis. In addition, given that  NHTSA staff said that the agency is being asked by a majority of  commenters addressing the subject to begin working on CAFE standards  beyond model year 2016 as soon as possible, they may not be able to work  on a retrospective analysis once the model year 2012 through 2016  standards are finalized and released. However, a number of experts we  interviewed said that NHTSA should conduct such an analysis in order to  provide insight into the standards and their actual effects.
Manufacturers’ sales data. While NHTSA told us that it would like to look  back at manufacturers’ actual sales as a means to assess the accuracy of  the product plans that manufacturers submitted and that NHTSA used as  the baseline fleet in setting model year 2008 through 2011 light truck  standards, it said that it has no definitive plans for conducting this analysis  in the near future. NHTSA officials cited a lack of resources in the agency  for not conducting such an analysis. In addition, because 2008 sales were  an anomaly—they were unusually low given the economic downturn— officials thought a study of the extent to which actual 2008 sales were in- line with the forecasted sales for 2008 that were used to set those  standards would be of little value. However, an analysis of actual future  years’ sales against the estimated sales of the baseline fleet used in the  rulemaking would be of value, as it would help validate data and  potentially identify means to improve fleet forecasts in future CAFE  rulemakings.
Cost estimates of technology. NHTSA officials also told us that an  assessment of the cost estimates of technology used in previous analyses  would be valuable. However, NHTSA staff also said that such an analysis  would be challenging, as it is hard to get accurate data on the actual cost  of technology components. This is because these components are either  sold directly to, or produced by, automobile manufacturers, meaning that  there is no clear, public historical data on their sales price. However, while  some experts with whom we spoke recognized the challenges in  conducting such an analysis, they thought that such an assessment would  provide value and recommended several different approaches for  conducting this type of analysis. For example, some experts suggested that  costs could be validated through a vehicle teardown program, such as the  type of project EPA initiated last year, or through an analysis of sales data  and technology that manufacturers incorporated into recent models to  comply with increased standards. While these studies could potentially  impose large resource demands, they would also potentially help improve  the cost of technology assumptions in future CAFE rules, helping to create  standards that more accurately reflect costs and benefits.
section_title: Conclusions
paragraphs: Because CAFE and GHG emissions standards are closely related and  automobile manufacturers will be subject to both, close collaboration  between NHTSA and EPA can minimize compliance costs to the industry  and ensure harmonized standards. Furthermore, regardless of how the  government may set any future standards—jointly or independently—a  continued partnership between the two agencies can help assure fiscal  responsibility by leveraging—rather than duplicating—federal efforts and  resources, including expertise and human capital costs. However, the  current level of collaboration between NHTSA and EPA, which stems from  the joint rulemaking process the agencies undertook at the discretion of  the current administration, is not set in law or otherwise required. If  NHTSA and EPA do not collaborate closely on future standards, there is a  risk that the standards may not be harmonized, which would lead to  increased compliance costs for manufacturers; the standards may not  reflect the expertise of both agencies, such as the vehicle power train  technology and environmental expertise of EPA and vehicle safety  expertise of NHTSA; and the goals that the standards are attempting to  accomplish may not be met. Also, the standards may not accurately reflect  the best estimates of key costs and benefits, thus imposing added costs on  the economy or failing to provide as large benefits to society as the  standards could.
In addition, this is the first joint rulemaking conducted between these  agencies, and NHTSA and EPA are under tight time frames to set the  standards. However, the agencies are not documenting the processes  being used. If NHTSA and EPA must collaborate on future standards, staff  may spend additional time recreating these processes—ones which appear  to be working effectively—and relearning how best to interface with one  another’s leadership structure, management processes, and research  activities. As a result, the two agencies may not share their respective  expertise and resources as well, potentially leading to inefficiencies, less  thorough and rigorous regulatory analyses, and standards that may not be  effectively harmonized or developed with similar time frames.
