[Federal Register Volume 68, Number 66 (Monday, April 7, 2003)]
[Rules and Regulations]
[Pages 16868-16900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8222]



[[Page 16867]]

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Part II





Department of Transportation





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National Highway Traffic Safety Administration



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49 CFR Part 533



Light Truck Average Fuel Economy Standards Model Years 2005-2007; Final 
Rule

  Federal Register / Vol. 68, No. 66 / Monday, April 7, 2003 / Rules 
and Regulations  

[[Page 16868]]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 533

[Docket No. 2002-11419; Notice 3]
RIN 2127-AI70


Light Truck Average Fuel Economy Standards Model Years 2005-2007

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

ACTION: Final rule.

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SUMMARY: This final rule establishes corporate average fuel economy 
standards for light trucks. NHTSA is setting a standard of 21.0 miles 
per gallon (mpg) for model year (MY) 2005, 21.6 mpg for MY 2006, and 
22.2 mpg for MY 2007.

DATES: Effective: May 5, 2003. If you wish to submit a petition for 
reconsideration of this rule, your petition must be received by May 22, 
2003.

ADDRESSES: Petitions for reconsideration should refer to the docket 
number and be submitted to: Administrator, Room 5220, National Highway 
Traffic Safety Administration, 400 Seventh Street, SW., Washington, DC 
20590.

FOR FURTHER INFORMATION CONTACT: For technical issues, call Ken Katz, 
Lead Engineer, Fuel Economy Division, Office of Planning and Consumer 
Standards, at (202) 366-0846, facsimile (202) 493-2290, electronic mail 
[email protected]. For legal issues, call Otto Matheke or Nancy Bell, 
Office of the Chief Counsel, at (202) 366-2992.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Background
III. Summary of the NPRM
IV. Summary of Final Rule and Supporting Documents
V. Maximum Feasible Fuel Economy Considerations
VI. Summary of Public Comments
    A. Technological Comments
    B. Economic Comments
    C. Environmental Comments
    D. Additional Comments
VII. Consideration of the Maximum Feasible Fuel Economy Levels
    A. Technological Feasibility
    1. General Motors
    2. Ford
    3. DaimlerChrysler
    B. Economic Practicability and Other Economic Issues
    1. Costs
    2. Benefits to Society
    3. Comparison of Estimated Costs to Estimated Societal Benefits
VIII. The Effect of Other Federal Vehicle Standards on Fuel Economy
    A. Federal Motor Vehicle Safety Standards
    1. FMVSS No. 138, Tire Pressure Monitoring Systems
    2. FMVSS No. 139, Tire Upgrade
    3. FMVSS No. 201, Occupant Protection in Interior Impact
    4. FMVSS No. 202, Head Restraints
    5. FMVSS No. 208, Occupant Crash Protection
    6. FMVSS No. 225, Child Restraint Anchorage Systems
    7. FMVSS No. 301, Fuel System Integrity
    8. Cumulative Weight Impacts of the FMVSSs
    B. Federal Motor Vehicle Emissions Standards
    1. Tier 2 Requirements
    2. Onboard Refueling Vapor Recovery
    3. Supplemental Federal Test Procedure
    4. California Air Resources Board LEV II and Section 177 States
IX. The Need of The Nation to Conserve Energy
X. Balancing of Statutory Factors
XI. Rulemaking Analyses and Notices

I. Introduction

    Beginning in 1996, NHTSA was subject to a series of limitations on 
appropriations that prevented the agency from considering changes to 
the corporate average fuel economy (CAFE) levels established by statute 
at 27.5 mpg for passenger cars and by regulation at 20.7 mpg for non-
passenger automobiles (light trucks). In July 2001, Secretary of 
Transportation Mineta asked Congress not to renew the appropriations 
rider restricting the agency's authority.
    Congress enacted the Department of Transportation and Related 
Agencies Appropriations Act for FY 2002 (Pub. L. 107-87) in December 
2001 without the appropriations rider. Since that time, the agency has 
been actively engaged in collecting and analyzing data, establishing 
appropriate fuel economy standards, and considering ways to enhance the 
CAFE program within current statutory authority.
    Because NHTSA is required by the CAFE statute to establish the CAFE 
standard for a model year not later than 18 months before its 
beginning, and thus had to establish the light truck standard for MY 
2004 on or before April 1, 2002, the agency had to act quickly after 
December 2001 to set that standard. Due to the lack of opportunity to 
gather and analyze the data necessary to support a standard different 
from 20.7 mpg, the agency set the MY 2004 standard at 20.7 mpg. (67 FR 
16052, April 4, 2002)
    On February 7, 2002, the agency published a Request for Comments, 
seeking data relating to manufacturers' product plans for light trucks 
for MYs 2005-2010 and seeking comments relating to potential reforms to 
the CAFE program. (67 FR 5767) Having received and analyzed detailed 
data about manufacturers' product plans for MYs 2005-2007, the agency 
published a Notice of Proposed Rulemaking (NPRM) on December 16, 2002 
proposing to establish the CAFE standard for light trucks at 21.0 mpg 
for MY 2005, 21.6 mpg for MY 2006 and 22.2 mpg for MY 2007. (67 FR 
77015)
    NHTSA noted in the NPRM that, consistent with the recommendations 
of the National Academy of Sciences (NAS) in its report on the 
effectiveness and impacts of the CAFE standards, the agency intended to 
consider alternatives to the current structure of the CAFE program that 
would enhance long term fuel economy while protecting motor vehicle 
safety and American jobs, and to implement reforms consistent with our 
statutory authority for model years after MY 2007. We further noted our 
belief that advanced fuel saving technologies, such as hybrid electrics 
and advanced diesel vehicles, could substantially enhance the average 
fuel economy of the American light vehicle fleet as even more advanced 
technologies, such as fuel cells, are developed.
    Since that time, both public and private initiatives have been 
announced. Earlier this year, President Bush proclaimed the 
government's support for the active research and development of 
commercially viable hydrogen-powered fuel cells for transportation and 
stationary power applications, and the infrastructure to support them. 
As the President indicated in his State of the Union address, 
successful execution of the Hydrogen Fuel Initiative would mean that 
the first car driven by a child born today could be powered by fuel 
cells, and pollution-free. The President's Hydrogen Fuel Initiative 
complements the FreedomCAR initiative, a partnership with the U.S. auto 
industry aimed at developing technologies needed for mass production of 
safe and affordable hydrogen fuel cell vehicles. Together, these 
initiatives will enable automobile manufacturers to decide to offer 
affordable and technologically viable hydrogen fuel cell vehicles in 
the mass consumer market by 2015 and the ability to produce and deliver 
such vehicles to the market by 2020.
    The private sector is also responding to the nation's need to 
develop energy independence. On January 6, 2003, General Motors 
announced that it would offer an optional hybrid powertrain on several 
of its most popular models, including light trucks. While pointing out 
that its plans involve ``relatively low volumes,'' General Motors also 
stated that its initiative would make it ``well

[[Page 16869]]

positioned to meet market demand as it develops.'' Similarly, Ford 
Motor Company will introduce an optional hybrid electric powertrain in 
its Escape Sport Utility Vehicle, beginning with MY 2004. As Ford 
explained:

    While a few automakers have introduced small, low-volume hybrid-
electric cars, Ford is introducing its first HEV on a family-sized 
sport utility to increase mass customer appeal. The hybrid-electric 
powertrain also has been developed with additional applications and 
vehicles in mind to expand the potential impact of the 
environmentally responsible technology.

    DaimlerChrysler will introduce an optional diesel engine in the 
Jeep Liberty Sport Utility Vehicle, also beginning with MY 2004. The 
company claimed in December 2002 that American consumers could help 
reduce oil use by about 800 million gallons annually if they chose to 
purchase clean diesel engines at the same rate as Europeans. According 
to DaimlerChrysler: ``Today's modern diesel vehicles should be part of 
the solution to improving fuel efficiency and reducing carbon dioxide 
emissions. Diesels lead to up to 30 percent improvement in fuel 
economy, while reducing carbon dioxide emissions an average of 20 
percent.''
    The agency intends to address potential long-term enhancements to 
the fuel economy program through a separate rulemaking to be initiated 
this year. We will examine the best methods through which to redefine 
the distinctions between light trucks and passenger cars and the best 
basis on which to set CAFE standards. We will identify and seek comment 
on specific reforms aimed at enhancing fuel economy while protecting 
the safety of the American public and American jobs.
    In the meanwhile, the agency must establish fuel economy standards 
for light trucks to address the current need to conserve energy within 
the bounds of technological feasibility and economic practicability, 
taking into account the effects of other Federal vehicle standards on 
fuel economy. Having analyzed the manufacturers' product plans and 
other available information, and considering the nation's need to 
conserve energy while seeking to protect the safety and jobs of the 
American public, we proposed light truck CAFE levels for MYs 2005-2007.
    We received a significant amount of comment on the proposal, 
expressing a wide range of views. While some of those commenting 
charged that technology is available to set the standards higher, 
others argued that insufficient lead time and technological and market 
risks make it unlikely that the proposed standards would be attained. 
We have reviewed the comments and adjusted many aspects of the analyses 
to account for many of the points made. We have similarly reassessed 
the costs and benefits of the proposed standards.
    After considering the foregoing, we are adopting the standards as 
proposed in the NPRM, having concluded that they constitute the maximum 
feasible level, taking into consideration the statutory criteria, for 
average light truck fuel economy standards for MYs 2005-2007. We have 
concluded that the standards are within the technological feasibility 
and economic practicability of the primary companies in the light truck 
market, and will enhance the ability of the nation to conserve fuel and 
reduce its dependence on foreign oil. We have concluded further that 
the standards established today present the overall best balance 
between the express statutory criteria.

II. Background

    In December 1975, during the aftermath of the energy crisis created 
by the oil embargo of 1973-1974, Congress enacted the Energy Policy and 
Conservation Act (EPCA). The Act established an automotive fuel economy 
regulatory program by adding Title V, ``Improving Automotive 
Efficiency,'' to the Motor Vehicle Information and Cost Saving Act. 
Title V has been amended from time to time and codified without 
substantive change as Chapter 329 of title 49, United States Code. 49 
U.S.C. 32901-32919.
    Chapter 329 provides for the issuance of CAFE standards for 
passenger automobiles and for automobiles that are not passenger 
automobiles (light trucks). The CAFE standards set a minimum 
performance requirement in terms of an average number of miles a 
vehicle travels per gallon of gasoline or diesel fuel. Individual 
vehicles and models are not required to meet the mileage standard; 
rather, each manufacturer must achieve an average level of fuel economy 
for all specified vehicles manufactured in a given model year.
    Section 32902(a) of Chapter 329 states that the Secretary of 
Transportation shall prescribe by regulation CAFE standards for light 
trucks for each model year.\1\ That section requires that the CAFE 
standards for light trucks for a given model year be issued at least 18 
months before the beginning of that model year. That section also 
states ``[e]ach standard shall be the maximum feasible average fuel 
economy level that the Secretary decides the manufacturers can achieve 
in that model year.'' Section 32092(f) directs the Secretary to 
consider four factors in determining the ``maximum feasible'' fuel 
economy level:
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    \1\ The Secretary has delegated the authority to implement the 
automotive fuel economy program to the NHTSA Administrator. 49 CFR 
1.50(f).
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    (1) Technological feasibility;
    (2) Economic practicability;
    (3) The effect of other Federal motor vehicle standards on fuel 
economy; and
    (4) The need of the Nation to conserve energy.
    The first light truck CAFE standards were established for MY 1979 
and applied to light trucks with Gross Vehicle Weight Ratings (GVWR) up 
to 6000 pounds. Beginning with MY 1980, NHTSA raised this GVWR ceiling 
to 8500 pounds. For MYs 1979-1981, NHTSA established separate standards 
for two-wheel drive (2WD) and four-wheel drive (4WD) light trucks, 
without a ``combined'' standard blending the two together. Beginning 
with MY 1982, NHTSA established a combined standard, plus optional 2WD 
and 4WD standards. After MY 1991, NHTSA dropped the optional 2WD and 
4WD standards. During MYs 1980-1995, NHTSA also required U.S. light 
truck manufacturers' ``captive imports'' to be separated from their 
other truck models in determining compliance with CAFE standards. The 
following table lists the ``combined'' standards established since MY 
1982:

------------------------------------------------------------------------
                                                                 CAFE
                         Model year                            standard
                                                                (mpg)
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1982.......................................................         17.5
1983.......................................................         19.0
1984.......................................................         20.0
1985.......................................................         19.5
1986.......................................................         20.0
1987.......................................................         20.5
1988.......................................................         20.5
1989.......................................................         20.5
1990.......................................................         20.0
1991.......................................................         20.2
1992.......................................................         20.2
1993.......................................................         20.4
1994.......................................................         20.5
1995.......................................................         20.6
1996.......................................................         20.7
1997.......................................................         20.7
1998.......................................................         20.7
1999.......................................................         20.7
2000.......................................................         20.7
2001.......................................................         20.7
2002.......................................................         20.7
2003.......................................................         20.7
2004.......................................................         20.7
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    In 1994, the agency departed from its usual past practice of 
considering light truck standards for one or two model years at a time 
and published an Advance Notice of Proposed

[[Page 16870]]

Rulemaking (ANPRM) in the Federal Register outlining NHTSA's intention 
to set standards for some, or all, of MYs 1998-2006. 59 FR 16324 (April 
6, 1994).
    On November 15, 1995, the Department of Transportation and Related 
Agencies Appropriations Act for FY 1996 was enacted. Pub. L. 104-50. 
Section 330 of that Act provided:

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

    Pursuant to that Act, we then issued an NPRM limited to MY 1998, 
proposing to set the light truck CAFE standard for that year at 20.7 
mpg, the same level as the standard we had set for MY 1997. 61 FR 145 
(January 3, 1996). We adopted this 20.7 mpg-standard in a final rule 
issued on March 29, 1996. 61 FR 14680 (April 3, 1996).
    On September 30, 1996, the Department of Transportation and Related 
Agencies Appropriations Act for FY 1997 was enacted. Pub. L. 104-205. 
Section 323 of that Act included the same limitation on appropriations 
regarding the CAFE standards contained in Section 330 of the FY 1996 
Appropriations Act. The agency followed the same process as the prior 
year and established a MY 1999 light truck CAFE standard of 20.7 mpg, 
the same level as the standard that had been set for MYs 1997 and 1998.
    Because the same limitation on the setting of CAFE standards was 
included in the Appropriations Acts for each of FYs 1998-2001, the 
agency followed that same procedure during those fiscal years and did 
not issue any NPRMs in the series of rulemakings we conducted to 
establish the light truck fuel economy standards for MYs 2000-2003. The 
agency concluded in those rulemakings, as it had when setting the MY 
1999 standard, that the restrictions contained in the appropriations 
acts prevented the issuance of any standards other than the standard 
set for the prior model year. The agency also determined that issuing 
an NPRM was unnecessary and contrary to the public interest because 
there was no other course of action available to it.
    The Department of Transportation and Related Agencies 
Appropriations Act for FY 2001 was enacted on October 23, 2000. Pub. L. 
106-346. That is the appropriations act under which we issued the light 
truck CAFE standard for MY 2003. While Section 320 of that Act 
contained a restriction on CAFE rulemaking identical to that contained 
in prior appropriation acts, the conference committee report for that 
Act directed that NHTSA fund a study by NAS to evaluate the 
effectiveness and impacts of CAFE standards (H.R. Conf. Rep. No. 106-
940, at 117-118).
    NAS submitted its report to the Department of Transportation on 
July 30, 2001. The final report was released in January 2002. The 
report concludes that technologies exist that could significantly 
increase passenger car and light truck fuel economy within 15 years. 
However, their development cycles as well as future economic, 
regulatory, safety and consumer preferences will influence the extent 
to which these technologies appear in the U.S. market.
    All but two members of the NAS committee that authored the report 
said, ``to the extent that the size and weight of the fleet have been 
constrained by CAFE requirements * * * those requirements have caused 
more injuries and fatalities on the road than would otherwise have 
occurred.'' (NAS, p. 29). Specifically, they noted: ``the downweighting 
and downsizing that occurred in the late 1970s and early 1980s, some of 
which was due to CAFE standards, probably resulted in an additional 
1300 to 2600 traffic fatalities in 1993.'' (NAS, pp. 3 and 111.)
    The NAS found that, to minimize financial impacts on manufacturers, 
and on their suppliers, employees, and consumers, sufficient lead-time 
(consistent with normal product life cycles) should be given when 
considering increases in CAFE standards. The report stated that there 
are advanced technologies that could be employed, without negatively 
affecting the automobile industry, if sufficient lead-time were 
provided to the manufacturers. In the NAS' view, the selection of 
future fuel economy standards will require uncertain and difficult 
trade-offs among environmental benefits, vehicle safety, cost, energy 
independence, and consumer preferences. It also suggests that 
consideration be given to changing the CAFE regulatory program to one 
based on vehicle attributes, such as weight, and that allowing ``credit 
trading'' could eliminate the current CAFE program's encouragement of 
downweighting or the production and sale of more small cars, and also 
reduce costs. (NAS, pp. 5, 113) Recognizing the many trade-offs that 
must be considered in setting fuel economy standards, the NAS committee 
took no position on what CAFE standards would be appropriate for future 
years.
    In a letter dated July 10, 2001, Secretary of Transportation Mineta 
asked the House and Senate Appropriations Committees to lift the 
restriction on the agency's spending funds for the purposes of 
improving CAFE standards. The Department of Transportation and Related 
Agencies Appropriations Act for FY 2002 (Pub. L. 107-87), which was 
enacted on December 18, 2001, did not contain a provision restricting 
the Secretary's authority to prescribe fuel economy standards.
    When issuing our January 2002 proposal to establish the MY 2004 
standard at 20.7 mpg (67 FR 3470), we noted that our newly regained 
ability to spend funds did not immediately enable us to conduct the 
level of analysis needed to set different fuel economy standards.\2\ 
Although a number of commenters reacted to this proposal by advocating 
a higher MY 2004 standard, the agency determined, based on the limited 
information available to the agency for analyzing the manufacturers' 
product plans and on the lack of lead time to change those plans 
significantly, to set the MY 2004 standard at 20.7 mpg (67 FR 16052, 
April 4, 2002).
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    \2\ To prepare to establish any fuel economy standard, the 
agency must collect information relating to prospective CAFE levels, 
analyze and weigh the information in light of the statutory criteria 
for determining the ``maximum feasible'' average fuel economy level, 
and incorporate this information and analysis into a rulemaking 
action to set the standard, with opportunity for notice and comment. 
As NHTSA was unable to spend any funds by virtue of Section 320 of 
the FY 2001 Appropriations Act and the predecessor restrictions in 
earlier Appropriations Acts, it was not able to prepare the factual 
or analytical foundation necessary for rulemaking to establish CAFE 
standards at new levels from September 1995 to December 2001.
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    On February 7, 2002, we issued a Request for Comments (RFC) (67 FR 
5767) seeking data on which we could base our analysis of appropriate 
CAFE standards for light trucks for upcoming model years, beginning 
with MY 2005. We also sought comments on possible reforms to the CAFE 
program, as it applies to both passenger cars and light trucks, to 
protect passenger safety, advance fuel-efficient technologies, and 
obtain the benefits of market-based approaches. In the same month, 
Secretary Mineta asked Congress ``to provide the Department of 
Transportation with the necessary authority to reform the CAFE program, 
guided by the NAS report's suggestions.''
    While we are limited today in setting CAFE standards for the 
relative short term and within the constraints of the current CAFE 
statute, we will continue to support and encourage the development of 
advanced vehicle technologies capable of substantial fuel economy 
improvements and a market

[[Page 16871]]

structure to support them through efforts like the President's proposed 
research initiative to aid in developing clean, hydrogen-powered 
automobiles, targeted research dollars and consumer tax incentives. 
Consistent with the recommendations of the NAS report, we intend to 
study programmatic CAFE alternatives and to implement those reforms 
within our statutory authority to allow for greater improvements in 
fuel economy safely in the years beyond those addressed in this final 
rule.

III. Summary of the NPRM

    NHTSA proposed light truck CAFE standards for MYs 2005-2007 in an 
NPRM published on December 16, 2002 (66 FR 77015). This proposal sought 
to set a standard for light trucks at 21.0 mpg for MY 2005, 21.6 mpg 
for MY 2006 and 22.2 mpg for MY 2007. These proposed standards 
represented NHTSA's tentative view of the maximum feasible fuel economy 
levels that could be achieved by light truck manufacturers in each of 
these model years.
    The agency's proposal relied heavily on the NAS fuel economy 
report, confidential product plans submitted by some manufacturers, 
data maintained by NHTSA for other manufacturers, and responses to the 
agency's February 2002 RFC. NHTSA analyzed the information from these 
sources to develop an understanding of the availability, effectiveness 
and costs of technologies and other means to increase light truck fuel 
economy. The agency then proceeded to process these data, using two 
methodologies. One methodology, which has been labeled as the ``Stage'' 
analysis, primarily involved application of the agency's engineering 
judgment and expertise about possible adjustments to the detailed 
product plans submitted in response to the RFC by DaimlerChrysler, 
General Motors, and Ford. The Stage analysis was limited to these 
manufacturers because they were the only ones that provided the agency 
with detailed product plans for MYs 2005-2007. The other methodology, 
used by the Department's Volpe National Transportation Systems Center 
(Volpe Center) and labeled as the ``Volpe'' analysis, relied on the 
aforementioned product plans as well as data relating to manufacturers 
that had not submitted detailed information in response to the RFC.
    The Stage and the Volpe analyses were both intended to provide 
reliable estimates of manufacturer capabilities. Stage I of the Stage 
analysis took existing product plans and applied technologies that 
manufacturers indicated would be available by MY 2005. Stage II applied 
more advanced transmission upgrades and engine improvements to planned 
model and engine changeovers.
    The Volpe analysis considered product plans, but also used a 
technology application algorithm developed by Volpe Center staff. This 
algorithm systematically applied consistent cost and performance 
assumptions to the entire industry, as well as consistent assumptions 
regarding economic decision-making by manufacturers. Technologies were 
applied in order of cost-effectiveness. Use of this methodology led to 
projections that low-friction lubricants, engine accessory 
improvements, reductions in engine friction and rolling and aerodynamic 
resistance, cylinder deactivation, and transmission upgrades (5-speed, 
6-speed, and automatically shifted manual transmissions) would account 
for most of the response to the proposed CAFE standards.
    The NPRM explained that the Stage analysis provided the initial 
basis for the proposed CAFE standards, while the Volpe Center's 
technology application algorithm was used to estimate the overall 
economic impact of the proposal. The Volpe analysis covered the entire 
industry and assessed the economic impact of the proposal as measured 
in terms of increases in new vehicle prices on a manufacturer-wide, 
industry-wide, and average per-vehicle basis. Based on these estimates 
and corresponding estimates of the proposal's net economic and other 
benefits, the agency tentatively concluded that the proposal would be 
economically practicable and technologically feasible.

IV. Summary of Final Rule and Supporting Documents

    The agency is adopting the light truck CAFE standards proposed in 
the NPRM: 21.0 mpg for MY 2005, 21.6 mpg for MY 2006, and 22.2 mpg for 
MY 2007. In establishing these standards, the agency has carefully 
considered all the comments submitted to the docket, but in particular 
those of motor vehicle manufacturers and of groups representing 
consumer and environmental interests. The agency has determined that 
these levels are the maximum feasible CAFE levels for light trucks for 
those model years, balancing the express statutory factors and, in 
particular, the impact of the standard on motor vehicle safety and 
American jobs. NHTSA estimates that the fuel economy increases required 
by the standards for MYs 2005-2007 will generate approximately 3.6 
billion gallons of gasoline savings over the 25-year lifetime of the 
affected vehicles.
    The agency has analyzed potential technological improvements to the 
product offerings for each manufacturer with a significant share of the 
light truck market. In response to the public comments, we updated both 
the Stage and the Volpe analyses, making numerous changes to our 
engineering and economic calculations and determinations to account for 
computational errors and other adjustments we found appropriate. The 
agency's projection of CAFE capability is based on the most recently 
submitted product plans and involves technological improvements we have 
determined to be appropriate and feasible within the time frame. We do 
not believe this final rule will necessitate, nor do we believe it will 
result in, any ``mix shifting,'' e.g., changing from the planned 
production of heavier or larger vehicles to lighter or smaller 
vehicles, which might result in significant employment and/or weight 
reductions were it to occur.
    Indeed, we sought public comment on the possibility or likelihood 
that manufacturers would comply with these new standards by reducing 
vehicle weight and, if so, any safety consequences of weight reduction. 
The manufacturers suggested that weight reduction is a possible 
compliance option, while falling short of predicting that they would in 
fact comply by reducing the mass of their vehicles in ways that may 
affect their overall crashworthiness. We believe that the final rule 
neither will necessitate nor result in reductions in vehicle weight 
that will impede the overall safety of the vehicle fleet traveling on 
the roads of America. Indeed, as the NAS report noted, there are many 
technological means available to manufacturers for improving fuel 
economy that are much more cost-effective than weight reduction. 
Accordingly, we did not rely on weight reduction.
    We recognize that the standard established for MY 2007 is a 
substantial challenge for General Motors, especially in light of the 
updates to the product plans submitted with its comments on the NPRM. 
This is the first time since the issuance of MY 1983-1985 light truck 
standards in December 1980 that the agency has established light truck 
CAFE standards for more than two model years in the same final rule. We 
recognize that, between now and the last (MY 2007) of the model years 
for which standards are being established, there is more time than in 
previous light truck CAFE rulemakings for significant changes to occur 
in external factors

[[Page 16872]]

capable of affecting the achievable levels of CAFE. These external 
factors include fuel prices and the demand for vehicles with advanced 
fuel saving technologies, such as hybrid electric and advanced diesel 
vehicles. Changes in these factors could lead to higher or lower levels 
of CAFE, particularly in MY 2007.
    Recognizing that the MY 2007 standard may have to be reexamined in 
light of any significant changes in those factors, the agency plans to 
monitor the compliance efforts of the manufacturers. To this end, the 
agency will examine the manufacturers' pre and mid-model year fuel 
economy reports filed with NHTSA through December 2004 and current 
market information, and consider the reasonableness of the efforts made 
by the manufacturers after this final rule to meet the MY 2007 
standard. If appropriate, the agency could adjust the standard upward 
or downward. The CAFE standard for a model year can be increased at 
anytime before the 18-month period preceding that year, and decreased 
at anytime before the beginning of that year. Thus, the MY 2007 
standard could be increased anytime before April 1, 2005 and decreased 
anytime before October 1, 2006.
    The Final Economic Assessment (FEA) discusses in detail the fuel 
efficiency enhancing technologies expected to be available during MYs 
2005-2007. Some of the technologies discussed in the FEA have been used 
for over a decade (e.g., overhead camshafts, engine friction reduction, 
and low friction lubricants). Others have only recently been 
incorporated into passenger cars, (e.g., 5-speed and 6-speed automatic 
transmissions and variable valve timing). Still others have been under 
development for a number of years, but have not been produced in 
quantity for an extended period (e.g., cylinder deactivation, variable 
valve lift and timing, continuously variable transmission (CVT), 
integrated starter/generator, advanced diesels and hybrid drive-
trains).
    The FEA also details, and this preamble summarizes, the agency's 
analysis of the costs and benefits of these CAFE standards. The agency 
has estimated not only the anticipated costs that would have to be 
borne by General Motors, Ford and DaimlerChrysler and other light truck 
manufacturers to comply with the standards, but also the significance 
of the societal benefits anticipated to be achieved through direct and 
indirect fuel savings. We have concluded that these CAFE standards--
while challenging--can be met in a cost beneficial way, and that they 
will benefit society considerably.
    A final Environmental Assessment (EA) also accompanies this final 
rule. The agency has determined that the proposed action would not have 
a significant effect on the quality of the environment.

V. Maximum Feasible Fuel Economy Considerations

    The CAFE statute sets forth the parameters within which the agency 
is required to establish corporate average fuel economy standards. 
Section 32902(a) provides that ``each standard shall be the maximum 
feasible average fuel economy level that the Secretary decides the 
manufacturers can achieve in that model year.''
    As noted above, the agency is required to consider the factors in 
49 U.S.C. 32902(f) when determining the ``maximum feasible'' CAFE 
standards for any given model year. These are technological 
feasibility, economic practicability, the effect of other Federal motor 
vehicle standards on fuel economy, and the need of the nation to 
conserve energy. Although the EPCA does not include motor vehicle 
safety as an express statutory factor, it does not preclude 
consideration of it. Accordingly, NHTSA should consider safety in 
accordance with its statutory responsibilities regarding safety and the 
Administration's emphasis on ensuring motor vehicle safety.
    The agency has historically included consideration of numerous 
public policy concerns, whether considered as part of the enumerated 
factors or in addition to them. The courts have routinely affirmed the 
agency's authority to do this and have consistently upheld NHTSA's 
conclusions. See, e.g., Center for Auto Safety v. NHTSA, 793 F.2d 1322 
(CAS II) (D.C. Cir. 1986) (administrator's consideration of market 
demand as component of economic practicability found to be reasonable); 
Public Citizen v. NHTSA, 848 F.2d 256 (D.C. Cir.1988)(Congress 
established broad guidelines in the fuel economy statute; agency's 
decision to set lower standard was a reasonable accommodation of 
conflicting policies).
    In particular, consideration of the impact of CAFE standards on 
motor vehicle and passenger safety has long been recognized as an 
integral part of the agency's process of examining the various 
considerations and determining maximum feasible average fuel economy. 
As the United States Court of Appeals pointed out in upholding NHTSA's 
exercise of judgment in setting the 1987-1989 passenger car standards, 
``NHTSA has always examined the safety consequences of the CAFE 
standards in its overall consideration of relevant factors since its 
earliest rulemaking under the CAFE program.'' See, Competitive 
Enterprise Institute v. NHTSA (CEI I), 901 F.2d 107, 121 at n.11 (DC 
Cir. 1990).
    As discussed in many past fuel economy notices, it is clear from 
the legislative history of EPCA that Congress intended NHTSA to take 
industry-wide considerations into account in determining the maximum 
feasible CAFE levels, and not necessarily base its determination on any 
particular company's asserted or projected abilities. This does not 
necessarily mean that CAFE standards will be set at the level asserted 
by the ``least capable manufacturer'' with a substantial share of the 
market. Instead, it means that we must take particular care in 
considering the statutory factors with regard to these manufacturers--
weighing their asserted capabilities, product plans and economic 
conditions against agency projections of their capabilities, the need 
for the nation to conserve energy and the effect of other regulations 
(including motor vehicle safety and emissions regulations) and other 
public policy objectives.
    This approach is consistent with the Conference Report on the 
legislation enacting the CAFE statute:

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

S. Rep. No. 94-516, 94th Congress, 1st Sess. 154-155 (1975).
    The agency has historically assessed whether a potential CAFE 
standard is economically practicable in terms of whether the standard 
is one ``within the financial capability of the industry, but not so 
stringent as to threaten substantial economic hardship for the 
industry.'' See, e.g., Public Citizen v. National Highway Traffic 
Safety Administration, 848 F.2d 256, 264 (D.C. Cir. 1988). In essence, 
in determining the maximum feasible level of CAFE, the agency assesses 
what is

[[Page 16873]]

technologically feasible for manufacturers to achieve without leading 
to adverse economic consequences, such as a significant loss of jobs or 
the unreasonable elimination of consumer choice. The CAFE statute does 
not compel that fuel savings be gained at the expense of American jobs 
or competition within the motor vehicle market.
    At the same time, the law does not preclude a CAFE standard that 
poses considerable challenges to any individual manufacturer. The 
Conference Report makes clear, and the case law affirms, ``(A) 
determination of maximum feasible average fuel economy should not be 
keyed to the single manufacturer which might have the most difficulty 
achieving a given level of average fuel economy.'' CEI-I, 793 F.2d 
1322, 1352 (D.C. Cir. 1986). Instead, the agency is compelled ``to 
weigh the benefits to the nation of a higher fuel economy standard 
against the difficulties of individual automobile manufacturers.'' Id. 
The statute permits the imposition of reasonable, ``technology 
forcing'' challenges on any individual manufacturer, but does not 
contemplate standards that will result in ``severe'' economic hardship 
by forcing reductions in employment affecting the overall motor vehicle 
industry.\3\
---------------------------------------------------------------------------

    \3\ In the past, the agency has set CAFE standards above its 
estimate of the capabilities of a manufacturer with less than a 
substantial, but more than a de minimus, share of the market. See, 
e.g., Center For Auto Safety v. National Highway Traffic Safety 
Administration, 793 F.2d 1322, 1326 (D.C. Cir. 1986) (noting that 
the agency set the MY 1982 light truck standard at a level that 
might be above the capabilities of Chrysler, based on the conclusion 
that the energy benefits associated with the higher standard would 
outweigh the harm to Chrysler, and further noting that Chrysler had 
10-15 percent market share while Ford had 35 percent market share). 
On other occasions, the agency reduced an established CAFE standard 
to address unanticipated market conditions that rendered the 
standard unreasonable and likely to lead to severe economic 
consequences. 49 FR 41250, 50 FR 40528, 53 FR 39275, Public Citizen 
v. National Highway Traffic Safety Administration, 848 F.2d 256, 264 
(D.C. Cir. 1988).
---------------------------------------------------------------------------

    The law permits CAFE standards exceeding the projected capability 
of any particular manufacturer as long as the standard is economically 
practicable for the industry as a whole. Thus, while a particular CAFE 
standard may pose difficulties for one manufacturer, it may also 
present opportunities for another. The CAFE program is not necessarily 
intended to maintain the competitive positioning of each particular 
company. Rather, it is intended to enhance fuel economy of the vehicle 
fleet on American roads, while protecting motor vehicle safety and the 
totality of American jobs and the overall United States economy. By the 
same token, maximum feasible fuel economy levels must be ones that 
account for the need to place technologies into mass production and 
cannot be based on claims of potential technologies that have not been 
shown to be feasible on such a production level.
    The standards established in this final rule fall within our Stage 
analysis for each of the primary companies in the light truck market 
for MYs 2005 and 2006, and for all but one for MY 2007. Of those 
companies, the Stage analysis projects that the current product plans 
of both DaimlerChrysler and Ford for MY 2007 will produce a light truck 
CAFE of 22.2. The Volpe analysis, which looks more globally at the 
industry as a whole, further confirms the feasibility of a CAFE level 
of 22.2 mpg for MY 2007. Accordingly, while the standard for that model 
year is being set at a level above the Stage analysis' projection for 
one of the primary companies in the light truck market, we believe that 
industry wide considerations and the additional lead time provided 
confirm that the standard reflects the overall best balance of 
technological feasibility, economic practicability and the nation's 
need to conserve energy and reduce our dependence on foreign oil.

VI. Summary of Public Comments

    NHTSA received over 65,000 individual submissions to the rulemaking 
docket from vehicle manufacturers and associations, environmental and 
consumer advocacy groups, members of Congress and individual citizens. 
The majority of the submissions were letters or emails provided to the 
public by various organizations and submitted by private citizens to 
the docket. Many contained supplementary thoughts from the individual 
senders.
    The citizenry expressed both support for the proposal and concern 
that the proposed standards would not be sufficient to meet the 
nation's need to conserve energy in the short term or to protect 
natural resources and secure energy independence in the long term. Many 
of the individual submissions included a letter provided by the Natural 
Resources Defense Council describing the proposal as ``woefully 
inadequate'' and expressing concern that the proposal did not go far 
enough to help the country reduce our dependence on foreign oil. This 
letter also pointed out that the proposal was consistent with the 
preexisting plans of much of the automobile industry.
    The Union of Concerned Scientists provided citizens with a form to 
fill out stating that ``I am disappointed because,'' with a space for 
individual comments. Other similar documents were also placed in the 
docket. Some expressed a belief that technology is available through 
which manufacturers could exceed the CAFE standards proposed. Many 
stated that the potential of war in the Middle East warrants more 
aggressive standards. Other individuals, using either forms or 
personally developed submissions, expressed support for the proposal. 
The Coalition for Vehicle Choice urged citizens to submit comments 
expressing support for the maintenance of consumer choice from amongst 
a broad array of vehicles.
    Members of Congress also differed in their reaction to the 
proposal. Over 100 members of the House of Representative wrote to 
NHTSA urging the agency to increase the standards further, and stating 
that ``a much greater increase can and should be done to take advantage 
of the many existing technologies in automotive design that can 
increase fuel economy and reduce our nation's dangerous over-dependence 
on imported oil.'' These Congressmen also stated that ``it is now 
unarguable that the fuel efficiency of light trucks can be improved 
without sacrificing safety,'' and that automobile manufacturers have 
boasted of plans to incorporate hybrid electric vehicles in their 
fleets.
    In contrast, the Chairman and Ranking Member of the Committee on 
Energy and Commerce in the House of Representatives wrote that the 
proposal was ``laudable,'' and was consistent with the fuel savings 
goal set forth in H.R. 4, which was adopted by the House of 
Representatives and the House-Senate conference committee in the last 
Congress. These members pointed out that while H.R. 4 passed the House 
of Representatives by a vote of 240 to 189 with a mandate for NHTSA to 
conduct a multi-year rulemaking resulting in a savings of five billion 
gallons of gasoline by the year 2010, an amendment statutorily to 
increase light truck standards ``was soundly defeated by a vote of 269 
to 160.'' These members further point out that H.R. 4 would have 
codified NHTSA's practice of considering any adverse safety and 
employment impacts. The Chairman and Ranking Member concluded that the 
``legislative summary of the consideration of H.R. 4, the `SAFE Act of 
2001,' should be instructive on the intent of Congress regarding the 
CAFE standards for light trucks.''
    The Competitive Enterprise Institute and Consumer Alert argued that 
increased CAFE standards have the potential to adversely affect motor 
vehicle safety. The Mercatus Center and Randall Lutter and Troy Kravitz 
of the

[[Page 16874]]

AEI-Brookings Institute (Lutter and Kravitz) raised concerns relating 
to many of the analytic assumptions used in the PEA and discussed in 
the NPRM.
    Environmental and consumer advocacy groups commenting on the 
proposal included Public Citizen, Center for Auto Safety, the Union of 
Concerned Scientists, the Natural Resource Defense Council, the Sierra 
Club, 20/20 Vision, U.S. Public Interest Research Group, Environmental 
Defense, the Alliance to Save Energy and the American Council for an 
Energy-Efficient Economy.
    In general, these groups expressed dismay that the nature of the 
CAFE program, and its heavy reliance on the confidential technological, 
financial and product abilities of motor vehicle makers, preclude 
access to the data upon which much of the CAFE analysis is based. These 
groups contend that basing CAFE standards on the manufacturers' product 
plans unduly limits the agency to conducting passive rulemakings that 
neither force the companies to alter course nor advances the nation's 
longer-term energy needs. They also contend that technologies are 
available to manufacturers to enhance the fuel economy performance of 
their fleet. Many of these groups offered suggestions for the upcoming 
notice that the agency intends to publish seeking comment on potential 
reforms within current statutory authority.
    Many automobile manufacturers and their trade associations also 
commented on the proposal. None took issue directly with the agency's 
decision to establish light truck CAFE standards over a period of model 
years. However, many took issue with specifics of the agency's analytic 
approach and particular assumptions built into both the technological 
and economic analyses used. The companies generally, but not 
universally, suggested that the proposed standards are challenging, but 
achievable. Most of the companies argued that the agency did not 
properly account for technological and market risks that could render 
the standards infeasible.
    Of those who sell light trucks in the U.S. market, DaimlerChrysler, 
Ford and General Motors each have approximately 25 percent market 
share, and the remaining companies have the rest. DaimlerChrysler, 
whose projected CAFE levels were the highest of the three, did not take 
issue with any particulars in the agency's analysis of its 
capabilities. However, DaimlerChrysler raised concerns relating to the 
agency's general analytic approach and the company's view that the 
agency did not adequately consider the risk of deterioration in the 
projections. To account for that risk, DaimlerChrysler urged the agency 
to reduce its CAFE proposals to 20.9 mpg for MY 2005, 21.1 mpg for MY 
2006 and 21.5 mpg for MY 2007.
    Ford's comments indicated that the company viewed NHTSA's proposal 
as technologically challenging. Like DaimlerChrysler, Ford raised 
concerns with the agency's general analytic approach and argued that 
the agency had underestimated the lead time necessary to incorporate 
fuel economy improvements in vehicles, as well as the difficulties of 
introducing new technologies across a high volume fleet. Nonetheless, 
Ford indicated that it was committed to taking additional actions 
beyond those it already planned to achieve the ``difficult'' standards 
as proposed.
    General Motors submitted the most extensive comments, challenging 
many of the agency's assumptions and arguing that the agency had 
overestimated that company's ability to achieve the proposed CAFE 
levels. General Motors pointed out computational errors and lead-time 
considerations that, it contended, render our proposal technologically 
infeasible and economically impracticable. We will discuss the various 
issues raised by General Motors and other manufacturers more fully 
below.
    While the above discussion very briefly describes the comments 
submitted by the various interested parties, the following summary sets 
forth the comments by topic. In some cases, we have provided or 
summarized the agency's response in this section. In other cases, our 
response to the comments is embedded in the more detailed analysis of 
the technological and economic issues discussed later in this document.

A. Technological Comments

1. Relationship Between Technology Analyses
    General Motors commented that the ``Stage'' and Volpe analyses 
consider different technologies. General Motors said that it believed 
that due to the differences in the two analyses, there was a 
substantial gap in the rulemaking record. General Motors also stated 
that NHTSA has neither presented the costs of the improvements that it 
used in the Stage analysis nor vouched for the feasibility of the 
technology applications used in the Volpe analysis.
2. Technology Application Algorithm Methodology
    General Motors stated that Volpe's algorithm suffers from the 
following methodological limitations: (1) Application of technologies 
to all trucklines in a single model year, (2) the addition and 
subsequent removal of some technologies, (3) the application of 
aerodynamic drag reduction to only some versions of a given nameplate.
3. Lead Time
    The Alliance of Automobile Manufacturers (Alliance), Ford Motor 
Company (Ford), and General Motors stated that NHTSA's analysis 
inadequately considered lead-time requirements for adding existing fuel 
technologies and for developing new technologies, and overestimated the 
number of vehicle models to which technologies could be added in a 
single model year. General Motors and Ford submitted confidential 
comments responding to the particular technological advances 
contemplated in the NPRM. General Motors, Ford, DaimlerChrysler and the 
Alliance expressed concern with the simultaneous application of some 
technologies to all of a given manufacturer's products and stated that 
technologies cannot be incorporated in every vehicle at the same time. 
General Motors and DaimlerChrysler further claimed that NHTSA paid 
little attention to product life cycles or the need for lead-time. The 
National Automobile Dealers Association (NADA) commented that any CAFE 
standard set too high might prematurely force technological changes, 
resulting in decreased vehicle performance, reliability, and/or 
marketability. Honda asserted that development lead-time is essential 
to enhancing fuel economy without degrading safety. Union of Concerned 
Scientists contended that automobile manufacturers could incorporate 
fuel-efficient technology into vehicles faster than assumed in the 
NHTSA analysis.
    We have reviewed our analysis in light of these comments and, where 
appropriate, have incorporated additional lead time into the analysis 
by applying some technologies in MYs 2006 or 2007, rather than in MY 
2005. The establishment of CAFE standards over a period of years allows 
us both to ensure that the standards are reasonably within the 
industry's projected capabilities without incurring adverse economic 
and safety consequences, and to encourage progress in technological 
advances to enhance fuel economy