NHTSA has not yet conducted—nor does it have plans to conduct—a full  and formal analysis of the effectiveness and outcomes of its adoption of  the footprint-based CAFE standards for light trucks. Also, it has no plans  to assess the accuracy of key data inputs used to set these standards, even  though it is now proposing a footprint-based approach for passenger  vehicles as well. Conducting these types of analyses can help  policymakers determine whether anticipated benefits and costs have been  realized and identify corrections in or improvements to existing programs.  NHTSA is not required to conduct such analyses and has limited staff and  resources to devote to this effort. As a result, it is not clear if the new  standards have met goals that NHTSA intended—such as fuel savings and  improved safety outcomes—and if the move to the footprint-based  standards was worthwhile. Furthermore, NHTSA does not know how well  it estimated key data inputs that help determine the level at which  standards are set, including technology costs; whether manufacturers used  the types of technologies NHTSA expected in order to comply with new  standards; and whether baseline fleets matched the vehicle mix actually  sold. Consequently, agency officials cannot learn from the past and make  adjustments to the process, such as seeking different data sources, to  ensure that future standards are based on the most accurate data  available.
Given the importance of safety in setting CAFE standards, ensuring that  decision makers and the public have the most accurate information on the  relationship between vehicle size, weight, and safety will be important if  the standards are to be changed in the future. In addition, the data inputs  that NHTSA and EPA use to help set and analyze the effects of the  proposed model year 2012 through 2016 standards should be based upon  the best available research and reflect a consensus among experts and  stakeholders. Given the controversy among experts and the increasing  availability of material substitution—an advancement in technology to  reduce weight that could compensate for safety effects—new research  could help to answer questions regarding the extent to which weight can  be reduced without affecting safety and whether there are best practices  for employing material substitution.
Finally, while other sources of technology costs were used in developing  CAFE and GHG emissions standards, the 2002 NAS work on technology  costs was generally viewed by a wide range of stakeholders and experts as  being thorough and unbiased. Congress authorized NHTSA to contract  with NAS at 5-year intervals until 2025 so that the agency would have  current information available to set future standards. However, if NHTSA  cannot ensure that this work is available in time to support analysis in  future rulemaking, this study, and the federal money that sponsored it, will  be wasted.
section_title: Recommendations for Executive Action
paragraphs: Based on our review, we are making five recommendations. We  recommend the following to NHTSA and EPA:    NHTSA and EPA should document the process used in this joint  rulemaking to establish a roadmap for any future rulemaking efforts and  facilitate future collaboration. In addition, NHTSA and EPA should publish  this documentation in order to increase transparency.
To ensure continued collaboration and an enhanced relationship in any  future CAFE and GHG emissions rulemakings, NHTSA and EPA should  enter into a Memorandum of Understanding with one another in which the  agencies agree to continue their enhanced partnership in any future CAFE  and GHG rulemakings.
NHTSA and EPA, with input from key stakeholders, should conduct or  sponsor new research on safety and its relationship to vehicle size and  weight, given the controversy and lack of consensus regarding the  relationship between vehicle size, weight, and safety and the emergence of  new strong-but-lightweight materials among experts and stakeholders.
In addition, we are recommending the following to NHTSA:    NHTSA should conduct and document a retrospective analysis of the  model year 2008 through 2011 light truck standards, given the potential  impact of CAFE standards on the automobile industry and consumers. In  addition, we recommend that NHTSA identify opportunities to evaluate  the accuracy of key estimates, such as technology costs, used to determine  the model year 2008 through 2011 light truck standards. As EPA has  experience conducting retrospective analyses of regulatory programs,  NHTSA should consider involving EPA in this process.
NHTSA should set delivery time frames for future NAS studies to ensure  the availability of these studies in a time frame useful for incorporation in  NHTSA’s regulatory analyses.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft copy of this report to the Department of  Transportation and the Environmental Protection Agency for their review.  We also provided a relevant section of the report to the Energy  Information Administration, and officials confirmed that information  characterizing EIA’s fuel price projections was accurate.
EPA provided a written response, which is reproduced in appendix  III. In  its response, EPA agreed with our characterization of NHTSA and EPA’s  collaboration on setting CAFE and GHG emissions standards and with our  recommendations. In addition, EPA provided technical comments via e- mail which we incorporated as appropriate.