[[Page 16875]]

performance during the later model years covered by the regulation.
4. Implementation Risks in Forecasted Technological Improvements
    General Motors, Ford, DaimlerChrysler and the Alliance suggested 
that NHTSA must fully account for implementation risks in its forecast 
of technological improvements and that the proposed standards be 
lowered to account for the numerous technological and implementation 
risks that they may encounter. The Alliance stated that the following 
risks should be included: availability of technology options, cost of 
technology, level of technology applied, success of each new technology 
in meeting its targets, range of product offerings, overall economic 
climate, customer requirements for utility, size, performance, usage 
patterns, options, powertrains, and the level of new regulations in 
vehicle safety and emissions. The Alliance also stated that risks 
cannot be reduced by assuming that an increase in the popularity of 
crossover vehicles may limit the future sales of full size utility 
vehicles or that consumers will consider traction control and limited 
slip differentials as replacements for 4WD in vehicles. DaimlerChrysler 
stated that NHTSA's projections are based on the highest and riskiest 
levels of technology and may not be attainable.
    General Motors provided specific estimates of suggested CAFE 
reductions to account for various risks, Ford suggested that NHTSA 
consider scenarios involving both high and low fuel economy estimates 
from each manufacturer, and DaimlerChrysler recommended reducing the 
standards to 20.9 mpg for MY 2005, 21.1 mpg for MY 2006 and 21.5 mpg 
for MY 2007. DaimlerChrysler stated that its current projected costs to 
improve fuel economy, taking into account the risks described in its 
submission to the RFC, are approximately four times higher than those 
projected by the agency in the NPRM. DaimlerChrysler provided no other 
analysis or data to support lowering the proposed CAFE standards.
    The companies also asserted that their projected CAFE performance 
tends to be overly optimistic and must often be reduced in light of 
actual market demand. Public advocates were skeptical of those claims 
and countered that the industry's tendency to market less fuel 
efficient vehicles, in lieu of marketing more fuel efficient vehicles, 
contributes to any discrepancy between projected and actual CAFE 
performance.
    As noted above, we have made adjustments in our technological 
analysis, where appropriate, to account for certain technology risks 
and included into our analysis additional lead time.
    The agency has at times included in its assessment of maximum 
feasible a ``risk factor'' to account for unforeseen external factors 
that may render reasonable efforts to comply inadequate to meet the 
standards. This was done, for example, when establishing light truck 
CAFE standards for MY 1995 and reducing passenger car standards for MYs 
1987-88. When faced with the necessity of lowering the statutorily 
established CAFE standard for passenger cars, the agency concluded that 
the risk that manufacturers would be forced to restrict product 
offerings to meet more challenging standards outweighed the risk that 
manufacturers could develop means to outperform the established CAFE 
level. The agency acted to adjust the passenger car standard just prior 
to the start of the 1987 model year and about a year before the advent 
of the 1988 model year, noting that as of that time the record showed 
that manufacturers had made good faith, but unsuccessful, compliance 
efforts.
    We do not believe the same type of ``risk factor'' is appropriate 
to apply to this rulemaking. While we recognize that the standard set 
for MY 2007 is an aggressive one in light of General Motor's current 
product plans, we also believe that technological advancements, market 
acceptance of hybrids and modern diesels, and other external factors 
could alter General Motor's relative position. Unlike the situation in 
the late 1980s, which included a risk factor when no lead time was 
possible, there remains sufficient lead time for a manufacturer whose 
current product plan may not yet project compliance to develop product 
offerings to enhance their currently projected CAFE performance. In 
addition, unlike any time in the past, the market is beginning to 
include vehicles with advanced technologies including hybrid electric 
and advanced diesel engines that are more fuel-efficient and that do 
not adversely affect safety or American jobs.
    Accordingly, unlike the situation presented to the agency in the 
late 1980s, current conditions and contingencies lead us to conclude 
that the potential harm of setting the light truck CAFE standard too 
low for MYs 2005-2007 outweighs the risk of setting it too high. As 
noted above, the agency intends to examine the manufacturers' pre and 
mid-model year fuel economy reports filed with NHTSA through December 
2004 and current market information, and consider the reasonableness of 
the efforts made by the manufacturers after this final rule to meet the 
MY 2007 standard. If appropriate, the agency could adjust the standard 
upward or downward.
5. Use of Weight Reduction To Meet Proposed Standards
    The Alliance, General Motors, Competitive Enterprise Institute, 
Insurance Institute for Highway Safety, and Lutter and Kravitz 
commented that manufacturers may reduce vehicle weight in response to 
the standards and that doing so would have negative safety 
implications. Competitive Enterprise Institute argued that the 
historical fact is that vehicle manufacturers tend to respond to CAFE 
standards by reducing the size of their fleets. Competitive Enterprise 
Institute also argued that higher CAFE standards would likely encourage 
sales of the smaller, less crashworthy SUVs at the expense of the 
larger, safest SUVs. In addition, that organization argued that higher 
CAFE standards would diminish the ongoing market trend toward larger, 
safer SUVs; that is, such standards would reduce or eliminate future 
upsizing. That organization stated that the agency's proposal fails to 
acknowledge or analyze these effects.
    American Honda Motor Co., Inc. (Honda), Environmental Defense, 
Union of Concerned Scientists, American Council for an Energy-Efficient 
Economy, and Center for Auto Safety argued that weight reduction is an 
important fuel economy strategy that may not have negative net safety 
implications, if it were limited to the largest and heaviest light 
trucks. The Sierra Club disagreed with the assumption that weight and 
safety are always inversely related and with the NAS report's 
conclusions about the safety impact of the current standards. It also 
commented that safety is a function of design, not size. Similarly, 
Environmental Defense argued that the NAS report and agency studies 
treat weight as the only vehicle attribute affecting safety and do not 
account for size, crashworthiness, compatibility and the general 
quality of the vehicle structure and its safety features. That 
organization and Public Citizen further argued that agency studies are 
unable to distinguish between the effects of vehicle weight and vehicle 
size. Public Citizen argued that any safety problem associated with 
changes in the fleet of light vehicles was largely due to increases in 
the overall divergence in vehicle weight within the light vehicle fleet 
caused by the growth in the number of light trucks and to the rollover 
proneness of light trucks.

[[Page 16876]]

Finally, Public Citizen argued that any safety concerns associated with 
downweighting are irrelevant when the focus is exclusively on CAFE 
standards for light trucks instead of those for both passenger cars and 
light trucks.
    We note that these comments reflect diverging views on the 
relationship between size and safety. Some commenters, such as CEI, 
embraced the proposition that increasing vehicle size always results in 
safety benefits. Others, such as Honda and Public Citizen, stated that 
they believe that other vehicle characteristics besides size have an 
impact on safety. For its part, Honda emphasized that vehicles can 
become lighter and still retain their size and ability to protect 
occupants. Public Citizen took the view that there are number of design 
characteristics that may impact the safety of light truck occupants and 
persons in other vehicles, including height and stability. Moreover, 
the organization indicated that fuel economy regulations having a 
potential to reduce or restrain the size of light trucks would have 
different safety impacts than those that might force changes in size to 
both cars and trucks.
    As discussed below, while manufacturers point out that weight 
reduction is a compliance option, the CAFE standards established by 
this final rule can be met without the need to reduce vehicle weight 
and we do not believe that manufacturers will employ weight reduction 
to meet the standards.
6. NHTSA's Proposed Standards and Projected Manufacturer Capabilities
    DaimlerChrysler, Ford, and General Motors commented that it would 
be difficult to comply with the proposed standards. Toyota agreed that 
it would be difficult for other companies to meet the standard. General 
Motors detailed what it views as flaws in the agency's analysis of its 
potential capability and also provided revised product plans exhibiting 
different CAFE values (higher for MYs 2005-2006 and lower for MY 2007) 
than those it previously submitted. Ford presented revised fleet 
projections that are lower than those contained in its response to the 
RFC and discussed technologies that the agency added to Ford's fleet 
which are not feasible.
    Public interest groups, based on public announcements by Ford and 
General Motors about improving fuel economy of SUVs and introduction of 
hybrids, supported higher standards than those proposed. Environmental 
Defense, Union of Concerned Scientists and Public Citizen presented 
analyses arguing that technology permits NHTSA to set a higher 
standard. The American Council for an Energy-Efficient Economy and 
Cummins argued that NHTSA should take diesel technologies into account 
in this rulemaking. Toyota asserted that it has applied more fuel-
efficient technologies, such as variable valve timing (VVT) and multi-
valve cylinder heads, than most other manufacturers. It suggested that 
the proposed standards would encourage the entire industry to similarly 
apply the best available technologies.
    We believe the standards established today are challenging enough 
to encourage the further development and implementation of fuel 
efficient technologies while also available enough within the 
applicable time frame to be economically practicable and feasible for 
the industry. As noted above, we have concluded that the standards set 
through this final rule represent the best overall balance of the 
statutory factors, and in addition are consistent with the protection 
of motor vehicle safety and American jobs.
7. Estimated Fuel Savings of Technologies
    Environmental Defense, American Council for an Energy-Efficient 
Economy, and Union of Concerned Scientists stated that NHTSA 
underestimated the fuel savings of the technologies it considered. 
Environmental Defense argued that some technologies can be optimized 
for increasing fuel economy, performance or other features and that 
NHTSA's analysis should use higher values more reflective of 
optimization for fuel economy purposes. In related comments, 
Environmental Defense and Union of Concerned Scientists argued also 
that the agency should hold vehicle weight and performance constant in 
determining future fuel economy capability instead of assuming 
continued increases in both.
    American Council for an Energy-Efficient Economy and Union of 
Concerned Scientists stated that the National Research Council (NRC/
NAS) values should have been used without reduction. More specifically, 
Environmental Defense disagreed with the agency's estimated 1-2 percent 
fuel economy benefit for VVT and variable value lift and timing (VVLT) 
technologies and claimed that published estimates show that optimal 
application of VVLT technology provides a 10-12 percent fuel economy 
benefit. Environmental Defense also disagreed with the agency's 0.5 
percent estimated benefit for automatic transmissions using aggressive 
shift logic, which, they state, shows fuel economy improvements of 9-12 
percent using 6-speed transmissions. American Council for an Energy 
Efficient Economy argued that NHTSA's limited consideration of only the 
technologies available to the Big 3 undercuts its estimates of 
achievable fuel economy and that NHTSA should have used the cost and 
benefit numbers from the NAS report.
    In the NPRM, the agency indicated that it did not expect 
manufacturers to deviate from existing plans for vehicle weight and 
performance in their efforts to comply with our proposal. At the same 
time, our NPRM contained, as Stage III of the Stage analysis, a 
projection that manufacturers could replace 6.0L and larger 
displacement engines with smaller displacement engines of similar 
design. Perhaps focusing more on the statement that NHTSA did not 
anticipate changes in weight and performance than on an analysis 
containing a cutback in engine sizes, some commenters stated that we 
failed to realize the fuel saving benefits that would have been 
realizable if determinations of future fuel economy capability had been 
premised upon limiting further increases in light truck mass and 
performance.
    CAFE standards must be economically practicable and, as we have 
observed before, consumers will not buy what they do not want. Forcing 
through regulation substantial deviation from product offerings based 
on projected consumer demand incurs a risk of running afoul of 
economical practicability. At the same time, maximum feasible fuel 
economy standards should encourage the continuing development and use 
of more fuel-efficient technology. Current projections of consumer 
demand may not fully account for potential changes in consumer 
preferences that may accompany new entrants in the market, fluctuating 
fuel prices, and other factors that can affect actual CAFE performance. 
The agency therefore intends to monitor the compliance efforts of the 
manufacturers and to examine the manufacturers' pre and mid-model year 
fuel economy reports filed with NHTSA through December 2004 and current 
market information before the onset of MY 2007.
    As indicated below, our analysis and projection of manufacturer 
capabilities now relies on more optimistic fuel economy gains for some 
technologies, including low viscosity lubricants and low rolling 
resistance tires, than those contained in the NPRM. These revised 
values place the estimated fuel saving benefits of these technologies 
in line with the estimates contained in the NAS report.

[[Page 16877]]

    We do not agree, however, that either VVLT or improved shift logic 
will yield the benefits claimed by Environmental Defense. We note that 
the NAS panel was afforded an opportunity to review similar returns 
claimed for these technologies and did not, on an incremental basis 
similar to that used here by the agency, adopt the claimed values.\4\ 
In regard to the technologies used, NHTSA believes that the lead time 
available restricts the agency from assuming that manufacturers will be 
able to rely on advanced technologies that are not yet proven or 
available for use.
---------------------------------------------------------------------------

    \4\ Committee on the Effectiveness and Impact of Corporate 
Average Fuel Economy (CAFE) Standards, National Research Council, 
Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) 
Standards, Washington, DC, National Academy Press, 2002, p. 136.
---------------------------------------------------------------------------

8. Diesel Engines and HEVs
    Automobile manufacturers and their associations commented that 
NHTSA's exclusion of advanced diesels and hybrid electric vehicles 
(HEVs) from the technology analysis was appropriate given the emissions 
and cost challenges facing advanced diesels and HEVs, respectively. 
Environmental organizations and another commenter expressed greater 
optimism regarding diesels for consideration in setting the CAFE 
standard. The American Council for an Energy-Efficient Economy 
commented that NHTSA's technology analysis was inadequate because it 
excluded HEVs and diesels. Cummins stated that its diesel engine 
development program demonstrates a fuel economy improvement of 50 
percent-70 percent over gasoline engines. Cummins also stated that 
target engine availability is within the time frame proposed in the 
NPRM. The Alliance to Save Energy cited the Ford Escape HEV as 
surpassing most passenger cars in fuel economy and as providing support 
for the proposition that there is no technological reason for NHTSA not 
to require a significant increase in fuel economy standards for all 
light trucks.
    As described above, since the publication of the NPRM both public 
and private initiatives have been announced. These include a government 
initiative to develop, over the longer term, viable hydrogen fuel cell 
powered transportation and General Motor's initiative to begin to offer 
optional hybrid propulsion systems in light trucks. In addition, Ford 
Motor Company and DaimlerChrysler will offer hybrid and modern diesel 
Sport Utility Vehicles beginning with MY 2004. We believe it possible 
that an active market for hybrid and modern diesel vehicles may 
significantly enhance the actual fuel economy of the light truck fleet 
by MY 2007. The infusion by these companies and others of advanced 
technology vehicles into that market is an important step towards that 
development.
    Although we mentioned our support for the development of a market 
for the advanced diesels and hybrid electric vehicles in the NPRM, we 
did not incorporate them into the proposal because we did not have 
information on the extent of product offerings and marketing to 
generate public interest in them during MYs 2005-2007. For the final 
rule, we have incorporated hybrid and diesel vehicles incorporated into 
the manufacturers' product plans, but not beyond. We continue to note, 
however, that such vehicles may yet come to play an important role in 
the market by MY 2007.

B. Economic Comments

1. Cost of Specific Technologies
    General Motors, Ford, the Alliance and Toyota Motor North America, 
Inc. (Toyota) argued that manufacturer incremental costs are 
understated. Ford and General Motors asserted that NHTSA's analysis 
underestimates the costs for applying certain technologies and thus 
underestimates its costs per fuel economy improvement for those 
technologies. General Motors claimed that part of NHTSA's 
underestimation occurs as the result of a clerical error because NHTSA 
did not use the technology costs identified in its rulemaking support 
documents, but instead used much lower costs.
    General Motors also stated that the Volpe analysis assumes that all 
technologies will cost manufacturers the same amount for all models no 
matter how much progress has been made to date. General Motors stated 
that NHTSA's assumption that it can make improvements in these areas at 
the same rate and at the same costs to other manufacturers is 
incorrect. Public Citizen, Honda, and 20/20 Vision commented that fuel-
efficient vehicles, e.g., hybrids, could be manufactured for reasonable 
costs.
2. Projected Number of Sales
    General Motors and other manufacturers argued that the sales rate 
used by NHTSA for new model year vehicles during the first several 
months of a model year was too high (4.167 percent vs. 3.125 percent) 
and that the agency mistakenly assumed that all vehicles of a given 
model year would be on the road and in use by January 1 of the calendar 
year following the start of that model year. General Motors commented 
that NHTSA's benefit model does not accurately reflect the number of 
new vehicles on the road during the initial calendar years in which 
they were sold. General Motors provided a number that reduced the total 
societal benefits for the three years by $62M.
3. Impact on Consumer Choice
    General Motors asserted that some product restrictions might be 
necessary to achieve the proposed levels. The Recreational Vehicle 
Industry Association stated that reductions in size and towing capacity 
of light trucks resulting from proposed levels may restrict size, 
weight, and capacity offerings in trailers and conversion vehicles.
    The agency tentatively concluded in the NPRM that the standards 
would not lead to product restrictions or impede consumer choice. We 
believe that the CAFE standards established today will not diminish the 
existing vibrant market for light trucks, offering the public a wide 
array of features and functions. We further believe that sufficient 
lead time exists before MY 2007 such that technologies not currently 
within manufacturers' product plans and/or the development of a market 
for alternative propulsion systems may significantly enhance fuel 
economy performance without affecting the features and functions 
offered to consumers.
4. Baseline of 20.7 MPG
    The Alliance and Ford asserted that manufacturer incremental costs 
are understated because many manufacturers have already added 
significant costs in anticipation of the increased CAFE standards that 
are not included in the agency's incremental costs. The Alliance 
suggested that a more appropriate baseline would utilize data from the 
current model year assuming the manufacturers meet the 20.7 mpg CAFE 
standard absent technologies used in anticipation of future standards.
    Public Citizen argued that the agency relied too heavily on the 
manufacturers for the baseline mpg level and for estimated mpg levels 
for future model years. The Alliance to Save Energy argued that the 
proposal should have considered the manufacturers' voluntary 
commitments to improve the fuel economy of their fleets (citing Ford's 
2001 commitment to improve SUV fuel economy by 25 percent by 2005) and 
indicated that hybrid technology should have been weighted more in 
determining model year baselines.

[[Page 16878]]

    For reasons discussed below, we have estimated the incremental 
costs associated either with increasing CAFE from an average fuel 
economy standard of 20.7 mpg, or from the manufacturer's baseline, if 
over 20.7 mpg, to the newly established standard. We have accounted for 
incremental benefits the same way, and thereby have treated the 
incremental costs and the incremental benefits in the same manner.
5. Survival Rates by Age of Vehicle; Vehicle Miles Traveled
    The Alliance and Ford commented that the agency should recalculate 
costs using only a 25-year useful life, rather than a 30-year useful 
life. Ford stated that the assumed vehicle miles travel (VMT) growth 
rate of 1.8 percent is too high in comparison to recent experience and 
claimed that VMT instead has remained stable. Public interest groups 
criticized the agency for its use of a VMT baseline that they asserted 
was too low. Union of Concerned Scientists argued that NHTSA's estimate 
of VMT is low compared with other studies and underestimates the 
consumer benefits of fuel economy improvements. Union of Concerned 
Scientists cited survey data and stated that first year travel is over 
15,000 miles and does not lower to 12,000 miles for several years.
    The agency's analysis in the NPRM used a 25-year useful life. Data 
reflecting a previous assumption of a 30-year lifetime was 
inadvertently included in a spreadsheet placed in the docket, but these 
data were not used in the agency's calculations. We have decided to 
calculate VMT based on the Update of Fleet Characterization Data for 
Use in EPA's MOBILE6 program, EPA's most recent mobile source emission 
model.
6. Value of Externalities
    Citing various studies, the Alliance and General Motors asserted 
that NHTSA should not include any monopsony or supply disruption 
externality in its benefit analysis. The Alliance argued that the 
agency failed to address other externalities associated with an 
increase in the CAFE standard, such as increased congestion and highway 
fatalities. The Mercatus Center commented that the link between energy 
security and fuel economy is not well known, but suggested that it is 
likely close to zero.
    General Motors commented that increased travel resulting from the 
rebound effect would result in increased traffic crashes, injuries, and 
fatalities. Lutter and Kravitz commented that the economic analysis 
should include the external costs of increased accidents caused by 
additional driving due to the rebound effect and stated that estimates 
of marginal external accident costs range from 6 to 20 cents per 
vehicle mile.
    The Alliance, General Motors, and Lutter and Kravitz commented that 
the agency's economic analysis should include the external costs of 
increased congestion caused by additional driving due to the rebound 
effect. Lutter and Kravitz stated that the economic analysis should use 
estimates of congestion costs ranging from at least 6 to 10 cents per 
vehicle-mile.
    As discussed below, we have added costs attributable to increased 
congestion, noise and crashes resulting from the additional exposure 
associated with the rebound effect. We have also monetized the benefits 
associated with the time savings gained from the increase in the 
intervals between vehicle refuelings. We have otherwise determined that 
our values were consistent with the applicable literature.
7. Impact of Safety Standards on Vehicle Weight
    Comments from the Alliance, General Motors, and Ford claimed that 
NHTSA did not consider and/or underestimated the impact of several 
proposed safety standards. General Motors argued that to meet future 
safety standards and to voluntarily implement new safety features, 
manufacturers might be forced to reduce vehicle weight elsewhere on the 
vehicle to comply with the proposed CAFE standard. As discussed below, 
we have considered these concerns but do not agree that companies will 
be forced to limit safety related systems to comply with these CAFE 
standards.
8. Rebound Effect
    The Alliance, General Motors, and Ford urged the agency to use a 
value of 35 percent rather than 15 percent, with a sensitivity analysis 
of 20 percent to 50 percent. These commenters each based this 
recommendation on a recent survey article, Greening, Greene, and 
Difiglio (Energy Policy 28 (2000) 389-401) and on the agreement of 
participants in ``Car Talk,'' a Clinton Administration dialogue on fuel 
economy among the auto industry, environmental organizations, think 
tanks, and government organizations. DaimlerChrysler seemed also to 
recommend a value of about 35 percent, stating, ``the commonly accepted 
price elasticity of VMT is a negative 3.5 percent, which means that a 
10 percent reduction in per mile vehicle fuel consumption actually only 
reduces fuel consumption by 7 percent.''
    The American Council for an Energy-Efficient Economy stated that it 
believes that a 15 percent rebound factor might be too high, based on 
the agency's statement that increasing fuel economy by 10 percent will 
produce an estimated 8-9 percent reduction in fuel use. According to 
that organization, this implies an assumption that the rebound effect 
is between 1 percent and 12 percent.
    In consideration of these comments, we have revised the estimate of 
the fuel economy rebound effect for light trucks used in this analysis 
from 15 percent to 20 percent. We recognize that the magnitude of the 
assumed rebound effect and the implications of any rebound effect are 
complex issues. NHTSA will continue to monitor relevant research for 
use in future CAFE rulemakings.
9. Present Value of Benefits (Including 7 Percent Discount Factor)
    Both Lutter and Kravitz and the Mercatus Center argued for discount 
rates higher than 7 percent. Lutter and Kravitz stated that the agency 
should have used a rate ranging from 7.6-10 percent, the average new 
car finance rate during 1984-95. The Mercatus Center argued that the 
discount rate should be much higher (14 percent-28 percent), since fuel 
economy should be treated as an irreversible investment. For reasons 
discussed below, we have decided to use the proposed discount rate of 7 
percent.
10. Impact of Higher Prices on Sales
    General Motors commented that an increase in light truck prices, 
due to fuel economy initiatives, above competitive pricing levels would 
be met by a disproportionate loss in unit sales to its competition. 
Honda stated that most customers would be willing to pay a little extra 
to buy a car with higher fuel economy but would not trade fuel economy 
for desired features. Public Citizen and 20/20 Vision commented that 
surveys illustrate that consumers are willing to pay more for vehicles 
that have a higher fuel economy.
    In response to comments, the agency has added to its analysis a 
discussion of impacts of higher prices of sales using a price 
elasticity of 1.0. The agency believes that higher light truck prices 
could shift some new vehicle sales from light trucks to automobiles and 
might also delay retirement and replacement of used vehicles. These 
issues are discussed more fully in the FEA.
11. Market Efficiency and Consumer Rationality
    The Alliance and General Motors commented that NHTSA has 
consistently overestimated consumer

[[Page 16879]]

demand for increased fuel economy. They stated further that automobile 
buyers are rational and informed and that vehicle producers effectively 
respond to the extent of their preferences for fuel economy.
    The Mercatus Center commented that NHTSA's analysis should include 
the foregone benefit to consumers from being unable to choose 
attributes they would prefer in a vehicle, e.g., a 6.0L engine in 
instead of a 5.3L engine.
    Lutter and Kravitz stated that NHTSA's analysis incorrectly assumes 
that consumers have inadequate information about vehicle fuel economy, 
and that they are unable to value correctly the future fuel savings 
resulting from improved fuel economy and as a consequence vehicle 
manufacturers supply inadequate levels of fuel economy. Public Citizen 
argued that there is no validity to the ``consumer choice'' argument 
made by manufacturers because vehicle offerings are driven, not by 
consumer choice, but by manufacturers' advertising.
    Many commenters asserted that NHTSA had made a determination that 
there is a market failure in the provision of vehicle fuel efficiency. 
In the NPRM, the agency did not make any such determination. NHTSA 
noted a paradox that cost-saving technologies appeared to be 
penetrating the market to only a limited extent and therefore sought 
public comment on possible sources of market failure.
    First, on the supply side of the vehicle market, it is well known 
that the light truck market is concentrated in three large producers 
who account for roughly 75 percent of market share, although there are 
a number of smaller producers that account for the remaining 25 
percent. As several commenters noted, there is substantial evidence of 
competition among producers in the light truck market and indications 
that the three large producers are under increasing competition from 
the smaller producers. Under these circumstances, NHTSA maintains its 
previous statement that there is only a ``remote'' possibility that a 
supply side failure in the marketplace accounts for the limited market 
penetration of cost-saving, fuel-saving technologies.
    Second, commenters discussed whether there could be a failure on 
the demand side of the market for fuel economy, rooted perhaps in the 
way that consumers perceive the private benefits of enhanced fuel 
economy and incorporate that information in their purchasing decisions. 
Several commenters noted that consumers are provided clear and 
substantial information about the fuel efficiency ratings of different 
vehicles, including information about the operating expenses associated 
with these fuel efficiency ratings. However, the argument for demand 
side failure may have less to do with the absence of consumer 
information about fuel efficiency than with the overall complexity of 
the vehicle-purchasing decision, the number of other factors of greater 
salience to consumers, the temporal aspects of ownership and resale, 
and the difficulty of weighing fuel efficiency differences against 
other (especially nonmonetary) attributes of vehicles. Rational 
consumers, cognizant of decision making costs, may use simplified 
decision rules when purchasing vehicles that give limited, diminished 
or no weight to fuel economy differences--at least when projected fuel 
prices are relatively low. The agency does not know whether this 
demand-side argument is true and did not receive much comment that 
supports or refutes it. The agency believes the plausibility of this 
argument is less remote than the supply-side argument but still quite 
speculative. Regardless of how consumers perceive fuel economy benefits 
when they make purchasing decisions, it is clear that consumers will 
experience the benefits of cost-saving technologies when they operate 
their vehicles--assuming the engineering-economics information 
underlying the NAS Report is accurate.