DOT provided its response by e-mail and generally agreed with the report’s  recommendations. NHTSA also provided technical comments, and while  we incorporated a number of these comments, others offer an opportunity  for additional discussion. First, NHTSA suggested that our first two  recommendations—(1) that NHTSA and EPA document the process used  in this joint rulemaking, and (2) that NHTSA and EPA sign a Memorandum  of Understanding to continue this enhanced partnership—apply only if  future rulemakings are conducted jointly. We did not make this change.  Given NHTSA and EPA’s successful collaboration on CAFE and GHG  emissions standards, we believe continued collaboration will help ensure  that federal resources and expertise are leveraged efficiently and  effectively—regardless of whether future administrations continue to  issue both sets of standards jointly, separately, or pursue only CAFE or  GHG emissions standards.
Second, in our discussion of the impact of the appropriations ban from  fiscal years 1996 through 2001 that prevented NHTSA from conducting  work on CAFE issues, we noted that NTHSA lost staff with relevant  expertise and did not begin to hire additional automotive engineers until  summer 2009. We looked into this issue because in our 2007 report.  NHTSA officials told us they needed additional staff with expertise in  automotive engineering and computer modeling to assist in developing  technology cost and effectiveness estimates, as well as other tasks, to  prepare for future changes in CAFE standards. NHTSA commented in  response to this draft that the prohibition did not prevent DOT from  sustaining relevant engineering, energy, and environmental expertise, and  that after 2001, NHTSA leveraged DOT’s expertise. NHTSA also  commented that in our current review, we did not examine broader staff  capabilities within DOT. We agree that this information is important.  However, we were not able to confirm the extent to which NHTSA  leveraged DOT’s expertise because NHTSA did not provide this  information. We continue to believe that NHTSA and EPA have different  expertise and resources—ones that likely cannot be replicated efficiently  at both agencies but that are crucial for the development of balanced,  effective standards for cars and light trucks, and therefore we did not  revise the report.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of  Transportation, the Administrator of the Environmental Protection  Agency, the Administrator of the Energy Information Administration, and  interested congressional committees. This report will also be available at  no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions concerning this report, please  contact me at (202) 512-2834 or flemings@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made key contributions are listed in  appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To describe the proposed corporate average fuel economy (CAFE) and  greenhouse gas (GHG) emissions standards, we analyzed documentation  related to the rulemaking, such as the May 2009 Notice of Upcoming Joint  Rulemaking, September 2009 Notice of Proposed Rulemaking, and  associated preliminary regulatory impact analyses from both agencies. We  analyzed these documents to summarize the structure of each set of  standards, describing how the National Highway Traffic Safety  Administration (NHTSA) and the Environmental Protection Agency (EPA)  harmonized the standards and areas in which there are differences  between the standards, such as certain types of flexibilities like temporary  lead-time mechanisms. We also summarized related legislation that  establishes CAFE fines and summarized EPA’s authority under the Clean  Air Act to assess fines for noncompliance with GHG standards, to describe  the penalties that NHTSA and EPA will apply for noncompliance with the  new standards.
To describe NHTSA’s and EPA’s processes for setting proposed model  year 2012 through 2016 CAFE and GHG emissions standards, we reviewed  and analyzed relevant rulemaking documents, such as the Notice of  Proposed Rulemaking and the legislation establishing CAFE standards and  EPA’s authority to regulate GHG emissions, noting the types of analyses  each agency was allowed to conduct under its individual legal authority.  We analyzed documentation related to the analyses the agencies  conducted. We also interviewed agency officials and reviewed  documentation from NHTSA and EPA related to the work they conducted  in setting the standards. To describe how the agencies collaborated with  one another to issue the standards, we analyzed these interviews and  documentation against GAO criteria for evaluating communication and  coordination among federal agencies. Through interviews with officials  and by reviewing research each agency developed as part of the  rulemaking, we identified the expertise and resources each agency  brought to bear in the development of the standards.
To evaluate the improvements made to NHTSA’s regulatory impact  analyses used in setting CAFE standards, we reviewed relevant  documentation, including NHTSA’s Preliminary Regulatory Impact  Analysis on model year 2011 CAFE standards for passenger cars and light  trucks and for the proposed model year 2012 through 2016 standards. We  also conducted literature searches for research on fuel economy published  since 2007—the year of our last report on CAFE standards. We  interviewed NHTSA officials and staff at the Volpe National  Transportation Systems Center, as well as automobile industry  stakeholders—including domestic and international automobile  manufacturers; an association representing original equipment suppliers;  vehicle technology specialists at national laboratories and academic  research centers; and independent experts on vehicle technology,  transportation, and modeling. We identified these experts through several  approaches:    About half of the experts we contacted had assisted us in our 2007 review  of CAFE standards. Several of these experts were members of the current  or 2002 National Academy of Sciences (NAS) committee, while others had  been recommended by members of the NAS committee or NHTSA.