C. Environmental

1. Foreign/Domestic Refining Split
    General Motors disputed the agency's assumption that 45 percent of 
the reduction in fuel will come from domestic refineries and 55 percent 
will come from imported finished gasoline. General Motors stated that 
it believes that a 2000 Energy Information Administration's (EIA) study 
is the source of this estimate and that the study merely states that 55 
percent of U.S. petroleum needs are imported (in the form of crude and 
refined products) and that the other 45 percent are met from domestic 
sources. General Motors claimed that there is little evidence that 
these same proportions apply to reductions in fuel use and that U.S. 
refinery emissions are just as likely to remain the same as the 
baseline under the proposed standard and should not be credited against 
the rebound effect without substantiation. After considering a variety 
of data sources, we have decided to use a 50/50 split to account for 
reductions in refining.
2. Use of the GREET Model/Value of Emissions per Ton
    General Motors stated that NHTSA's benefits model incorrectly used 
emission factors from the ``Greenhouse Gases and Regulated Emissions in 
Transportation'' (GREET) model for refinery emissions. According to 
General Motors, NHTSA incorrectly included extraction emission factors 
in its analysis. General Motors calculated a reduced total societal 
benefit for three years of $3,000,000 based on this error.
    We agree with General Motors that we did not appropriately account 
for emissions reductions likely to result from gasoline savings. But we 
disagree with the contention that emissions attributable to petroleum 
extraction would be unaffected. Accordingly, we separated emission 
factors to account for different states in the petroleum cycle.
3. Greenhouse Gas Emissions for Carbon
    Environmental Defense requested that NHTSA place a value on the 
benefit of avoided greenhouse gas emissions, while also noting: ``the 
magnitude of the global warming externality is admittedly difficult to 
estimate.'' The value of avoiding greenhouse gas emissions is not 
quantifiable at this time. However, our analysis in the Environmental 
Assessment indicates that the established standards will result in an 
estimated 9.4 million metric tons of avoided greenhouse gas emissions 
over the 25-year lifetime of the vehicles (measured in terms of carbon 
equivalents).

D. Additional Comments

1. Limited-Line Light Truck Manufacturers
    Porsche AG, Porsche North America, Inc. (Porsche) urged NHTSA to 
establish a separate standard or standards for limited-line truck 
manufacturers, possibly using a graduated standard based on the number 
of light truck models offered. According to Porsche, smaller 
manufacturers are penalized because they do not sell small economy 
vehicles that are capable of producing offsetting credits.
    Limited-line manufacturers, according to Porsche, must struggle to 
meet CAFE because of their limited resources and a limited truck line 
that does not allow them to average their fleet fuel economy. 
Therefore, if their vehicle line does not meet the current standard, 
they must pay penalties or incur disproportionate costs in attempting 
to meet the applicable standard.
    With an annual worldwide production of more than 10,000

[[Page 16880]]

vehicles, Porsche agreed that it was foreclosed from applying for a 
manufacturer-specific fuel economy standard under the exemption 
provisions of 49 U.S.C. Sec.  32902(d). However, Porsche argued that 
worldwide consolidation of the automobile industry indicates that the 
10,000-vehicle threshold is no longer appropriate and should be raised. 
Barring any change to the threshold, which Porsche acknowledged is 
beyond NHTSA's authority, the company suggested that NHTSA is obligated 
to ensure that small limited-line manufacturers are not harmed. To 
fulfill this obligation, Porsche argued that the agency should follow 
an earlier precedent and establish a separate light truck standard for 
limited-line manufacturers as it did in 1980 and 1981.
    The agency does not agree with Porsche's suggestion that the 
company's particular circumstances support establishment of a separate 
fuel economy standard for limited-line manufacturers. We note that both 
full-line and limited line manufacturers have indicated that their 
product mix places them at a disadvantage in complying with CAFE. For 
some, having too many large trucks is a problem. For others, like 
Porsche, not having other more fuel-efficient trucks is the obstacle. 
In either case, the challenge of meeting is difficult for both classes 
of manufacturers.
    Porsche stated that it faces a disadvantage because it makes only a 
single high performance truck and has no ``legitimate'' opportunity to 
comply. Although some manufacturers have chosen to participate in 
market segments that make it easier for them to meet CAFE, we note that 
all manufacturers must meet particular challenges when complying with a 
standard. Porsche is correct in pointing out that NHTSA, in the very 
first years in which CAFE standards were in effect, established a 
separate light truck standard for light truck manufacturers who did not 
use passenger car engines in their trucks. This separate standard, 
promulgated in 1978, offered a degree of relief to International 
Harvester, a company struggling to meet both CAFE and emissions 
standards with limited resources.
    NHTSA finds it difficult to equate Porsche's present position with 
that of International Harvester in 1978. Unlike International 
Harvester, which had been producing a family of larger light trucks 
whose basic design remained unchanged from the early 1960's, Porsche 
began the design process knowing that CAFE standards would apply to its 
product. Porsche presumably entered the light truck market after 
determining that the costs of compliance or paying penalties were 
offset by the benefits of doing so. While the increase in CAFE 
standards established by this final rule will require that Porsche 
increase its efforts to build more fuel efficient light trucks, the 
company cannot state that its designs pre-date CAFE, that an increase 
in CAFE standards was not foreseeable or that it is not technologically 
feasible for Porsche to meet the standards.
    As indicated above, NHTSA does not believe that present market 
conditions dictate establishing a separate fuel economy standard for 
Porsche or other limited-line manufacturers. We are also not convinced 
by Porsche's argument that doing so would be consistent with 
Congressional intent. Porsche has correctly observed that NHTSA cannot 
modify the current statutory threshold for small manufacturers entitled 
to seek exemption from CAFE under 49 U.S.C. Sec.  32902(d). However, 
Porsche apparently believes that the existence of the exemption 
provision supports the larger notion that limited-line manufacturers 
are entitled to relief. We believe that the more logical conclusion is 
that in creating the exemption provision and limiting its 
applicability, Congress intended to restrict rather than expand NHTSA's 
authority to exempt manufacturers from CAFE.
2. Executive Order 12866
    General Motors and the Alliance also commented that neither the 
NPRM nor the Preliminary Economic Assessment (PEA) identified 
regulatory alternatives to raising CAFE standards for light trucks as 
required by Executive Order 12866, Regulatory Planning and Review. 
General Motors stated that, for example, raising the gas tax by 2.4 
cents per gallon would achieve the same fuel savings associated with 
NHTSA's proposal and would be 50 times less costly than NHTSA's 
proposal.
    NHTSA believes that the statutory structure and regulatory 
framework narrowly limit the regulatory alternatives that the agency 
can consider. The statute specifically requires NHTSA to establish the 
maximum feasible average fuel economy standard accounting for certain, 
specified considerations. Implicit in that analysis is consideration of 
the level at which the best balance of the statutory criteria can be 
achieved. We note that, unlike broader based empowering statutes, EPCA 
does not contemplate that the agency will address the nation's need to 
conserve energy through any alternatives other than the establishment 
of an average fuel economy standard applicable to a class or classes of 
non-passenger automobiles. We further note that, while General Motors 
points out that an increase in the gas tax may be a public policy 
alternative, it is not a regulatory alternative available under EPCA.
3. Confidential Business Information
    Consumer and environmental advocacy groups expressed frustration 
that they do not have access to the same confidential technological, 
financial and product data as the agency, and therefore are limited in 
their ability to critique and comment upon the agency's analysis. 
Environmental Defense argued that NHTSA's authorizing legislation 
states that the agency may withhold information only if the 
Administrator finds that disclosure of information would cause 
``significant competitive damage.''
    NHTSA considers EPCA's reference to ``significant competitive 
damage'' as being substantively synonymous with Exemption 4 of the 
Freedom of Information Act. We acknowledge the frustrations expressed 
by the consumer and environmental advocacy groups that they do not have 
access to the same confidential technological, financial and product 
data as the agency, and therefore are limited in their ability to 
critique the agency's analysis. We note, however, that Congress 
entrusted the establishment of appropriate corporate average fuel 
economy standards--and, indeed, the balancing of the express statutory 
and public policy considerations--to the Secretary of Transportation, 
who has in turn delegated that responsibility to the expertise of the 
National Highway Traffic Safety Administration. In the NPRM we provided 
detailed descriptions of the methodologies employed in our engineering 
and economic analysis. In doing so, we ensured that sufficient 
information was available for all to comment on the approach and 
fundamental assumptions used to conduct the analyses leading to the 
proposal and, ultimately, to this final rule.
4. Small Business Impacts
    The Recreational Vehicle Industry Association stated that the 
impacts of the required increases in light truck fuel economy on sales 
and production of trailers, other recreational vehicles that require 
towing, and conversion vehicles based on light trucks would be 
disproportionately or exclusively borne by small businesses.
    NHTSA does not believe that this standard will have an adverse 
effect on

[[Page 16881]]

the recreational vehicle industry. The agency has determined that the 
average fuel economy standards established in this final rule will not 
significantly impact product offerings or the utility available to 
consumers.
5. Dual Fuel Credits
    General Motors and the Alliance expressed concern that the agency 
had not yet finalized the proposed regulation extending the Alternative 
Motor Fuels Act of 1988 (AMFA) credits. They argued that, while NHTSA 
is not permitted to incorporate those credits into the CAFE standards 
(and thereby potentially eliminate the pure incentive Congress 
intended), the agency should consider the practical impact of the 
credits.
    On March 11, 2002, the agency published a proposal to extend the 
dual fuel vehicle credits that vehicle manufacturers can earn by 
producing vehicles capable of operating on gasoline and other types of 
fuel. (67 FR 10873). Since then, both the Senate and the House of 
Representatives passed bills that would statutorily extend the credits. 
The extension was also included in the conference energy bill (H.R. 4) 
in the last Congress.
    We will separately issue a final rule addressing the proposed 
extension of the AMFA credits. In the meanwhile, Congress has made 
clear that we may not take the existence or use of those credits into 
consideration when determining maximum feasible fuel economy levels. We 
have reviewed the legislative history surrounding the establishment of 
those credits to determine whether Congress would nonetheless expect 
the agency to acknowledge the existence of those credits when analyzing 
the costs and benefits associated with any proposed CAFE standard. We 
are skeptical that Congress would have expected the agency to assume 
technological costs, potential job losses or adverse safety 
consequences that, as a practical matter, are improbable in light of 
the AMFA credits. The legislative history, however, indicates that 
Congress expected these credits to be a pure incentive. Because 
consideration of costs and benefits is a critical component to 
determining the economic practicability of the proposed standard, we 
have concluded that the statute does not permit us to consider the 
impact of the AMFA credits when assessing the costs and benefits of 
proposed CAFE standards.

VII. Consideration of the Maximum Feasible Fuel Economy Levels

A. Technological Feasibility

1. General Motors
    Our December 2002 NPRM estimated that General Motors would be able 
to achieve a light truck CAFE of 20.97 mpg in 2005, 21.63 mpg in 2006, 
and 22.29 mpg in 2007. This estimate was based on the ``Stage'' 
analysis described above. Use of the ``Stage'' analysis yielded the 
following potential improvements to the General Motors light truck 
fleet:

                                Potential General Motors CAFE Improvements, mpg 1
----------------------------------------------------------------------------------------------------------------
                                                 Stage I      Stage II      Stage III                 Potential
                 Model year                   improvements  improvements  improvements     Total      CAFE, mpg.
----------------------------------------------------------------------------------------------------------------
2005........................................          .439          .466         .1065        1.012        20.97
2006........................................          .936          .502         .0616        1.500        21.63
2007........................................          .921          .496         .0825        1.499       22.29
----------------------------------------------------------------------------------------------------------------
1 Due to rounding, the individual improvements may not equal the potential CAFE for General Motors.

    As we indicated in the NPRM, NHTSA relied, in part, on information 
provided by General Motors to determine which Stage I technologies 
General Motors could employ in MYs 2005-2007 to enhance its fuel 
economy performance. Our analysis indicated that General Motors could 
employ five technologies by MY 2005 in certain parts of its light truck 
fleet and an additional three technologies in certain parts of its 
light truck fleet by MY 2006. In NHTSA's view, all of these 
technologies would continue to be used in future model years. We also 
used the numbers provided by General Motors for percentage increases in 
fuel economy in calculating the possible fuel economy increase 
attributable to each of these technologies.
    To determine how and when General Motors could employ Stage II 
technologies for MYs 2005-2007, NHTSA relied on General Motors' 
comments, the agency's own engineering judgment, and the submissions 
from other manufacturers. Our analysis indicated that General Motors 
could employ two technologies by MY 2005, and an additional technology 
by MY 2006. To determine possible fuel economy increases, NHTSA 
examined manufacturer-provided estimates for the percentage increases 
in fuel economy for each technology. We placed more credence on a value 
if a manufacturer had already introduced that specific technology, if 
it was in the NAS range of estimates, and if at least one other 
manufacturer provided a similar value for the fuel economy potential of 
that technology.
    In the Stage III analysis for the NPRM, the agency tentatively 
concluded that the bulk of General Motors models equipped with the 6.0L 
engines could be equipped instead with 5.3L engines without notably 
degrading their utility. We determined that, standing alone, this 
change to General Motors' MYs 2005-2007 light truck fleet would 
increase General Motors' CAFE by 0.1 mpg.
    As we indicated in our summary of the comments provided above, 
General Motors disagreed with NHTSA's projections and provided new and 
revised data to support its assertions. The company's February 2003 
submission indicates that General Motors believes it can achieve a CAFE 
of 20.4 mpg in MYs 2005 and 2006, and 20.6 mpg in MY 2007.
    General Motors pointed out clerical mistakes in the NPRM, such as 
double counting certain vehicles and technologies that were already 
being used by General Motors to meet the company's projected CAFE. 
General Motors stated that correcting for these clerical errors would 
lower NHTSA's assessment of General Motors CAFE by 0.08 mpg in MY 2005, 
0.18 mpg in MY 2006, and 0.16 mpg in MY 2007. Additionally, General 
Motors argued that NHTSA's technological assessment is too optimistic 
about the degree to which General Motors can improve its CAFE, 
particularly since NHTSA made no allowance for deterioration or 
``risk'' in its forecasts. General Motors also stated that NHTSA's 
projections of the company's capability to improve its CAFE ignored how 
little lead time General Motors had to implement changes to its MY 2005 
trucks `` which would begin production in July 2004.
    Compared to its May 2002 CAFE forecasts, General Motors' February 
2003 CAFE forecasts are higher for MYs 2005 and 2006, but lower for MY 
2007.

[[Page 16882]]

The updated forecasts involve several model changes, volume changes, 
and greater use of some of the technologies included in NHTSA's 
analyses. Based on these updated forecasts, General Motors provided its 
own computation of what General Motors' CAFE would be for MYs 2005-2007 
if either the Stage or Volpe technologies were added to General Motors' 
updated product plans without any instances of double counting. These 
projections indicated that the Stage analysis projected General Motors' 
attaining a CAFE of 21.20 mpg in MY 2005, 21.65 mpg in MY 2006 and 
21.75 mpg in MY 2007. Using the Volpe method, General Motors reported 
that its projected CAFE should be 21.12 mpg in MY 2005, 21.47 mpg in MY 
2006 and 21.70 mpg in MY 2007.
    The foregoing projections, according to General Motors, are still 
far too optimistic, even after the effects of double counting and other 
clerical errors are addressed. General Motors indicated that the 
agency's proposal included the use of technologies that could not be 
implemented in the time available, including some that were not yet 
ready for commercial application. In other instances, General Motors 
asserted that it had already exploited particular technologies to the 
extent possible. General Motors also indicated that both the ``Stage'' 
analysis and the Volpe analysis relied on projected improvements from 
certain technologies that were unrealistic.
    Accordingly, General Motors submitted its own estimates of benefits 
from the application of the same technologies. In many instances, these 
estimates were lower than those used by NHTSA. The company also 
disagreed with NHTSA's view in the NPRM that the displacement 
reductions envisioned in NHTSA's Stage III analysis--replacing a larger 
engine with a smaller one in some vehicles--were a practical means of 
improving fuel economy. According to General Motors, requiring the 
replacement of one engine with another constituted more than a change 
in a single vehicle. Instead, the company argued that such a change was 
the equivalent of prohibiting production of an entire model line. 
General Motors concluded that NHTSA's proposed CAFE standards are 
neither technologically feasible nor economically practicable.
    As it did for the NPRM, NHTSA used two methodologies to explore the 
potential for improvement in General Motors' fuel economy. One, the 
``Stage'' analysis, examined the potential use of various technologies 
and other means after separating these methods into three different 
``Stages'' and applying them to manufacturers in a designated sequence. 
The agency's ``Stage'' analysis, which is contained in the FEA that has 
been placed in the docket, corrected errors that General Motors had 
found in our earlier analysis.
    As was the case with the ``Stage'' analysis performed in support of 
the NPRM, we based our choices as to which technologies to apply on our 
review of manufacturer product plans. In the case of General Motors, 
the agency re-examined many of our preliminary findings about which 
technologies could be applied to improve General Motors' fuel economy 
and revised its estimates. In so doing, we noted that General Motors' 
May 2002 submission, submitted in response to our February 7, 2002 
request for comments, contained a number of references to technologies 
or returns on technologies that the company either abandoned or 
discounted in its February 14, 2003 submission. In some instances, our 
analysis was modified to reflect General Motors' February 2003 view of 
which measures could be employed. In others, we examined both the May 
2002 and February 2003 General Motors submissions to see if 
opportunities existed to expand the use of technologies that appeared 
to be consistent with General Motors' product plans as depicted in both 
documents. We also considered improvements from technologies that had 
been adopted by other manufacturers. Our analysis projected that some 
of these technologies could be used to improve fuel economy if General 
Motors expended additional effort to implement some of these changes.
    We further believe that, while there are technological and market 
risks associated with establishing a CAFE standard three model years 
beyond MY 2004, the last year for which a standard has been 
established, there is also the opportunity to incorporate further 
technological advancements to achieve the standard and beyond. We also 
believe that General Motors' projected CAFE capabilities may be further 
enhanced should consumers begin to demand more hybrid electric 
vehicles, diesel vehicles and cross-over utility vehicles and should 
General Motors expand its offerings in this arena to meet consumer 
demand.
    NHTSA believes that it is technologically feasible for General 
Motors to meet the standards established in this final rule. We note 
that our updated ``Stage'' analysis responds to General Motors'' most 
recent comments and projections by adjusting the use, introduction, and 
application of fuel economy improvements to conform better to General 
Motors' currently planned deployment of technologies. The agency also 
reexamined the application of several technologies to ensure that they 
were applied to vehicles suitable for their use. In so doing, NHTSA 
examined the way in which these technologies were being used by the 
industry. Our analysis applies technologies that are either already in 
use or are sufficiently mature to have been included by other 
manufacturers in their MY 2005-2007 product plans.
    Finally, our analysis did not rely on the use of clean diesel 
engines or the production of hybrids beyond those already planned by 
General Motors. However, the agency believes that the use of diesel 
engines and hybrid technology would enable General Motors to offset 
some of their anticipated risks of technical implementation and meet 
the new standard. Both of these technologies offer significant promise 
for increased fuel efficiency and one, if not both, could certainly be 
in place during MYs 2005-2007. Other external uncertainties, such as 
further technological development and fluctuating fuel prices that may 
affect consumer demand by MY 2007, could assist General Motors in 
achieving the standards established by this final rule.
    General Motors' comments also took issue with the validity and 
execution of NHTSA's ``Volpe'' analysis. As indicated in the PEA 
prepared in conjunction with our December 2002 NPRM, NHTSA computed the 
potential costs of its proposal through an analysis developed by the 
Volpe National Transportation Systems Center. This analysis used an 
algorithm that applied fuel economy technologies to different model 
lines based on the cost-effectiveness of each technology. General 
Motors argued that the Volpe analysis contained a number of errors, 
including some clerical and mathematical errors.
    The company also claimed that the Volpe analysis was illogical in 
the manner in which technologies were used and discarded without 
sufficient regard for capital costs. The analysis was also flawed, in 
General Motors' view, because the Volpe analysis applied different 
techniques for estimating costs than those employed in the Stage 
analysis to raise General Motors' fuel economy. Finally, General Motors 
also indicated that many of the technologies employed in the ``Volpe'' 
analysis were either not ready, did not deliver the fuel savings 
described or were, in many instances, not practicable for General 
Motors.

[[Page 16883]]

    The agency agrees that the Volpe analysis prepared for the NPRM 
contained clerical errors and, in some instances, applied and removed 
technologies without consideration of capital costs. We have remedied 
the clerical errors in our earlier Volpe analysis, changed our 
application of technologies to reflect the impact of repaying capital 
investments and modified the analysis so that the Volpe cost estimates 
are more nearly based on the technologies, or their equivalents, used 
by NHTSA in its updated Stage analysis. We have also performed a more 
traditional analysis of General Motors' projected costs by calculating 
the total cost of all the projected ``Stage'' technologies. As we are 
also using the Volpe methodology to calculate costs for the industry, 
as well as for General Motors, the Volpe methodology was also changed 
to reflect that capital costs might require employment of technologies 
for several years, rather than a single year. As is the case with the 
Stage analysis, the Volpe analysis was also changed to apply 
technologies in a manner more consistent with General Motors' 
projections of its product plans and capabilities. In so doing, we also 
examined the abilities and plans of the industry as a whole in 
determining which technologies could reasonably be used. As indicated 
in our discussion regarding costs, we believe that the Volpe analysis 
provides an accurate accounting of the potential aggregate costs of 
this final rule.
    After careful review of General Motors' comments, the agency 
modified its application of both the Stage analysis and the Volpe 
analysis. One Stage I technology was not applied as widely as it was in 
the NPRM. A Stage II technology that NHTSA had calculated could be 
widely introduced in MY 2005 is now being applied in phases in MYs 2006 
and 2007. Technologies that were not used in our analysis for the NPRM 
are now being applied as Stage II technologies. Finally, in regard to 
Stage III, our analysis no longer relies on General Motors' removing 
the existing 6.0L engine from some trucks and replacing it with a 
smaller V-8. As stated above, the possibility that forcing through 
regulation substantial deviation from product offerings based on 
projected consumer demand may impose unreasonable constraints on the 
market leads us to conclude that it is not appropriate to include such 
engine shifts in the Stage analysis. Nonetheless, market forces may yet 
independently favor further reassessment of product plans for which 
there remains adequate lead time.
    In addition to these changes in the technologies used and the way 
they were applied, we also changed our estimates of the improvements we 
expect to gain from certain technologies. In the case of low rolling 
resistance tires and low viscosity/low friction lubricants, the agency 
had previously estimated that these technologies would each yield a .5 
percent improvement in fuel economy. In response to criticisms that our 
values were either too low or too high, we decided to use the NAS mid-
range estimates (where available) since they were developed based on 
extensive study and review. Thus, we adopted a 1.3 percent improvement 
for low rolling resistance tires, which is the midpoint value projected 
by the NAS report.
    In the case of low friction/low viscosity lubricants, we indicated 
in the PEA accompanying the CAFE NPRM that these lubricants could yield 
anywhere from a 0.3 percent to 1.0 percent improvement in fuel economy. 
However, our calculations for the NPRM relied on a 0.5 percent 
improvement from low friction/low viscosity lubricants. After 
consideration of the potential benefits of these lubricants, we now 
anticipate, as did the NAS, that use of these oils will yield a 1 
percent improvement. In addition to changing the estimated returns for 
the preceding technologies, our analysis also reduced the percentage 
improvement related to improved cooling fans from 2.4 percent to 2.0 
percent.
    After correcting errors in our earlier analysis and making other 
changes as described above, our Stage analysis projects, based on 
General Motors' most recently submitted product plans, light truck CAFE 
estimates for that company of 20.96 mpg for MY 2005, 21.56 mpg for MY 
2006 and 21.99 mpg for MY 2007. Unlike many previous CAFE rulemakings, 
we are establishing light truck standards for three consecutive model 
years. This provides, especially as regards the third model year, MY 
2007, additional lead time for companies to develop compliance options 
not typically available when a standard is set just 18 months prior to 
a model year. We believe that, although General Motors' current product 
plans do not project that it will achieve a 22.2 mpg light truck CAFE 
without further adjustments, that the opportunity and technologies 
exist to make such adjustments technologically feasible and 
economically practicable for MY 2007. We note that, while Ford finds 
the standards ``challenging,'' that company stated that it would make 
just such adjustments to meet the standards.
    Further, the Volpe analysis (while principally a tool to assess 
costs and benefits) suggests a projection of 22.2 mpg for MY 2007 for 
General Motors. Rather than address General Motors' product plans on a 
model-by-model basis, the Volpe analysis estimates the company's 
projected CAFE capabilities through application of technologies 
available to the industry as a whole. The Volpe analysis suggests that 
the Stage analysis may present a conservative projection for MY 2007, 
given the additional lead time provided for that model year.
    Moreover, the CAFE statute does not contemplate that each standard 
automatically be set at the lowest projected level of the ``least 
capable manufacturer with a significant share of the market.'' Instead, 
it contemplates CAFE levels at the maximum level attainable within the 
industry as a whole without necessitating consequential adverse 
economic consequences. As noted above, this is the first time since 
1980 that the agency has simultaneously established light truck 
standards for more than two model years. As a result, we believe it to 
be within the intent of the statute to set more challenging--but still 
reasonable--CAFE levels during the year(s) furthest in the future.
    Indeed, the concept of the ``least capable manufacturer with a 
significant share of the market'' was intended to be a surrogate for 
analyzing whether employment reductions or other adverse economic 
consequences (including vehicle weight reductions) were necessary to 
meet the standards. While we have not pointed to particular measures 
based on current plans and projections that will bring General Motors' 
MY 2007 CAFE level to 22.2 mpg, that level may be achieved through 
additional technological improvements and the expansion of hybrid 
electric, diesel engine or cross-over utility vehicles in the 
marketplace. External market factors may also impact actual CAFE 
performance. As a result, we have determined that--for MY 2007, as well 
as MYs 2005 and 2006--the CAFE standards are technologically feasible, 
and economically practicable, for the industry as a whole despite being 
set at a level above the current projections for a company with a 
substantial share of the light truck market.
2. Ford
    Our December 2002 NPRM estimated, based on examination of Ford's 
product plans and use of the Stage analysis, that Ford could improve 
its light truck CAFE to 21.0 mpg for MY 2005, 21.6 mpg for MY 2006 and 
22.2 mpg for MY 2007.

[[Page 16884]]

The agency determined that Ford could reach these levels by raising its 
projected CAFE by an additional .08 mpg from 20.9 mpg in MY 2005 and an 
additional .19 mpg from 22.0 mpg in MY 2007. Ford's response to the 
NPRM did not specifically dispute NHTSA estimates for MYs 2005 and 
2006. However, Ford indicated that it believed the agency's projection 
for its CAFE for MY 2007 overstated the company's capability by as much 
as a tenth of a mile per gallon.
    In its response to the NPRM, Ford indicated that it viewed NHTSA's 
proposal as technologically challenging and submitted updated 
information about its product plans that supported this contention. At 
the same time, Ford indicated that it was committed to taking 
additional actions beyond those it already planned to achieve these 
``difficult'' standards. The company indicated, as did General Motors 
and other manufacturers, that the agency's proposal underestimated the 
leadtime needed to incorporate fuel economy improvements in vehicles as 
well as the difficulties of introducing new technologies across a large 
manufacturer's fleet. Ford also indicated that hybrid and advanced 
diesel technology are not mature enough to improve overall CAFE 
performance significantly. In Ford's view, the weight increases due to 
safety standards have been significantly underestimated. Ford also 
commented that NHTSA's proposal did not account for any risks that 
projected increases in fuel efficiency would not materialize. As a 
general matter, the company also said that increased sales of full-size 
trucks could erode its CAFE estimates in spite of its plans.
    In regard to specific changes to Ford's fleet projected by NHTSA, 
Ford argued that it could not take some of the measures that NHTSA had 
identified in the agency's Stage analysis. Some of these measures, 
according to Ford, would be much more costly than NHTSA estimated. 
Others, in Ford's view, had not yet been sufficiently proven to be 
suitable for use on MY 2005-2007 vehicles. Ford noted that NHTSA's use 
of some proven technologies would make it necessary for that company to 
expend tremendous resources. The company also noted that some 
technologies, although proven and presumably available, would not be 
acceptable to consumers.
    NHTSA projects that Ford has the technological capability to meet 
the light truck CAFE standards set forth in this final rule. After 
reviewing Ford's comments, NHTSA has undertaken a further analysis of 
the company's projected capabilities and the technologies available for 
improving Ford's CAFE. As with General Motors and DaimlerChrysler, the 
agency did not include expanded production of hybrid electric or diesel 
engines beyond those already included in each company's product plans. 
However, as noted above, we believe these advanced technologies are 
likely to offset some of the potential risks Ford anticipates and 
potentially may enhance CAFE performance beyond current projections. 
Further, our analysis continues to apply technologies as a means of 
improving fuel economy in lieu of weight reduction and downsizing.
    After reviewing Ford's comments, we made a number of revisions to 
our analysis. A more detailed account of these changes is found in the 
FEA accompanying this document. In general, we adjusted our estimates 
based on the updated product plans contained in Ford's comments. Using 
these plans, we considered the extent to which certain fuel economy 
measures are now being implemented within the industry and considered 
those technologies that will be sufficiently mature to be available in 
MYs 2005-2007. These technologies were then applied in a fashion 
consistent with how other manufacturers are using them and, in our 
view, consistent with Ford's projected capabilities.
    Ford's comments also indicated that it believed that NHTSA has 
seriously underestimated the weight penalty, and subsequent loss in 
fuel efficiency, caused by weight increases necessitated by safety 
standards. As indicated below in our discussion of the impact of other 
federal standards on fuel economy, NHTSA disagrees. Some of the weight 
penalties claimed by Ford are related to proposed requirements that are 
not yet final. Others are more speculative and based on agency 
initiatives that have not yet generated proposals. For rules that are 
already in place, NHTSA believes some of the Ford claims overestimate 
the impact.
    Based on the Stage analysis, Ford's projected light truck CAFE is 
20.96 mpg in MY 2005, 21.56 mpg in MY 2006 and 22.23 mpg in MY 2007. 
The Volpe analysis indicates that Ford can achieve 21.00 mpg for MY 
2005, 21.68 mpg for MY 2006, and 22.2 mpg for MY 2007.
3. DaimlerChrysler
    The agency's December 2002 NPRM projected that DaimlerChrysler was 
capable of achieving a light truck CAFE of 21.3 mpg for MY 2005, 21.6 
mpg for MY 2006 and 22.2 mpg for MY 2007. Although DaimlerChrysler's 
comments in response to the NPRM characterized the agency's proposal as 
extremely challenging, the company did not dispute that it was capable 
of achieving these levels of fuel economy. However, DaimlerChrysler 
commented that the foregoing fuel economy projections would remain 
valid only so long as DaimlerChrysler's planned technology advancements 
and product mix remained intact.
    The company warned that there were significant risks that expected 
fuel economy gains might not be realized or that consumer demand for 
less fuel efficient vehicles could cause a reduction in 
DaimlerChrysler's CAFE. Therefore, DaimlerChrysler suggested that NHTSA 
revise its proposal to reflect more accurately the risks faced by the 
company and other manufacturers in pursuing improved fuel economy. 
DaimlerChrysler indicated that the NHTSA proposal should be 20.9 mpg 
for MY 2005, 21.1 mpg for MY 2006 and 21.5 mpg for MY 2007.
    DaimlerChrysler indicated that reducing the agency's proposed 
levels was supported by a number of considerations. The company noted 
that NHTSA had not seemed to consider that there were any risks that 
technologies might not yield greater efficiency or consumers would 
demand less efficient vehicles. DaimlerChrysler stated that these risks 
were particularly significant given the short lead time available to 
manufacturers if any changes needed to be made to their products for 
MYs 2005-2007. According to DaimlerChrysler, it was essentially 
``locked in'' to its product plans for MYs 2005 and 2006. The company 
further indicated that even its MY 2007 product plans could only be 
changed in the most limited fashion. Due to this lack of leadtime, 
DaimlerChrysler cautioned NHTSA that it would not be possible for it, 
or any other vehicle manufacturer, to institute anything more than 
minor changes to its products through MY 2007.
    The Agency's Stage analysis projects that DaimlerChrysler can 
achieve 21.3 mpg for MY 2005, 21.6 mpg for MY 2006, and 22.2 mpg for MY 
2007. The Volpe analysis indicates that DaimlerChrysler can achieve 
21.32 mpg for MY 2005, 21.60 mpg for MY 2006, and 22.24 mpg for MY 
2007.
    NHTSA acknowledges that its proposal simply specified a single 
value for CAFE for each year rather than stating ranges for each of the 
three model years. This led a number of commenters to conclude that the 
agency did not account for any risks that consumer demand may shift or 
that technologies would not yield expected fuel savings. However, the 
agency is

[[Page 16885]]

aware of such risks and notes that these risks are also accompanied by 
opportunities. Just as there is a risk that consumers may demand less 
fuel-efficient vehicles, changes in market conditions could also 
stimulate a greater demand for more efficient vehicles. Additionally, a 
number of potential technologies, including clean diesel and hybrid 
vehicles, and the shift to more fuel efficient cross-over utility 
vehicles, may offer opportunities for greater fuel savings and may 
serve to offset some of the risk anticipated by DaimlerChrysler.
    The agency is certainly aware that vehicle manufacturers must have 
sufficient lead time to incorporate changes and new features into their 
vehicles. Similarly, NHTSA also recognizes that vehicle manufacturers 
follow design cycles when introducing or significantly modifying a 
product. This is why the agency has always been respectful of industry 
needs in this regard. At the same time, we also observe that 
competition has forced manufacturers to become considerably more agile 
in modifying and changing products to meet demand. This is evidenced by 
Ford's and General Motors' submitting revised product plans between May 
2002 and February 2003. Generally speaking, we believe that 
manufacturers have the same ability to meet market driven demands for 
design changes as those required by regulation. NHTSA believes that the 
requirements of this final rule do not impose technical demands beyond 
those that DaimlerChrysler or other manufacturers can meet in the 
allotted time.

B. Economic Practicability and Other Economic Issues

    The agency has estimated not only the anticipated costs that would 
be borne by General Motors, Ford and DaimlerChrysler to comply with the 
standards, but also the significance of the societal benefits 
anticipated to be achieved through direct and indirect fuel savings. In 
regard to manufacturer costs, the NPRM relied on the Volpe analysis to 
determine a probable range of costs. In preparing this final rule, we 
have prepared cost estimates using updated versions of both the Volpe 
analysis and the Stage analysis. We have concluded that these standards 
need not result in reductions in employment or competition, and that--
while challenging--they are achievable within the framework described 
above, and that they will benefit society considerably. For the sake of 
this analysis, we have translated the societal benefits into dollar 
values and compared those values to our estimated costs to the 
manufacturers for this final rule.
1. Costs
    After review of the comments submitted in response to the NPRM and 
performing further analysis, NHTSA estimates the average incremental 
cost per vehicle needed to meet the standards to be $22 for MY 2005, 
$67 for MY 2006, and $106 for MY 2007. The total incremental cost (the 
cost necessary to bring the corporate average fuel economy for light 
trucks from 20.7 mpg to the standards) is now estimated to be $170 
million for MY 2005, $537 million for MY 2006, and $862 million for MY 
2007.
    The level of additional expenditure necessary beyond already 
planned investment varies for each individual manufacturer. These 
individual expenditures are discussed in more detail in the FEA. In 
order to estimate them, the agency developed cost estimates for the 
various technologies that are available to and technologically feasible 
for vehicle manufacturers within the time frame covered by this final 
rule. These cost estimates were developed through use of a refined 
``Volpe'' analysis that incorporates a number of changes made in 
response to concerns pointed out by commenters.
    The differences between the costs projected in the NPRM and the 
costs now estimated for this final rule are significant and reflect 
changes in the agency's methodology, calculations and underlying 
assumptions. We note first that our analysis of which technologies are 
most likely to be used by manufacturers to improve fuel economy has 
changed markedly as a result of the comments and updated product plans 
submitted in response to the NPRM. The remainder of the difference 
between the two cost estimates stems from changes to our ``Volpe'' 
analysis. Although this methodology is more completely described in 
both the FEA accompanying the NPRM and the FEA accompanying this final 
rule, the final rule ``Volpe'' analysis relies on several inputs and 
uses an algorithm to calculate overall costs for fuel economy 
improvements.
    Manufacturer comments indicated dissatisfaction with the NPRM 
``Volpe'' analysis. The companies, General Motors in particular, argued 
that our analysis underestimated the costs for certain of those 
technologies, contained clerical and mathematical errors, and applied 
technologies with little or no regard for leadtime and proper 
allocation of capital investment. General Motors also noted that the 
Volpe analysis and the Stage analysis applied different technologies. 
While the Volpe analysis estimated costs using one set of technologies, 
the agency's Stage analysis supported the proposed new standards by 
relying on another. General Motors also indicated that many of the 
technologies employed in the ``Volpe'' analysis were either not ready, 
did not deliver the fuel savings described and were, in many instances, 
not practicable for General Motors.
    As indicated above, the agency reexamined and improved the Volpe 
analysis in response to the comments. As discussed in more detail in 
the FEA, we recalculated our assessment of the costs after remedying 
the clerical errors noted by General Motors. In contrast to the earlier 
``Volpe'' analysis used to calculate the costs set forth in the NPRM, 
cost estimates in the final rule Volpe analysis first assumed that 
manufacturers would apply technologies in a fashion more consistent 
with our ``Stage'' analysis. As explained below, this differed from our 
methodology used for the NPRM. Our NPRM ``Volpe'' analysis applied the 
cheapest technologies first and added new technologies largely in order 
of increasing cost.
    While our new analysis did not abandon the idea that less costly 
technologies would be used before those that are more costly (ranked on 
a cost per mpg investment basis), we considered both the order in which 
technologies are most likely to be used based on availability as well 
as cost. We also changed the methodology to recognize that capital 
costs require employment of technologies for several years, rather than 
a single year. Finally, we updated the Volpe analysis to include more 
accurate cost estimates for some technologies and increased benefits 
from others. In our view, this makes the Volpe analysis more consistent 
with the Stage analysis and better reflects actual conditions in the 
automotive industry.
    General Motors argued that restricting availability of large 
engines would impact on sales and result in job losses. Referring to 
its experience with one of its models that was simultaneously 
redesigned and given a new 6.0L engine, General Motors stated that a 
large increase in sales of this vehicle resulted when the 6.0L engine 
replaced a smaller predecessor. The company then stated that replacing 
the 6.0L with a newly designed smaller engine would result in lost 
sales. General Motors' argument implies that replacing the 6.0L engine 
in this model with a smaller engine would reduce sales to a level 
equivalent to its sales before the redesign.

[[Page 16886]]

    The Recreational Vehicle Industry Association commented that 
increases in light truck fuel economy could indirectly impact the sales 
and production of trailers, conversion vehicles and recreational 
vehicles by reducing the availability of suitably powerful light trucks 
and light truck chassis.
    The final rule is not based on any engine shifts. Forcing through 
regulation substantial deviation from product offerings may impose 
unreasonable constraints on the market. Thus, we conclude that it is 
not appropriate to include such engine shifts in the Stage analysis. 
Since the final rule would not other necessitate any such substantial 
deviation, NHTSA does not believe that this standard will have an 
adverse effect on the recreational vehicle industry.
    NHTSA's cost analysis recognizes the importance of the competitive 
market. We believe that the standards contained in this final rule will 
not limit the availability of vehicles that consumers need and want. We 
believe that the standards established in this final rule will not 
result in changes to power-to-weight ratios, towing capacity or cargo 
and passenger hauling ability. In short, the standards will not affect 
the utility of available vehicles and therefore should not affect 
consumer preferences for or against them. Since consumer choices will 
not be affected, neither will the production plans of any particular 
manufacturer.
2. Benefits to Society
    In the FEA, the agency analyzed the economic and environmental 
benefits of this final rule by estimating fuel savings over the 
lifetime of the model year (approximately 25 years).
    The agency's analysis estimated the undiscounted future impacts and 
then determined their present value using a 7 annual percent discount 
rate. We translated impacts other than direct fuel savings into dollar 
values and then factored them into our cumulative estimates. Adding 
indirect benefits to the direct benefits of fuel saved as a result of 
higher CAFE standards produced an incremental benefit to consumers, 
when reduced to present value, of $29 per vehicle for MY 2005, $83 per 
vehicle for MY 2006 and $121 per vehicle for MY 2007. The total present 
value of these direct and indirect benefits is estimated to be $218 
million for MY 2005, $645 million for MY 2006 and $955 million for MY 
2007.
    We obtained forecasts of light truck sales for future years from 
the EIA's Annual Energy Outlook 2002 (AEO 2002). Based on these 
forecasts, NHTSA estimated that approximately 7,654,000 light trucks 
would be sold in MY 2005. For MYs 2006 and 2007, we estimated 7,795,000 
and 7,922,000 light truck sales respectively.
    We estimated fuel economy performance for each future model year's 
light trucks under the current CAFE standard and with alternative 
standards in effect, using the agency's projections for the application 
of fuel saving technologies. We then assessed the economic value of 
annual fuel savings resulting from higher light truck CAFE standards by 
applying EIA's AEO 2002 forecast of future fuel prices to each year's 
estimated fuel savings. In turn, we estimated future fuel savings by 
dividing the total number of miles that the surviving population of 
vehicles of that model year are estimated to be driven by the average 
on-road fuel economy level associated with the base standard of 20.7 
mpg.
    NHTSA then assumed that if the same trucks met a higher CAFE 
standard when sold, their total fuel consumption during each subsequent 
calendar year could be calculated by dividing the increased number of 
miles they are driven as a result of the higher fuel economy resulting 
from that standard. The sum of these annual fuel savings over each 
calendar year that vehicles remain in service represents the cumulative 
fuel savings resulting from applying a stricter CAFE standard to light 
trucks produced during that model year.
    NHTSA's analysis of the benefits of external factors totaled $0.083 
per gallon of gasoline, including $0.048 for ``monopsony'' effect (the 
effect on the world market price of gasoline from reductions in U.S. 
demand), and $0.035 for reducing the threat of supply disruptions.
    In the FEA, we also analyzed the effect of the standards on vehicle 
and refinery emissions. Our analysis indicated that the MY 2005 
standard would result in a net reduction of criteria pollutants with a 
present value of $2.4 million. For MY 2006, this net reduction would 
have a present value of $8.0 million and for MY 2007 the net reduction 
of criteria pollutants would have a present value of $12.7 million.
    We obtained per mile emission rates using EPA's Mobile 6.2 motor 
vehicle emissions factor model. Then we monetized changes in total 
emission levels.\5\
---------------------------------------------------------------------------

    \5\ White House Office of Management and Budget, Office of 
Information and Regulatory Affairs, ``Report to Congress on the 
Benefits and Costs of Federal Regulations,'' 1998, p. 72. See also 
Office of Management and Budget, ``Draft Report to Congress on the 
Costs and Benefits of Federal Regulations: Notice,'' Federal 
Register, Volume 67, No. 60, Thursday, March 28, 2002, p. 15041. The 
values used for VOC, NOX, and SO2 are the midpoints of 
the ranges used by OMB. However, OMB does not provide a damage cost 
estimate for carbon monoxide (CO); the value used here was derived 
from Donald R. McCubbin and Mark A. Delucchi, ``The Health Costs of 
Motor-Vehicle-Related Air Pollution,'' Journal of Transport 
Economics and Policy, September 1999, Volume 33, part 3, pp. 253-86.
---------------------------------------------------------------------------

    Commenters questioned NHTSA's use of several of the variables and 
values used in the PEA and also in the Draft Environmental Assessment. 
In response to these comments, the agency further considered the use 
and accuracy of its chosen variables and values. In many cases, the 
agency concluded that, based upon current data and literature, it was 
correct in its determinations and has retained those variables or 
values. In other cases, the agency has decided to revise its 
assumptions and the estimates that they support. The agency's response 
to comments on the economic and environmental analyses is delineated 
below and a more detailed analysis is provided in the FEA and the 
Environmental Assessment.
a. Vehicle Miles Traveled and Survivability
    A VMT growth rate is a key parameter used to account for travel 
trends and to calculate the resulting vehicle emissions. The EPA's 
MOBILE6 air quality model, which is used by State and local governments 
to help them meet Clean Air Act requirements, was used in the analysis 
and incorporates a 1.8 percent VMT growth rate.
    Ford questioned whether the baseline on-road average annual VMT 
growth rate of 1.8 percent over the entire study period is accurate 
since, as it argues, historical data from the last ten years indicate 
that the VMT (per vehicle) has remained stable.
    The agency notes that the information provided by Ford is accurate 
when referring to, as Ford does, VMT per vehicle per year. However, the 
1.8 percent VMT growth rate used in the Environmental Assessment refers 
not to the per-vehicle VMT, but to fleet VMT per year. Historical data 
show that the VMT per year for the light-duty vehicle fleet has been 
increasing and this trend is expected to continue. The value of 1.8 
percent was derived from the AEO 2002 report published by the EIA. EIA 
uses data from the FHWA Highway Statistics as inputs to its model and 
forecasts a growth rate of 1.8 percent for light-duty vehicles 
(combined) per year over the 2000-2020 period. Since the period covered 
by the agency's final rule falls within this period, the value 
projected by EIA is appropriate.