We conducted internet searches to identify experts publishing recent  research on fuel economy, GHG emissions, economic modeling, and other  issues.
We asked experts participating in our work for recommendations.
We also pursued a more in-depth analysis from stakeholders about safety  and vehicle weight by reviewing the methodology of several key studies  and interviewing engineers and other organizations with specific expertise  in safety and vehicle design, such as the Insurance Institute for Highway  Safety and experts from National Laboratories. We also interviewed  officials from the Energy Information Administration (EIA) to review  gasoline price projections that are used in the Volpe model. To evaluate  NHTSA’s processes for obtaining and validating data on automobile  manufacturer product plans and cost data on fuel-saving technologies, we  analyzed NHTSA documentation against GAO criteria for developing,  managing, and evaluating cost estimates and for assessing data reliability.  To evaluate NHTSA’s processes for estimating the costs and benefits of  improved vehicle fuel economy in the Volpe model, we analyzed NHTSA  documentation against federal guidance for conducting regulatory and  economic analyses and GAO guidance for conducting benefit-cost  analyses.
To determine the steps NHTSA has taken to analyze the effects of the  model year 2008 through 2011 light truck standards, we reviewed and  analyzed the Energy Independence and Security Act, NHTSA’s final  rulemaking on the model year 2008 through 2011 CAFE standards for light  trucks, and the data used to set these standards. We interviewed NHTSA  officials to determine whether NHTSA has conducted analyses to assess  the outcomes of these standards—for example, improvements in vehicle  fuel economy and gallons of oil saved—and requested documentation of  any analyses. To determine the steps NHTSA has taken to assess the  accuracy of input data and assumptions used in developing the model year  2008 through 2011 CAFE standards—particularly assumptions related to  cost estimates of technology and manufacturer product plans—we  interviewed NHTSA officials and requested documentation of any analyses  as appropriate. For example, we assessed whether NHTSA compared data  that estimated the costs of fuel-saving technology to actual cost data from  2008. We also interviewed outside experts on options NHTSA could use to  conduct such an analysis and the benefits and tradeoffs of doing so.  Finally, we reviewed and analyzed these interviews and documentation  against GAO guidance for program evaluation.
We conducted this performance audit from June 2009 to February 2010, in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: The CAFE Compliance and Effects Modeling System
paragraphs: As part of its regulatory impact analysis of potential CAFE standards,  NHTSA uses the CAFE Compliance and Effects Modeling System  (commonly known as the Volpe model) developed by the Volpe National  Transportation Systems Center to estimate the following: (1) the most  cost-effective strategy for automobile manufacturers to respond to  proposed CAFE standards and (2) the impacts, such as reduced fuel  consumption, increased vehicle prices, and reduced emissions, proposed  CAFE standards will have on consumers, manufacturers, and society. For  a visual description of the Volpe model’s analysis, see figure 6.
The Volpe model’s analysis relies on a number of data inputs, including,  among other things, a list of the automobile manufacturers producing  vehicles for sale in the U.S. during the period covered by a CAFE  rulemaking, a list of fuel-saving technologies and their estimated cost and  effectiveness in reducing fuel consumption, simulated alternative CAFE  scenarios (i.e., CAFE standards set at range of levels), economic inputs  such as the estimated social cost of carbon dioxide emissions and the  rebound effect (a phenomenon in which individuals drive more because  improving a vehicle’s fuel economy effectively lowers the cost per mile of  operating that vehicle), and the emissions rates of various pollutants.  These data are contained in several input files that are entered into the  Volpe model.
subsections: section_title: The Compliance Simulation
paragraphs: The Volpe model’s compliance simulation demonstrates how each  automobile manufacturer could attempt to comply with a higher CAFE  standard by adding fuel-saving technologies to its vehicle fleet until that  level is achieved. Using the information provided in the scenario input file,  the Volpe model applies fuel-saving technologies in order of cost- effectiveness and ease of implementation to the vehicle models forecasted  in the baseline to simulate how a manufacturer could make progress  toward compliance with new CAFE standards.
section_title: Definition of the Baseline Vehicle Fleet
paragraphs: In previous rules, NHTSA has relied on confidential product plans provided by  manufacturers to create the baseline fleet, but it has shifted away from that approach to  make the baseline data more transparent for the proposed rule. determines the applicability and availability of each technology to every  vehicle model. If the phase-in limit for a particular technology has been  reached and it is no longer available, the Volpe model proceeds to the  estimated next-best technology. See figure 7 for a visual description of the  process by which the Volpe model determines the applicability and  availability of a given technology.