[[Page 16887]]

    In both the NPRM and PEA, we stated that we had performed an 
analysis of the environmental impacts of the proposed CAFE standards by 
estimating fuel savings over the life of the vehicle. The vehicle life 
extends from the initial year in which the vehicle is offered for sale 
through approximately 25 years of use. A ``survival rate'' is assumed 
by applying estimates of the proportion of vehicles surviving at each 
age interval up to 25 years.
    Ford and the Alliance noted that notwithstanding those statements, 
the agency's spreadsheet of calculated fuel savings made calculations 
for vehicles up to the age of 30 instead of 25 years. They said that 
the agency should recalculate costs, using a 25-year useful life 
(vehicle age) and the survival rate from the latest Transportation 
Energy Data Book. NHTSA notes that it did use a 25-year useful life in 
its proposal and that an earlier assumption of a 30-year useful life 
was inadvertently placed in a spreadsheet provided to those commenters 
who requested it.
    In the analysis that accompanied the NPRM, NHTSA incorporated a 
baseline VMT estimate of 12,000 miles based upon an earlier NHTSA 
analysis of vehicle survivability and miles traveled. Union of 
Concerned Scientists argued that NHTSA's estimate of VMT is low 
compared with other studies and therefore the agency underestimates the 
fuel economy benefits. Union of Concerned Scientists urged NHTSA to use 
the mileage numbers provided in the Oak Ridge Transportation Data Book 
(15,000 miles) or the mileage used in the NAS analysis (15,600 miles in 
the first year, declining at 4.5 percent per year thereafter), instead 
of the 12,000 miles used in the PEA. After consideration of this issue, 
the agency has decided to calculate VMT based on the Update of Fleet 
Characterization Data for Use in EPA's MOBILE6 program. See Table VIII-
2 of FEA.
b. Discount Rate
    OMB requires government agencies to use a 7 percent discount rate 
as a base-case in their cost and benefit analyses.\6\ (OMB Circular A-
94 and Guidance of January 11, 1996) This approximates the average 
before tax rate of return to private capital in the U.S. economy, and 
represents, in general, the foregone returns (opportunity cost) that 
could have been received in private investments. With proper 
justification, agencies may supplement an analysis based on that rate 
with an analysis based on an alternative discount rate.
---------------------------------------------------------------------------

    \6\ For additional information about the use of discount rates 
in regulatory analysis, see OMB Draft Guidelines for the Conduct of 
Regulatory Analysis and the Format of Accounting Statements at 68 FR 
5513, 5521, February 3, 2003.
---------------------------------------------------------------------------

    Both Lutter and Kravitz and the Mercatus Center argued for higher 
discount rates. Lutter and Kravitz stated that the agency should have 
used a rate ranging from 7.6-10 percent, the average new car finance 
rate during 1984-95.
    The Mercatus Center argued that the discount rate should be much 
higher (14 percent-28 percent), since fuel economy should be treated as 
an irreversible investment. That organization stated that an example of 
an irreversible investment, in the business context, is a nuclear power 
plant, because it has large sunk costs that cannot be recovered should 
investment outcomes turn unfavorable. The Mercatus Center stated that 
households have limited portfolios of risky investments and may be 
unable to diversify away the risk of energy savings or other 
investments. It argued that to compensate for such risk, consumers 
require higher discount rates. The Mercatus Center claimed that the 
investment in fuel economy is a sunk cost at the time of purchase and 
cannot be reversed, should the consumer decided that the investment is 
unwarranted. That organization also cited empirical evidence of 
implicit consumer discount rates for energy efficiency in the 1970's 
and early 1980's in arguing for a much higher discount rate.
    After considering the comments, we have decided not to use an 
alternative discount rate.
    Discounting is required to adjust future impacts to a basis that is 
comparable with current impacts and to reflect society's preference for 
current consumption or investment opportunities. The appropriate basis 
for determining discount rates is the marginal opportunity cost of lost 
or displaced funds. When these funds involve capital investment, the 
marginal real rate of return on capital may be appropriate. The Office 
of Management and Budget has prescribed a 7 percent discount rate to 
represent the average before-tax rate of return to private capital in 
the U.S. economy. It approximates the opportunity cost of capital and 
is, according to OMB, `` * * * the appropriate discount rate to use 
whenever the main effect of a regulation is to displace or alter the 
use of capital in the private sector.'' The investments required to 
achieve fuel economy improvements will require some temporary 
displacement of capital. NHTSA consistently uses this discount rate in 
evaluating the impacts of its regulations.
c. Rebound Effect
    By reducing the amount of gasoline used and thus the cost of fuel 
per mile driven, higher CAFE standards are expected to result in a 
slight increase in annual miles driven per vehicle from the levels from 
those that would result if the MY 2004 standard of 20.7 mpg remained in 
effect. The resulting increase, termed the ``rebound effect,'' offsets 
part of the reduction in gasoline consumption that results from 
improved fuel efficiency.
    The magnitude of the rebound effect from higher CAFE standards for 
light-duty vehicles is typically derived from econometric estimates of 
the elasticity of vehicle use (either per vehicle or for an entire 
fleet) with respect to either fuel cost per mile driven or fuel economy 
measured in miles per gallon. In other words, these estimates examine 
the extent to which consumers are believed to respond to changes in 
fuel cost or fuel economy by driving more or less. Most recent 
estimates of the magnitude of the rebound effect for light-duty 
vehicles fall in the relatively narrow range of 10 percent to 20 
percent, which implies that increasing vehicle use will offset 10-20 
percent of the fuel savings resulting directly from an improvement in 
fuel economy. The NAS report concluded that the best estimate of the 
current rebound effect is 10-20 percent. On that basis, the NPRM used a 
value of 15 percent, the mid-point of the range in the NAS report.
    The Alliance, General Motors, and Ford urged the agency to use a 
value of 35 percent rather than 15 percent, with a sensitivity analysis 
of 20 percent to 50 percent. These commenters each based this 
recommendation on a recent survey article, Greening, Greene, and 
Difiglio (Energy Policy 28 (2000) 389-401) and on the agreement of 
participants in ``Car Talk,'' a Clinton Administration dialogue on fuel 
economy among the auto industry, environmental organizations, think 
tanks, and government organizations. DaimlerChrysler seemed also to 
recommend a value of about 35 percent, stating, ``the commonly accepted 
price elasticity of VMT is a negative 3.5 percent, which means that a 
10 percent reduction in per mile vehicle fuel consumption actually only 
reduces fuel consumption by 7 percent.''
    General Motors stated that the agency's 15 percent figure is not 
supported by most literature. It urged the agency to consider the 
comments it submitted in May 2002 and the research it cited. In its May 
2002 comments, General Motors stated that the Greening, Greene, and 
Difiglio article estimated

[[Page 16888]]

the rebound effect at between 20 and 50 percent. In its new comment, 
General Motors stated that this article reviewed 75 articles on the 
rebound effect, including 22 on automotive transport. The company 
stated that very few of the reviewed articles showed a rebound effect 
of less than 20 percent, except for the short term, and several of the 
reviewed articles showed a rebound effect of up to 50 percent. General 
Motors stated that a more thorough review of the literature would have 
led NHTSA to use a rebound estimate of more than 20 percent.
    General Motors included as an attachment to its comment a study of 
costs and benefits prepared by Dr. Andrew N. Kleit. Dr. Kleit stated 
that a recent study (Greene et al., 1999) found a rebound effect of 20 
percent, and he employed that result in his study. Dr. Kleit also cited 
the Greening, Greene, and Difiglio survey article, and stated that a 20 
percent rebound effect is a conservative estimate. Dr. Kleit stated 
that the Congressional Budget Office, in a recent report on CAFE 
standards, also assumed a rebound effect of 20 percent.
    The American Council for an Energy Efficient Economy noted that, 
with regard to the rebound effect, NHTSA stated in the NPRM that 
increasing fuel economy by 10 percent would produce an estimated 8-9 
percent reduction in fuel economy. According to the Council, this 
implies that the rebound effect is between 1 percent and 12 percent, in 
contrast to the rebound effect of 15 percent used to calculate benefits 
reported in the agency's Preliminary Economic Analysis. The Council 
stated that clarification was necessary, and offered that a 15 percent 
rebound might be too high.
    After careful review of the studies in light of the comments, the 
agency has determined that a rebound effect of 20 percent is 
appropriate for this action. The agency disagrees with the comments of 
the Alliance, General Motors, Ford and DaimlerChrysler that a number 
higher than 20 percent should be used. The recent comprehensive 
analysis of the effectiveness of CAFE standards conducted by the NAS 
concluded that the best estimate of the current rebound effect was 10-
20 percent,\7\ and the agency's analysis of NAS' fuel saving estimates 
indicates that the 20 percent figure was used in deriving them. The 
NAS' estimate was based on a review of recent studies that focused 
specifically on the fuel economy rebound effect for light duty 
vehicles, rather than on more general consumer purchases of durable 
goods and other energy-saving devices, which formed the basis of some 
of the studies emphasized in the Greening, Greene, and Difiglio survey.
---------------------------------------------------------------------------

    \7\ Committee on the Effectiveness and Impact of Corporate 
Average Fuel Economy (CAFE) Standards, National Research Council, 
Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) 
Standards, Washington, D.C., National Academy Press, 2002, pp. 19-
20.
---------------------------------------------------------------------------

    The agency also believes that a careful analysis of the Greening, 
Greene and Difiglio survey on the rebound effect, which is a compendium 
of results of other studies surveying a wide range of rebound effects 
(including those associated with durable goods and energy-saving 
devices), shows that use of 20 percent for the rebound effect is 
reasonable when limiting the review to the studies analyzing vehicle 
use.
    In response to American Council for an Energy Efficient Economy's 
comments, the agency notes that an 8 percent reduction in fuel use in 
response to a 10 percent improvement in fuel economy means that 2 
percentage points of the fuel savings that would otherwise result from 
the 10 percent increase in fuel economy is offset by additional 
driving. This response implies a rebound effect ranging from 10 percent 
(calculated as 1 percent divided by 10 percent) to 20 percent (2 
percent divided by 10 percent), the range specified in the Preliminary 
Economic Analysis and also used in the Draft Environmental Assessment.
    The Alliance and General Motors contended that the additional miles 
traveled by virtue of the rebound effect could increase overall 
exposure to motor vehicle crashes. We note that we have now provided a 
value associated with the various potential consequences of increased 
exposure, including congestion, noise and crashes.
    We recognize that the magnitude of the assumed rebound effect and 
the implications of any rebound effect are complex issues. NHTSA will 
continue to monitor relevant research for use in future CAFE 
rulemakings.
d. Baseline of 20.7
    In our analysis, costs were estimated based on the specific 
technologies that were applied to improve each manufacturer's fuel 
economy from the level of the manufacturer's plans up to the level of 
the final rule. Benefits were also determined from the level of the 
manufacturer's plans up to the level of the final rule. If the 
manufacturer's plans did not reach the level of the MY 2004 standard, 
20.7 mpg, the costs and benefits were estimated based on the specific 
technologies that were applied to improve each manufacturers' fuel 
economy from 20.7 mpg to the level of the final rule.
    The Alliance, Ford, General Motors, and DaimlerChrysler commented 
that the use of 20.7 mpg as a baseline for fleet-wide fuel economy was 
inappropriate because the 20.7 figure incorporates anticipated 
technologies and fuel economy gains which are not being credited in 
NHTSA's analyses. The Alliance suggested that a more appropriate 
baseline would utilize data from the current model year assuming the 
manufacturers meet the 20.7 mpg CAFE standard absent technologies used 
in anticipation of future standards. Alliance to Save Energy and Public 
Citizen, on the other hand, claimed that NHTSA relied too heavily on 
this baseline, as well as manufacturers' projections, and should have 
given greater consideration to manufacturers' earlier voluntary 
commitments to improve fuel economy of their light trucks fleets by 
2007.
    NHTSA continues to believe that 20.7 mpg is a valid baseline 
measure for fuel economy for several reasons. First, manufacturers are 
required to achieve a standard of 20.7 mpg standard through MY 2004. 
Second, the agency considers both the costs and benefits for a 
manufacturer to meet the new standards from either the level of the 
manufacturer's plans up to the level of the final rule or 20.7 mpg up 
to the level of the final rule. The costs to manufacturers of meeting 
the new standard have not been ignored in our analysis. Finally, the 
agency continues to believe that using manufacturers' projections in 
determining their fleet wide fuel economy is the most practical means 
of determining those figures. These projections are the only means by 
which the agency can account for the planned introduction of new 
vehicle models.
    The NPRM addressed the issue of manufacturers' earlier voluntary 
commitments to fuel economy. We noted that, in response to the agency's 
Request for Comments, DaimlerChrysler, Ford and General Motors 
clarified their public commitments relating to fuel economy 
improvements in their vehicles. More specifically, Ford clarified its 
July 2000 announcement that it planned to increase the fuel economy of 
its sport utility vehicle fleet by 25 percent by the 2005 calendar 
year. Ford stated that its plan calls for a significant fuel economy 
improvement in its existing fleet combined with the introduction of new 
SUVs with higher fuel economy capabilities. Ford also explained that 
its commitment uses MY 2000 as the base year and that the increase will 
become

[[Page 16889]]

effective with the introduction of the MY 2006 vehicles during the 
latter half of 2005.
    General Motors stated that its public announcement did not refer to 
its average fuel economy levels, but rather to its leadership in light 
truck fuel economy and its intent to remain the leader over the next 
five years. General Motors also made clear that its leadership relates 
to the manufacture and sale of more fuel-efficient light trucks as 
measured through model-to-model comparisons of comparable vehicles.
    Finally, DaimlerChrysler stated that it is committed to improving 
the fuel efficiency of all of its vehicles and that its fleet will 
match or exceed those of other full-line manufacturers.
e. Fraction of Calendar Year
    General Motors commented that our assumptions regarding the 
fraction of the calendar year that new model vehicles are on the road 
should be adjusted downward, apparently to reflect the fact that most 
new vehicles are not in service for the entire calendar year in which 
they are sold. We note that our previous analyses did adjust for the 
fact that new vehicles are typically in service for less than twelve 
months during the year in which they are sold, although we used a 
slightly different procedure than that suggested in General Motors' 
comments. Instead of adjusting the estimated sales of vehicles of each 
model year downward during the calendar years when they are available 
for sale, as General Motors seems to recommend, we adjusted our 
estimates of light truck usage (average annual miles driven per 
vehicle) downward for those ages corresponding to the years when each 
model year is on sale.\8\ We believe that this procedure is consistent 
with that recommended by General Motors in its comments, and we have 
also applied it to the revised estimates of annual light truck use 
incorporated in our revised analyses.
---------------------------------------------------------------------------

    \8\ Specifically, our analysis adjusted the estimated usage 
figure for ``age zero'' light trucks (those sold during the calendar 
year preceding their model year) to assume that they are in service 
for an average of two months of the calendar year in which the 
vehicles of each model year are introduced. This assumption is 
intended to reflect the typical dates on which the vehicles of a 
model year are introduced and monthly sales patterns for recent 
model years. Similarly, we adjusted the usage figure for ``age 1'' 
light trucks (those sold during the same calendar year as their 
model year) using the assumptions that one-quarter of those vehicles 
had been purchased during the previous calendar year and were thus 
in service for the entire calendar year, and that the remaining 
three-quarters were purchased throughout the first eight months of 
the following year (and were thus in service for, on average, two-
thirds of that year). These assumptions are consistent with monthly 
sales patterns for recent model-year light trucks.
---------------------------------------------------------------------------

f. Value of Externalities
    The full economic cost of importing petroleum into the U.S. 
includes three components, or ``externalities,'' in addition to the 
purchase price of petroleum itself. These externalities are: (1) Demand 
costs representing the higher costs for oil imports resulting from the 
combined effect of U.S. import demand and OPEC market power on the 
world oil price (also known as ``monopsony'' power), (2) disruption 
costs representing the risk of reductions in U.S. economic input and 
disruption of the domestic economy caused by sudden reductions in the 
supply of imported oil to the U.S., and (3) military security and 
strategic petroleum reserve costs representing the costs for 
maintaining a U.S. presence to secure imported oil supplies from 
unstable regions and for maintaining the Strategic Petroleum Reserve 
(SPR) to cushion against resulting price increases.
    In the NPRM, we estimated that total value of externalities at 8.3 
cents per gallon. This figure combined 4.8 cents per gallon in demand 
costs (monopsony effect) and 3.5 cents per gallon in supply disruption 
costs. Because the costs of maintaining a SPR have not varied in 
response to changes in oil import level, our analysis did not include 
any costs savings from maintaining a smaller SPR among the external 
benefits of reducing gasoline consumption and petroleum imports by 
means of a higher CAFE standard for light-duty trucks.
    In response to our valuation of these externalities, the Alliance 
stated that an appropriate value for an oil import externality is zero 
because the sum of the externalities is exceedingly small. It argued 
that if the U.S. reduced oil consumption, it would, in theory, benefit 
from a reduction in oil price. The Alliance also pointed to studies by 
the Congressional Research Service and Bohi and Toman indicating that 
they question the existence of any significant externality associated 
with oil supply disruptions. Similarly, General Motors, citing to a 
study by Bohi and Toman of Resources for the Future, commented that 
NHTSA should not include monopsony power because U.S. monopsony pricing 
power has marginal benefits at best. Also, General Motors argues, 
citing to Bohi and Toman and a study by the Congressional Research 
Service, that disruption costs should not be included in the agency's 
analysis because the private sector uses hedges, inventories and the 
SPR to mitigate the risks from any significant market failure. The 
Mercatus Center stated that the link between energy security and fuel 
economy is not well known, but likely close to zero, because energy 
security relates to the price of oil, not its origin.
    NHTSA does not agree with commenters on the value of these 
externalities. The extent of monopsony power is dependent upon a 
complex set of factors including the relative importance of U.S. 
imports in the world oil market, and the sensitivity of petroleum 
supply and demand to its world price among other participants in the 
international oil market.
    As discussed in Chapter VIII of the FEA, most evidence appears to 
suggest that variation in U.S. demand for imported petroleum continues 
to exert some influence on world oil prices. A detailed and careful 
analysis by Leiby et al. (1993) estimated a range of values for this 
cost corresponding to approximately $1.00-$3.00 per barrel in today's 
dollar terms. Using the midpoint of this range, reducing the level of 
U.S. oil imports by raising CAFE standard to lower future gasoline use 
by light trucks results in benefits to the U.S. economy of 
approximately $0.48 per gallon of gasoline.
    With regard to disruption costs, while the vulnerability of the 
U.S. to oil price shocks is widely thought to depend on total petroleum 
consumption rather than on the level of oil imports, variation in 
imports is still likely to have some effect on the magnitude of the 
price increase resulting from any disruption of import supply. In 
addition, changing the quantity of petroleum imported into the U.S. may 
also affect the probability that such a disruption will occur. If 
either the size of the resulting price increase or the probability that 
U.S. oil imports will be disrupted is affected by the pre-disruption 
level of oil imports, the expected value of the costs stemming from the 
supply disruptions will also vary in response to the level of oil 
imports.
    Another detailed and exhaustive study by Leiby et al. (1997) 
estimates that, under reasonable assumptions about the probability that 
import supplies will be disrupted to varying degrees in the future, 
this component of the social costs of oil imports ranges from well 
under $10.00 to approximately $2.00 per additional barrel of oil 
imported by the U.S. The agency believes that an estimate of 
approximately $1.50 per barrel (or 3.5 cents per gallon) is reasonable 
for the disruption costs component of imported petroleum and that 
reductions in the level of oil imports resulting from

[[Page 16890]]

gasoline savings in response to a higher CAFE standard for light-duty 
trucks would reduce disruption costs by this amount in addition to the 
value of savings in gasoline itself.
    General Motors and Lutter and Kravitz commented that the agency's 
economic analysis should include the external costs of increased 
congestion, noise, and accidents caused by additional driving due to 
the rebound effect. While the agency views the values provided by 
Lutter and Kravitz and General Motors out of the mainstream of 
estimates, the agency has decided to add these costs into its analysis. 
The agency reviewed several sources for estimates, including FHWA, and 
determined that it will use a figure of 4.0 cents, 2.15 cents, and 0.06 
cents per vehicle-mile for congestion, accident, and noise costs, 
respectively.
    Both vehicle manufacturers and consumer groups commented on the 
effect of higher vehicle prices on sales. Consumer groups argued that 
consumers are willing to pay more for fuel economy. Honda, on the other 
hand, questioned whether consumers would trade other features for fuel 
economy and whether they would consider fuel economy savings beyond 
their ownership period. The agency has decided to add into its analysis 
a discussion of the impacts of higher prices on sales. Based on the 
economic literature, cited in Chapter VII of the FEA, a price 
elasticity of 1.0 is assumed. The agency believes that higher light 
truck prices could shift some new vehicle sales from light trucks to 
automobiles and might also delay retirement and replacement of used 
vehicles.
    The agency has also decided to provide a value associated with the 
benefits attained through refueling time saved over the lifetime of the 
vehicle. No direct estimates of the value of extended vehicle range 
were readily available, so our analysis calculates the reduction in the 
annual number of required refueling cycles that results from improved 
fuel economy, and applies DOT-recommended values of travel time savings 
to convert the resulting time savings to their economic value. (See 
Chapter VIII of the FEA for a detailed description of those values.) 
The estimated change in required refueling frequency reflects the 
increased light truck use associated with the rebound effect, as well 
as the increased driving range stemming from higher fuel economy. The 
present value of lifetime social benefit from extended vehicle range 
are estimated at $22.6 million for MY 2005, 73.2 million for MY 2006, 
and 107.7 million for MY 2007. We recognize that this value may 
represent an upper bound estimate of this benefit. Some people may 
periodically refuel their vehicles (e.g., each weekend) regardless of 
how much fuel they have.
g. Refinery Emissions/GREET
    In order to estimate the contribution of refinery emissions, we 
employed the GREET model in our analysis. The Draft Environmental 
Assessment included petroleum refining and distribution emissions as 
representative of ``upstream'' emissions. The agency calculated the 
changes in these upstream emissions under the proposal. General Motors 
commented that the agency incorrectly used extraction emissions factors 
in its analysis.
    Upon reviewing this issue, the agency agrees with General Motors' 
comment that we did not appropriately account for the emissions 
reductions likely to result from gasoline savings due to the agency's 
CAFE action. However, the agency disagrees with General Motors' 
contention that emissions attributable to petroleum extraction would be 
unaffected by the action and should thus be excluded from its analysis 
of the action's potential environmental impacts.
    In response to General Motors' comments, we have used information 
derived from the GREET model to disaggregate total emissions throughout 
the gasoline supply process into those occurring during each of the 
different stages in that process, and we have employed these 
disaggregated emission factors to develop more reliable estimates of 
the reduction in emissions associated with lower gasoline consumption 
by light trucks. Specifically, we have used information extracted from 
the GREET model to develop separate estimates of emissions that occur 
during each of four phases of the gasoline production and distribution 
process: crude oil extraction; crude oil storage and transportation to 
refineries; gasoline refining; and transportation, storage, and 
distribution of refined gasoline. (Emissions that occur during vehicle 
refueling at gasoline stations are included in our estimates of 
increased emissions from additional light truck use due to the rebound 
effect, and are presented separately in the analysis.)
    Our revised analysis incorporates the following assumptions in 
estimating the reductions in these emissions from lower gasoline use by 
light trucks: (1) Reductions in imports of gasoline reduce emissions 
associated with gasoline transportation, storage, and distribution; (2) 
reductions in domestic refining of gasoline from imported crude oil 
reduce emissions associated with crude oil transportation and storage, 
crude oil refining into gasoline, and gasoline transportation, storage, 
and distribution; and (3) reductions in domestic refining of gasoline 
from domestically-produced crude oil reduce emissions associated with 
crude oil extraction, crude oil transportation and storage, gasoline 
refining, and gasoline transportation, storage, and distribution.\9\
---------------------------------------------------------------------------

    \9\ In effect, these assumptions imply that the distance that 
crude oil typically travels to reach refineries is approximately the 
same regardless of whether it is transported from domestic oilfields 
or import terminals, and that the distance that domestically-refined 
gasoline travels from refineries to retail gasoline stations is 
approximately the same as foreign-refined gasoline must be 
transported from import terminals to these same gasoline stations.
---------------------------------------------------------------------------

    We use these assumptions in conjunction with the disaggregated 
emission factors for each phase of the gasoline supply process and 
assumptions regarding the reductions in imports and domestic refining 
of gasoline (see foreign-domestic split, below) attributable to fuel 
savings from this final rule. The resulting estimates of emissions 
reductions associated with gasoline supply and distribution are 
reflected in our calculations. We believe that these estimates respond 
to General Motors' concerns.
h. Foreign-Domestic Split
    In the NPRM, we assumed that 45 percent of the reduction in fuel 
use would be reflected in reduced domestic gasoline refining, and that 
the remaining 55 percent would be met by reduced imports of refined 
gasoline. We stated, ``Part of the fuel savings resulting from the 
Proposed Action leads to lower U.S. imports of refined gasoline, and 
thus does not affect refinery emission levels in the U.S. However, the 
remaining fuel savings are assumed to reduce the volume of gasoline 
refined within the U.S. (from either imported or domestically-produced 
crude petroleum), which produces a corresponding reduction in criteria 
pollutant refinery emissions. This analysis assumes 55 percent of 
refined gasoline is imported and 45 percent is refined domestically.'' 
This estimate was based on a detailed analysis of differences in 
gasoline consumption, imports, and domestic refining between the ``Low 
Economic Case'' and the ``Reference Case'' forecasts presented in the 
EIA's AEO 2002. (This analysis was conducted by EIA at the request of 
the agency.)
    General Motors questioned this assumption, stating that there is 
little evidence that this same proportion

[[Page 16891]]

would apply to reductions in fuel use under the proposal. General 
Motors cited new low sulfur fuel requirements and suggested that this 
might constrain the ability of foreign suppliers to meet U.S. refined 
fuel needs, with the result that a reduction in fuel consumption could 
lead to lower imports of refined gasoline rather than less refining in 
the U.S. General Motors also questioned the existence of emission 
reductions from domestic oil refineries based on the idea that they 
might fall under a cap and trade system, which would allow them to 
trade any potential reduction in emissions or adjust production to 
remain at the cap. Finally, General Motors commented that the domestic-
import split in refined gasoline should be examined in terms of its 
marginal effects on refinery and other sources of emissions during the 
gasoline supply process.
    In response to General Motors' comment about emissions caps, the 
agency contacted EPA, which stated that refineries are not regulated 
under any national cap and trade system. While refineries in States 
with Clean Air Act State Implementation Plans may be under some 
regulatory framework at the local or regional level, we found no 
regulatory programs that lead us to question the existence of real 
reductions in refinery emissions from baseline levels. General Motors' 
comment that the domestic-import split be examined in terms of its 
marginal effects on emissions is addressed elsewhere in this document.
    Based on the remainder of General Motors' comments, we have 
reexamined this issue and have determined that additional data are 
available to support a revised assumption about the distribution of 
CAFE fuel savings between savings in gasoline imports and reduced 
domestic refining. More detailed data obtained from EIA provide a 
direct measure of historical and current variations in imported and 
domestic sources of gasoline in response to variations in U.S. gasoline 
consumption. Although test data capture the integrated effect of all 
factors--not just fuel economy--that influence the market for gasoline, 
we believe that as observations rather than forecasts, they provide one 
reliable source of information related to this issue. According to the 
EIA, ``In 2001, United States refineries produced over 90 percent of 
the gasoline used in the United States.'' Current EIA data \10\ for the 
four-week period ending February 14, 2003 corroborate this figure by 
stating that 91.5 percent (7.939 MBPD) of the gasoline used by the U.S. 
during that period was refined domestically, and 8.5 percent (0.736 
MBPD) was imported. These data (although not on an on-the-margin basis) 
produce an estimate that approximately 90 percent of the reduction in 
fuel use from the proposed CAFE standard would be met by lower domestic 
refining, while the remaining 10 percent would be reflected in reduced 
imports of refined gasoline.
---------------------------------------------------------------------------

    \10\ www.eia.gov, ``This Week in Gasoline,'' four-week period 
ending February 14, 2003.
---------------------------------------------------------------------------

    Analysis of historical data concerning variations in gasoline 
consumption and imports reported by EIA supports a similar estimate of 
the likely response to gasoline savings. This analysis compares annual 
changes in domestic gasoline refining and gasoline imports to annual 
changes in U.S. gasoline consumption. From the period 1992 to 2002, 
growth in foreign refining accounted for 10 percent of the total growth 
in gasoline consumption.\11\ EPA has also assumed a similar 
distribution of reductions in domestic and foreign refining in some 
analyses of potential reductions in refinery emissions in response to 
gasoline savings.
---------------------------------------------------------------------------

    \11\ Calculated from data reported in Energy Information 
Administration, Monthly Energy Review Database, ``Petroleum,'' Table 
3.4 (http://www.eia.doe.gov/emeu/mer/mets/table3_4.xls).
---------------------------------------------------------------------------

    General Motors' criticism of the agency's analysis of refining 
emissions based on the theory that the pending low sulfur fuel 
regulations (part of the ``Tier 2'' regulations) \12\ might inhibit 
foreign refiners from being able to meet increased U.S. gasoline demand 
appears to misinterpret the analysis presented in the Draft 
Environmental Assessment. The Tier 2 regulations are not a part of the 
agency's CAFE action, but they do provide part of the backdrop against 
which we must evaluate our action. If the low sulfur requirements do 
result in an increased fraction of U.S. gasoline consumption being 
supplied by domestic refiners, as General Motors suggests, it follows 
that a similarly increased fraction of fuel savings resulting from the 
agency's CAFE action would be reflected in reduced domestic refining, 
with the result that the associated domestic emissions from gasoline 
refining would be reduced by more than would otherwise be the case. 
Thus General Motors' comment supports rather than undermines the 
agency's treatment of potential emissions reductions from reduced 
domestic refining.
---------------------------------------------------------------------------

    \12\ The Tier 2 limits on gasoline sulfur content are schedule 
to take effect beginning in 2006; for details, see EPA, Tier 2/
Gasoline Sulfur Final Rulemaking (http://www.epa.gov/otaq/tr2home.htm).
---------------------------------------------------------------------------

    We acknowledge, however, that the distribution of fuel savings 
between reductions in domestic refining (90 percent) and reductions in 
gasoline imports (the remaining 10 percent) discussed above differs 
from the distribution forecast by EIA's National Energy Modeling System 
(NEMS). Following DOE's release of the version of NEMS used to develop 
Annual Energy Outlook 2003 (AEO 2003), we used this modeling system to 
explore this issue more closely. To develop a baseline, we ran the 
model with all inputs at values provided by DOE for the AEO 2003 
reference case. To test the effects of the Proposed Action, we then ran 
the model after changing only those inputs corresponding to light truck 
CAFE standards. For each calendar year during 2006-2020, we calculated 
the extent to which these cases differed in terms of petroleum product 
consumption and imports. We then calculated the ratio between changes 
in imports and changes in consumption. Unexpectedly, total petroleum 
product imports were calculated to be 0.039 quads higher in 2006 with 
the proposed standards than in the reference case, although this was 
more than offset by a calculated 0.073 quad decline in crude oil 
imports. Thus, the above-mentioned ratio was -1.05 in 2006. However, 
during the rest of the period, petroleum product imports were 
calculated to be lower always with the proposed light truck standards 
than in the reference case, and the ratio of changes in petroleum 
product imports to changes in petroleum product consumption ranged from 
0.62 to 1.14. As for cumulative changes, the ratio was 0.97 during 
2006-2020 and 0.99 during 2007-2020. In other words, for every CAFE-
induced 100-gallon reduction in petroleum product consumption, NEMS 
predicted that petroleum product imports would fall by 97-99 gallons.
    We have discussed the disparity between these forecast trends and 
the implications of current and historic gasoline supply data with 
representatives of the Department of Energy (DOE) and EIA. They 
acknowledge that predicting the specific gasoline supply sources likely 
to be affected by the reductions in U.S. gasoline use associated with 
the new CAFE standards is extremely difficult and its results 
uncertain. DOE also indicated that the sources of changes in refined 
gasoline supply vary greatly by region of the U.S., with nearly all 
variation in gasoline demand on the East Coast met by changes in supply 
from foreign refiners, while changes in demand in other regions of the 
U.S. are

[[Page 16892]]

met almost entirely by changes in domestic refining activity. As a 
consequence, the specific geographic pattern of fuel savings resulting 
from the agency's action--which depends in turn on the distribution of 
light truck purchases and use--is likely to influence the mix of 
reduced gasoline imports and domestic refining that occurs in response 
to these fuel savings.
    The agency believes that the consistent association between changes 
in gasoline demand and domestic refining activity revealed in current 
and historical data is notable, and that the effect of the pending Tier 
2 fuel standards will reinforce this association. However, we also 
realize that the effects of future variation in gasoline demand on 
foreign and domestic sources of supply may differ from these historical 
patterns. Since the new CAFE standards will take effect in the future, 
the agency believes it is prudent also to consider these forecast 
changes in foreign and domestic gasoline supply in its analysis.
    In an effort to do so, as well as to recognize the uncertainty 
inherent in forecasting the future effects of lower gasoline demand on 
specific supply pathways, the agency has elected to assume that 50 
percent of the reduction in future light truck gasoline use resulting 
from its action will be reflected in reduced imports of refined 
gasoline, while the remaining 50 percent will be translated into 
reductions in domestic gasoline refining. The agency recognizes that 
neither historical data nor forecast trends indicate that changes in 
gasoline use are likely to have equal effects on gasoline imports and 
domestic refining. However, this assumed distribution represents a 
probability-weighted average impact of reduced gasoline consumption, 
which incorporates both the extreme range of possible outcomes 
suggested by historical and forecast data, as well as the approximately 
equal likelihood that either outcome will occur.
    The agency further assumes that the resulting decline in U.S. 
gasoline production will reduce domestic refiners' use of imported and 
domestic crude petroleum feedstocks in direct proportion to their 
current fractions of total U.S. refinery feedstock use. The 
implications of these assumptions for the resulting changes in 
emissions occurring during various phases of the gasoline supply chain 
are discussed in detail elsewhere in this document, addressing General 
Motors' concern that the agency examine the domestic-import split in 
terms of its marginal effects on refining and other sources of 
emissions.
i. Greenhouse/Carbon Emissions
    Environmental Defense requested that NHTSA place a value on the 
benefit of avoided greenhouse gas emissions, while also noting the 
magnitude of the global warming externality is admittedly difficult to 
estimate. The value of avoiding greenhouse gas emissions is 
unquantifiable at this time. However, our analysis in the Environmental 
Assessment indicates that if the proposed standards were adopted in the 
final rule, they would result in an estimated 9.4 million metric tons 
of avoided greenhouse gas emissions over the 25-year lifetime of the 
vehicles (measured in terms of carbon equivalents).
3. Comparison of Estimated Costs to Estimated Societal Benefits
    NHTSA estimates that the direct fuel-savings to consumers account 
for the majority of the total social benefits, and exceed the estimated 
costs of adopting more fuel-efficient technologies. In sum, the total 
incremental costs by model year compared to the incremental societal 
benefits by model year are as follows:

                          [Dollars in millions]
------------------------------------------------------------------------
                                                     Total
             Model year                  Total     societal       Net
                                         costs     benefits    benefits
------------------------------------------------------------------------
2005................................       $170        $218         $48
2006................................        537         645         108
2007................................        862         955          93
------------------------------------------------------------------------

    In light of these figures, we have concluded that the final rule 
serves the overall interests of the American people and is consistent 
with the balancing that Congress has directed us to do when 
establishing CAFE standards. For all the reasons stated above, we 
believe the final rule is economically practicable and, independently, 
that it is a cost beneficial advancement for American society.
a. Consumer Choice
    In their comments on the NPRM, automobile manufacturers argued that 
in a well-functioning market with fully informed consumers and 
manufacturers, consumers would take into account the savings to 
themselves associated with more fuel-efficient vehicles. Therefore, if 
the value of cumulative fuel savings exceeded the additional price and 
associated financing cost of purchasing a more fuel-efficient vehicle, 
consumers should be inclined to buy these vehicles and producers should 
be inclined to sell them. The Mercatus Center stated that the analysis 
should include foregone benefit to consumers from not being able to 
choose attributes they prefer in a vehicle.
    The automobile manufacturers and Mercatus Center raised these 
issues and arguments because they do not believe that there is a market 
failure in the market place. Many commenters asserted that NHTSA had 
made a determination that there is a market failure in the provision of 
vehicle fuel efficiency. In the NPRM, the agency did not make any such 
determination. NHTSA noted a paradox that cost-saving technologies 
appeared to be penetrating the market to only a limited extent and 
therefore sought public comment on possible sources of market failure.
    First, on the supply side of the vehicle market, it is well known 
that the light truck market is concentrated in three large producers 
who account for roughly 75 percent of market share, although there are 
a number of smaller producers that account for the remaining 25 
percent. As several commenters noted, there is substantial evidence of 
competition among producers in the light truck market and indications 
that the three large producers are under increasing competition from 
the smaller producers. Under these circumstances, NHTSA maintains its 
previous statement that there is only a ``remote'' possibility that a 
supply side failure in the marketplace accounts for the limited market 
penetration of cost-saving, fuel-saving technologies.
    Second, commenters discussed whether there could be a failure on 
the demand side of the market for fuel economy, rooted perhaps in the 
way that consumers perceive the private benefits of enhanced fuel 
economy and incorporate that information in their purchasing decisions. 
Several commenters noted that consumers are provided clear and 
substantial information about the fuel efficiency ratings of different 
vehicles, including information about the operating expenses associated 
with these fuel efficiency ratings. However, the argument for demand 
side failure may have less to do with the absence of consumer 
information about fuel efficiency than with the overall complexity of 
the vehicle-purchasing decision, the number of other factors of greater 
salience to consumers, the temporal aspects of ownership and resale, 
and the difficulty of weighing fuel efficiency differences against 
other (especially nonmonetary) attributes of vehicles. Rational 
consumers, cognizant of decision making costs, may use simplified 
decision rules when purchasing vehicles that give limited, diminished 
or no weight to fuel

[[Page 16893]]

economy differences--at least when projected fuel prices are relatively 
low. The agency does not know whether this demand-side argument is true 
and did not receive much comment that supports or refutes it. The 
agency believes the plausibility of this argument is less remote than 
the supply-side argument but still quite speculative. Regardless of how 
consumers perceive fuel economy benefits when they make purchasing 
decisions, it is clear that consumers will experience the benefits of 
cost-saving technologies when they operate their vehicles--assuming the 
engineering-economics information underlying the NAS Report is 
accurate.
b. EIA Analysis and Employment
    As part of the interagency review process, the EIA provided NHTSA 
with a preliminary analysis of the energy and economic impacts of an 
increase in light truck CAFE standards comparable to the proposed rule. 
NHTSA discussed this analysis in the NPRM and included a copy of it in 
the docket for the rulemaking. Specifically, EIA analyzed standards of 
21.2, 21.7, and 22.2 mpg for MYs 2005-2007, respectively. Using its 
NEMS, EIA's analysis indicated that the actual average fuel economy of 
new light trucks would increase to 21.7 mpg in MY 2005--well beyond the 
21.2 mpg required during that year--but would fall slightly short of 
the 22.2 mpg standard by MY 2007. The EIA analysis also projected that 
NHTSA's proposed rule would cause a greater increase in the cost of 
light trucks than estimated by NHTSA and a slight reduction in the 
average weight of light trucks. NHTSA estimated no weight reduction. 
EIA's estimates of fuel savings resulting from stricter CAFE standards 
for light trucks also appear to be larger than those calculated in 
NHTSA's analysis. Finally, EIA's projected effects on employment and 
real GDP are slightly negative through 2010, but become positive during 
2011 to 2020.
    The automobile industry commented that EIA's analysis differed from 
NHTSA's in that its projected effects on employment and real GDP are 
slightly negative through 2010, but become positive during 2011 to 
2020. Additionally, commenters noted that recent studies by the 
Congressional Budget Office and Professor Kleit concluded that CAFE 
standards are not cost-effective.
    As discussed in the NPRM, the differences in results of the two 
analyses of the proposed light truck standards stem primarily from 
differences in the underlying approaches of models. For example, the 
NEMS model effectively treats all manufacturers identically, while 
NHTSA's approach relies heavily on detailed manufacturer-specific data. 
As a result of these differences, NHTSA's approach has advantages for 
analyzing the effects of near-term modest increases, while the NEMS 
approach is more useful for analyzing longer-term industry-wide effects 
of larger increases in the standards. For shorter-term analysis of 
modest increases in required fuel economy levels, confidential 
information about the differences in the relative fuel economy 
capabilities of the individual manufacturers at the model-specific 
level is essential. This is because the technology application burdens 
and cost impacts imposed on individual manufacturers by the stricter 
standards will differ significantly. Where longer-term, industry-wide 
analysis of significant increases in CAFE standards is required, 
current differences in manufacturer capabilities become much less 
relevant. In addition, NEMS'' ability to estimate macroeconomic 
``feedbacks'' from stricter CAFE standards is very useful.
    20/20 Vision also commented on employment by stating that their 
study, ``Fuel Standards and Jobs,'' shows that raising CAFE standards 
by 20 percent in 2010 would net 70,000 jobs by 2010 and 30,000 jobs by 
2020. This study used a large-scale econometric 80-order interindustry 
model of the U.S. economy using the Management Information Services, 
Inc. (MISI) model. This model assumes no major market penetration of 
hybrid, fuel cell, or alternative fuel vehicles. Public Citizen cited 
``Drilling in Detroit,'' a report by the Union of Concerned Scientists, 
in support of the proposition that increased CAFE standards would lead 
to increased employment.
    Based on our analysis of the MISI assumptions, the actual 
employment effects of this rulemaking would be much less than that 
asserted by 20/20 Vision for a number of reasons.
    First, because 20/20 Vision's model assumed a 20 percent increase 
in CAFE for passenger cars and light trucks, and light trucks are about 
50 percent of the market, its estimates should be multiplied by 0.5 for 
this light truck rulemaking. Second, since the proposed CAFE standard 
increase by NHTSA is about 7 percent (22.2/20.7 mpg) rather than 20 
percent, if the model were linear, the estimate might be multiplied by 
0.35 (7/20).
    Third, the assumed cost impact ($700 per vehicle, which is related 
to the 20 percent increase in fuel economy) is disproportionately high 
compared to our estimate for this rule. Fourth, the MISI model 
translates increased expenditures for reconfigured motor vehicles into 
per unit outputs for that industry and support industries. This 
assumption is not appropriate. Many of the technology improvements 
would not increase the number of jobs. For example, moving from a 4-
speed to a 5-speed or 6-speed automatic transmission would result in 
very few additional jobs and changing tires would result in very few 
additional jobs. It appears that the MISI model assumes that these are 
increases rather than substitutions of technologies.
    Fifth, 20/20 Vision's analysis of a 30 percent increase in CAFE 
estimates an increase in the Motor Vehicle and Equipment Industry of 
about 155,000 jobs. This number seems implausible to the agency because 
there are currently only 900,00 jobs in the industry. Finally, the MISI 
model does not seem to take into account that higher prices potentially 
reduce sales and thus employment levels.