The model repeats this process for each technology group, and then  selects the technology with the lowest effective cost—that is, the  technology that provides the greatest private benefits with the lowest cost.  The compliance simulation continues to apply technologies to each  manufacturer’s fleet using this approach until (1) the manufacturer’s fleet  is estimated to be brought into compliance with the CAFE standard for a  given model year, (2) the manufacturer has exhausted all the technology  options for its fleet, or (3) the Volpe model estimates that it would be more  cost-effective for the manufacturer to pay the associated CAFE fines than  to apply additional technology to its fleet. The Volpe model accounts for  multiyear planning, through which a manufacturer may apply more  technology than necessary in earlier model years in order to carry those  technologies forward into future model years and thereby avoid applying  other more expensive technologies. When the Volpe model has brought  each manufacturer’s fleet to one of the three outcomes listed above, the  compliance simulation loop ends.
section_title: Forecast of the New Vehicle Fleet
paragraphs: The compliance simulation produces an output file that shows, for each  vehicle in a manufacturer’s fleet, which technologies were included in a  vehicle model before the simulation was run, which technologies were  skipped in favor of other technologies, and which technologies had been  applied to vehicles at the simulation’s end. The output file also shows the  changes in vehicle weight, improvement in fuel economy, and incurred  cost resulting from the technologies applied during the compliance  simulation, as well as the total cost of any civil penalties incurred by each  manufacturer. At this point, the Volpe model has a new fleet of vehicles  with new prices, fuel types (gasoline or diesel), fuel-economy values, and  curb weights to reflect how NHTSA estimates manufacturers will apply  fuel-saving technologies in response to the CAFE requirements.
section_title: The Calculation of Effects
paragraphs: Following the compliance simulation, the Volpe model’s calculation of  effects component estimates the impact of the fuel-economy  improvements made to vehicles to meet new CAFE standards on energy  consumption, greenhouse emissions, and other factors. Using the  forecasted vehicle fleet (i.e., the output of the compliance simulation), the  Volpe model estimates the lifetime travel, fuel consumption, and carbon  dioxide and criteria pollutant emissions resulting from the application of  technologies to meet higher CAFE standards for each vehicle in the U.S.  fleet over its anticipated life span. After calculating the effects for  individual vehicle models, the Volpe model aggregates these effects for all  the vehicles in a CAFE class produced during each model year affected by  a proposed standard.
section_title: Costs, Benefits, and Effects of More Stringent CAFE Standards
paragraphs: The Volpe model measures the effects of increased CAFE standards by  calculating the difference in the value of a variable (e.g., gallons of fuel  consumed) under the baseline (model year 2011) CAFE standard and its  value under a new CAFE standard. These effects include but are not  limited to  reductions in greenhouse gas emissions—increasing CAFE standards will  reduce gasoline consumption and the amount of petroleum refined, which  will reduce emissions of greenhouse gases;    higher or lower emissions of air pollutants;    potential increases in new vehicle prices;    social value of fuel savings, which is the annual value of fuel savings over  the entire expected lifetimes of vehicle models whose fuel economy is  improved;    economic benefits from reduced petroleum imports;    valuing changes in environmental impacts (i.e., the Volpe model estimates  changes in damage costs caused by carbon dioxide emissions); and    social costs of added driving.
section_title: Appendix III: Comments from the Environmental Protection Agency
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact above, Cathy Colwell (Assistant Director),  Timothy Bober, Antoinette Capaccio, Joah Iannotta, Terence Lam, Sara  Ann Moessbauer, Josh Ormond, Madhav Panwar, Justin Reed, Matthew  Rosenberg, Amy Rosewarne, Frank Rusco, Crystal Wesco, and Chad  Williams made key contributions to this report.