VIII. The Effect of Other Federal Vehicle Standards on Fuel Economy

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

A. Federal Motor Vehicle Safety Standards

    The agency has evaluated the impact of the Federal Motor Vehicle 
Safety Standards (FMVSS) using MY 2001 vehicles as a baseline. We have 
issued or proposed to issue a number of FMVSSs that become effective 
between the MY 2001 baseline and MY 2007. The fuel economy impact, if 
any, of these new requirements will take the form of increased vehicle 
weight resulting from the design changes needed to meet new FMVSSs.
    The average test weight (roughly equal to curb weight plus 300 
pounds) of the light truck fleet in MY 2001 was 4,501 pounds. The 
average test weight for General Motors, Ford, and DaimlerChrysler light 
trucks subject to the CAFE standard for MY 2001 was 4,627 pounds. The 
average test weight for light trucks of these three manufacturers is 
expected to increase slightly between MY 2001 and MY

[[Page 16894]]

2007. The change in weight includes all factors, such as changes in 
fleet mix of vehicles, required safety improvements, and voluntary 
safety improvements. Our review of new safety requirements that will 
apply to the MY 2005-2007 light truck fleet indicates that compliance 
with the following safety standards will have an impact on vehicle 
weight:
1. FMVSS 138, Tire Pressure Monitoring Systems
    As required by the Transportation Recall Enhancement, 
Accountability, and Documentation (TREAD) Act, NHTSA published a final 
rule in June 2002 (67 FR 38704) requiring Tire Pressure Monitoring 
Systems (TPMS) be installed in all passenger cars, multipurpose 
passenger vehicles, trucks and buses that have a GVWR of 10,000 pounds 
or less, effective in November 2003. We estimated that the added weight 
would be that of electrical parts weighing not more than half a pound 
(0.23 kilograms or less) per vehicle. Ford submitted comments 
indicating that NHTSA's projection underestimated the weight penalty 
for complying with this standard. However, Ford's suggested weight 
penalty was not significantly higher than that estimated by the agency 
and would not have any greater impact on fuel economy.
2. FMVSS 139, Tire Upgrade
    The TREAD Act mandated rulemaking to revise and update our safety 
performance requirements for tires. On March 5, 2002, NHTSA published a 
proposal to upgrade those requirements (67 FR 10050). Our Preliminary 
Economic Assessment for the proposed tire upgrade indicated there would 
be added cost for the improved tires but no increased weight. We also 
observed that changes to the required normal load ratings for passenger 
car tires might make it necessary for some of these vehicles to have 
larger tires, which would add an undetermined minimal amount of weight 
to those vehicles. In regard to light trucks, we observed that the 
agency's proposal would, for the first time, establish a maximum 
vehicle normal load rating for light truck tires but did not indicate 
if meeting the requirement would make it necessary for manufacturers to 
use larger rims and tires on their trucks.
    Both Ford and General Motors submitted comments indicating that the 
proposed requirements of FMVSS 139 could have significant impacts on 
fuel economy. Ford indicated that the agency's proposed rule would 
impose weight increases from a need to make tires heavier and for rims 
on vehicles to be larger. General Motors' comments indicated a belief 
that the proposed requirements could have a serious impact on fuel 
economy by increasing rolling resistance.
    Although NHTSA has not yet issued a final rule, the agency believes 
that the concerns raised by Ford and General Motors are not well 
founded. While General Motors did not indicate with specificity exactly 
why it believed that FMVSS 139 would increase rolling resistance, NHTSA 
believes that the standard is more likely to decrease rolling 
resistance. One component of NHTSA's proposal for FMVSS 139 is new 
requirements for high-speed endurance. Meeting these new endurance 
requirements is likely to result in tires that have less, rather than 
more, rolling resistance. One of the principal factors affecting tire 
endurance at high speeds is heat buildup in the tire. Tires with less 
rolling resistance generate less heat and have more endurance. 
Therefore, the new requirements are likely to encourage tires with less 
rolling resistance.
    Ford's concern, which indicated a weight penalty from heavier tires 
and rims, evidently stems from a concern that complying with new high 
speed test requirements in FMVSS 139 and application of the load 
reserve requirements of FMVSS 110 to light trucks will force 
manufacturers to use heavier tires and rims on these trucks. FMVSS 110 
specifies requirements for tire and rim selection for new vehicles. One 
purpose of these requirements is to prevent tire overloading by 
specifying that rims and tires provide a minimum load reserve.
    According to Ford, the agency's proposal to modify FMVSS 139 and 
110 to require light truck manufacturers to meet these load reserve 
requirements could, for those light trucks that did not already meet 
the new load reserve requirements, have the effect of making it 
necessary for manufacturers to use larger wheels and tires on their 
vehicles. However, NHTSA is currently evaluating its proposal in light 
of the public comments and has not yet issued a final rule. We 
anticipate that the agency's concerns relating to overloading will be 
addressed without creating a need to equip light trucks with larger 
wheels and tires.
3. FMVSS 201, Occupant Protection in Interior Impact
    This standard specifies requirements to afford protection for 
occupants from impacts with interior parts of the vehicle. On April 5, 
2000, NHTSA issued a proposal to require that the door frames on 
pillarless multi-door vehicles and seat belt mounting structures on 
soft top utility vehicles meet the upper interior head protection 
requirements of FMVSS 201. The proposed requirements would apply to 
passenger cars and to multipurpose vehicles, trucks, and buses with a 
GVWR of 10,000 pounds (4,536 kilograms) or less. Because these proposed 
requirements will apply only to a very small percentage of light 
vehicles, the agency believes that the requirements will not have an 
effect on the CAFE of any manufacturer. Finally, we note that none of 
the commenters attributed any fuel economy impacts to this standard.
4. FMVSS 202, Head Restraints
    In January 2001, the agency published a proposal to improve front 
seat head restraints in passenger cars, pickups, vans, and utility 
vehicles and require head restraints in the rear outboard positions (66 
FR 967). Because many pickup trucks and some vans do not have back 
seats, their average weight increase under that rulemaking would be 
lower than that for automobiles. NHTSA estimated the average weight 
gain for light trucks, vans and SUVs would be 4.3 pounds (1.94 
kilograms) per vehicle. The agency proposed three years leadtime for 
the head restraints final rule. Since that rule has not been issued 
yet, the earliest effective date would be September 1, 2006 or MY 2007. 
Therefore, any weight penalty would be limited to MY 2007.
    Ford was the only commenter to suggest that the FMVSS 202 
rulemaking might have any impact on CAFE, based on the proposal to 
require rear head restraints. The company estimated a weight penalty 
that was based on its view that the FMVSS 202 final rule would require 
head restraints in some rear seating positions presently not equipped 
with them. NHTSA notes that the asserted weight penalty would not 
affect the significant number of vehicles in the light truck fleet that 
do not have rear seats. Based on the distribution of potential rear 
seat head restraints across Ford's fleet, we agree that vehicles with 
rear seats might experience a weight penalty for compliance with FMVSS 
202 if rear seat head restraints were required. However, neither the 
weight increase estimated by Ford nor that estimated by the agency is 
significant enough to affect Ford's ability to meet the MY 2007 
standard.
5. FMVSS 208, Occupant Crash Protection
    On May 12, 2000, NHTSA published a final rule (65 FR 30680) 
amending our

[[Page 16895]]

occupant crash protection standard. The requirements of the final rule 
will be phased-in by increasing percentages during MYs 2005-2007. While 
only portions of the MY 2005 and MY 2006 fleets will be required to 
comply, all of the MY 2007 fleet will be required to comply. To comply, 
manufacturers will have to install air bag sensors, switches, status 
indicators, and associated electrical equipment. We estimate the 
average weight gain will be 3.4 pounds (1.54 kilograms).
    In Ford's view, significant additional weight would be required to 
meet the occupant protection requirements. Ford attributed some of this 
weight to air bag sensors and other equipment. Ford also anticipates 
additional weight increases as a result of efforts to comply with the 
planned rulemaking to establish frontal offset crash requirements. Ford 
did not, however, indicate which portion of the weight penalty it 
claimed was attributable to the May 2000 final rule, and which might be 
attributable to the frontal offset crash requirements. Based on our 
knowledge of the weight of items that would have to be installed to 
meet the May 2000 final rule, we believe that bulk of the claimed 
weight penalties for FMVSS 208 are related to the frontal offset crash 
requirements currently under study. The agency has not yet issued a 
frontal offset proposal, nor considered the model years to which any 
new requirements would apply.
6. FMVSS 225, Child Restraint Anchorage Systems
    On March 5, 1999, NHTSA published a final rule establishing FMVSS 
225, Child Restraint Anchorage Systems, requiring vehicle manufacturers 
to install child restraint anchorage systems that are standardized and 
independent of the vehicle seat belts (64 FR 10786). The FEA (February 
1999) for FMVSS 225 estimates the additional weight for improved 
anchorages will be less than 1 pound (0.45 kilogram). Ford believes 
that, in addition, some of its vehicles will require structural 
reinforcement to meet anchorage strength requirements in FMVSS 225. 
Ford alleges that NHTSA significantly underestimated the weight 
penalties imposed by these child restraint anchorage requirements and 
claimed that its CAFE efforts would be hampered by this added weight.
    We do not believe this FMVSS will adversely affect CAFE 
performance. Ford's claimed weight penalties appear to assume that all 
light trucks will require significant additional structure. However, we 
believe that any need for additional structure will be much more 
limited than Ford claims. Our estimate is that some additional weight 
will be necessary, but we do not believe that Ford provided compelling 
evidence to alter our assessment that the impact of the FMVSS 225 
requirements, will impose an inconsequential weight penalty with no 
adverse CAFE effect.
7. FMVSS 301, Fuel System Integrity
    On November 12, 2000, NHTSA published a proposal (65 FR 67693) to 
amend the fuel system integrity requirements for rear-end and side 
crashes and resulting fuel leaks. Although a few models (generally in 
the middle of their production lives) might require heavy additions 
such as a polymer guard for the bottom of the fuel tank, most would 
not. Many of the vehicles to be produced for MYs 2005-2007 have 
anticipated the new requirements and have been designed to comply with 
them. We believe manufacturers will be able to meet the new 
requirements through the addition of lightweight items such as flexible 
filler necks. We estimate the average weight gain for light trucks not 
currently built to the new requirements to be 0.24 pounds (0.11 
kilograms) per vehicle.
8. Cumulative Weight Impacts of the FMVSSs
    In total, NHTSA estimates that weight additions necessitated by the 
FMVSS requirements that will become effective between the MY 2001 fleet 
and MY 2007 fleet will average about 9.5 pounds per vehicle.
    NHTSA examined the changes in safety-related weight, regardless of 
whether mandatory or voluntary, from the plans submitted in response to 
the RFC and the NPRM to see if there were changes affecting their fuel 
economy levels. Only Ford took issue with our estimates of weight 
penalties and provided enough data for a complete analysis. Taken 
together, Ford's submissions in response to the RFC and the NPRM 
estimated weight impacts for complying with FMVSSs ranging from 
approximately 100 to 200 pounds per vehicle. Ford indicated that these 
weight impacts could reduce its fuel economy by approximately 0.20 mpg 
to 0.30 mpg. Our reading of Ford's comments indicates that the bulk of 
this weight increase is attributable to that company's belief that the 
agency will require light trucks to meet a frontal offset crash test 
requirement for FMVSS 208. Ford also attributes a significant weight 
increase to child restraint anchorage requirements and our current 
proposal to upgrade tire performance.
    The agency agrees that we must consider all of our regulatory 
programs, as well as those of other agencies, when establishing CAFE 
standards. We also agree that we should consider anticipated 
requirements as well as those that have been finalized. Having done so, 
however, we do not believe that new safety requirements likely to be 
applied to MYs 2005-2007 necessitate any reduction in the proposed 
standards. It appears that there is a small increase in safety related 
weight for FMVSS 225 for MYs 2005 and 2006 and a somewhat larger 
increase in safety related weight if a final rule incorporating the 
proposed requirements for FMVSS 202 is promulgated and applies to MY 
2007 light trucks. The CAFE penalties for these weight increases are 
too small to alter the agency's estimates of Ford's capabilities in 
these years. Further, the rulemaking process will allow for ample 
opportunities for manufacturers to comment and the agency to consider 
whether any future rulemakings will in fact be inconsistent with this 
final rule.

B. Federal Motor Vehicle Emissions Standards

    With input from EPA, NHTSA has evaluated the impact of a number of 
vehicle related emissions standards on fuel economy. In addition, 
NHTSA's Environmental Assessment examines how the CAFE standards impact 
air quality by affecting emissions of criteria pollutants. Many of 
these standards and regulations are currently being implemented through 
a multi-year phase-in. NHTSA believes there will not be any significant 
fuel economy impact between the MY 2001 baseline and MY 2007 resulting 
from federal or state emissions standards or regulations.
    The agency's position with regard to the relationship between state 
laws and our federal fuel economy responsibility was set forth in the 
NPRM and has not changed. The EPCA statute contains a preemption 
provision intended to ensure a unified federal program to address motor 
vehicle fuel economy. As a result of that statute, no state may adopt 
or enforce any law or regulation relating to fuel economy.
1. Tier 2 Requirements
    On February 10, 2000, EPA published a final rule (65 FR 6698) 
establishing new federal emissions standards for vehicles classified by 
EPA as passenger cars, light trucks and medium duty vehicles. These new 
emissions standards are known as Tier 2 standards. The Tier 2 standards 
marks the first time that the same set of federal emissions standards 
have been applied to all passenger cars, light trucks, and medium-duty 
passenger vehicles. Under the Tier 2 standards, light trucks include 
``light light-duty trucks'' (or

[[Page 16896]]

LLDTs), rated at less than 6000 pounds GVWR and ``heavy light-duty 
trucks'' (or HLDTs), rated at more than 6000 pounds GVWR. For new 
passenger cars and light LDTs, the Tier 2 standards phase-in beginning 
in MY 2004, and are to be fully phased-in by MY 2007. During the phase-
in period of MYs 2004-2007, all passenger cars and light LDTs not 
certified to the primary Tier 2 standards must meet an interim standard 
equivalent to the current National Low Emission Vehicle (NLEV) 
standards for light duty vehicles. In addition to establishing new 
emissions standards for vehicles, the Tier 2 standards also establish 
limits for the sulfur content of gasoline.
    General Motors and Ford very briefly suggested, without 
explanation, the Tier 2 standards might limit diesel sales. It was 
unclear whether they were referring to current or advanced diesels. We 
note that EPA, when issuing the Tier 2 standards, responded to comments 
its received regarding the impact of the Tier 2 standard and its impact 
on the Supplemental Federal Test Procedure and concluded that the Tier 
2 standards would not adversely affect fuel economy.

2. Onboard Refueling Vapor Recovery

    On April 6, 1994, EPA published a final rule (59 FR 16262) 
establishing requirements controlling vehicle-refueling emissions 
through the use of onboard refueling vapor recovery (ORVR) vehicle-
based systems. These requirements applied to light-duty vehicles 
beginning in MY 1998, and were phased-in over three model years. The 
ORVR requirements also apply to light-duty trucks with a gross vehicle 
weight rating up to 6000 lbs, beginning in MY 2001 and phasing-in over 
three model years at the same rate as for light-duty vehicles. For 
light-duty trucks with a gross vehicle weight rating of 6001-8500 lbs, 
the ORVR requirements first apply in MY 2004 and phase-in over three 
model years at the same rate as light-duty vehicles.
    The ORVR requirements impose a small weight penalty on vehicles as 
they necessitate the installation of vapor recovery canisters and 
associated tubing and hardware. In its comments, Honda indicated that 
it did not agree with the assertion in the NPRM that the ORVR system, 
which results in fuel vapors being made available for combustion, 
provides a fuel economy benefit offsetting the weight of the system.
    Assuming the correctness of Honda's argument that there are 
negligible fuel economy benefits from ORVR systems, we note that weight 
increases attributable to replacing older vapor recovery technology 
with ORVR compliant systems are not likely to be significant enough to 
have an impact on fuel economy.
3. Supplemental Federal Test Procedure
    The Federal Test Procedure (FTP) contains the test conditions and 
procedures used by the EPA when conducting new vehicle emissions and 
fuel economy tests. On October 26, 1996, EPA published a final rule (61 
FR 54852) revising the tailpipe emission portions of the Federal Test 
Procedure (FTP) for light-duty vehicles (LDVs) and light-duty trucks 
(LDTs). The revision created a Supplemental Federal Test Procedure 
(SFTP) designed to address shortcomings with the existing FTP in the 
representation of aggressive (high speed and/or high acceleration) 
driving behavior, rapid speed fluctuations, driving behavior following 
startup, and use of air conditioning. The SFTP also contains 
requirements designed to more accurately reflect real road forces on 
the test dynamometer. EPA chose to apply the SFTP requirements to 
trucks through a phase-in. Light-duty trucks with a gross vehicle 
weight rating (GVWR) up to 6000 lbs were subject to a three-year phase-
in ending in MY 2002. Heavy light-duty trucks, those with a GVWR 
greater than 6000 lbs but not greater than 8500 lbs, are subject to a 
phase-in in which 40 percent of each manufacturer's production must 
meet the SFTP requirements in MY 2002, 80 percent in MY 2003, and 100 
percent in MY 2004.
    MY 2004 is the final year of the SFTP requirement phase-in for 
light trucks subject to CAFE standards. Neither Ford nor General Motors 
indicated in their comments on the MY 2004 CAFE NPRM that the SFTP 
requirements would have any impact on their ability to meet the MY 2004 
standard.
    Although DaimlerChrysler has indicated that the changes to the FTP 
will have a disproportionately negative impact on light truck fuel 
economy, EPA has determined that the net effect on fuel economy for the 
recent test procedure changes is near zero. EPA considered the effects 
of four test changes: single-roll electric dynamometer with full-speed 
load simulation, elimination of the 10 percent air conditioning load 
factor, elimination of the 5,500 pound maximum test weight for cars, 
and improved test equipment. While some changes decreased measured fuel 
economy, others raised it. The net result was a near zero effect. This 
determination was based on the total fleet, which is a mix of front 
wheel drive and rear wheel drive cars and trucks.
    Considering light trucks alone is not likely to change that 
determination. The light truck fleet has a larger mix of rear wheel 
drive vehicles than the light vehicle fleet. This would lead to a 
slightly increased effect of the single roll dynamometer and thereby 
slightly lower measured fuel economy. However, the truck sub-class also 
has higher road load horsepower than the combined fleet. This would 
lead to slightly higher effects due to the elimination of the 10 
percent air conditioning load and thereby slightly higher measured fuel 
economy.
    Consequently, there is no need to adjust the CAFE standards for 
these test procedures. The net effect of the combined test procedure 
changes on the truck sub-class is still expected to be near zero.
4. California Air Resources Board LEV II and Section 177 States
    The State of California Low Emission Vehicle II regulations (LEV 
II) will apply to passenger cars and light trucks in MY 2004. The LEV 
II amendments restructure the light-duty truck category so that trucks 
with a gross vehicle weight rating of 8,500 pounds or lower are subject 
to the same low-emission vehicle standards as passenger cars. LEV II 
requirements also include more stringent emission standards for 
passenger car and light-duty truck LEVs and ultra low emission vehicles 
(ULEVs), and establish phase-in requirements that begin in 2004. During 
the initial year of the four-year phase-in, the LEV II standards 
require that 25 percent of production comply.
    The agency notes that compliance with increased emission 
requirements is most often achieved through more sophisticated 
combustion management. The improvements and refinement in engine 
controls to achieve this end generally improve fuel efficiency and have 
a positive impact on fuel economy.
    In summary, the agency believes that there will be no impact on 
fuel economy from emissions standards on light truck fuel economy 
between the baseline MY 2001 and MY 2007 fleets.

IX. The Need of the Nation To Conserve Energy

    EPCA specifically directs the Department to balance the 
technological and economic challenges with the nation's need to 
conserve energy. While EPCA grew out of the energy crisis of the 1970s, 
the United States still faces considerable energy challenges today. 
Increasingly, U.S. energy consumption has been outstripping U.S. energy

[[Page 16897]]

production. This imbalance, if allowed to continue, will inevitably 
undermine our economy, our standard of living, and our national 
security. (May 2001 National Energy Policy (NEP) Overview, p. viii)
    As was made clear in the first chapter of the NEP, efficient energy 
use and conservation are important elements of a comprehensive program 
to address the nation's current energy challenges:

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

(Page 1-1)
    Conserving energy, especially reducing the nation's dependence on 
imported petroleum, benefits the nation's efforts to address the energy 
challenges in several ways. Reducing total petroleum use and reducing 
petroleum imports decrease our economy's vulnerability to oil price 
shocks and improves our national security.
    Over the long term, the development of advanced fuel cell 
technology, and an infrastructure to support it, will help achieve 
significant reductions in foreign oil dependence and stability in the 
world oil market. For the short term, the continued infusion of hybrid 
propulsion and advanced diesel vehicles into the U.S. light truck fleet 
may also contribute to reduced dependence on petroleum. Since the NPRM 
was issued, companies have announced enhanced efforts in this area. We 
believe it is possible, with substantial marketing and public policy 
support, to create a vibrant and efficient market for vehicles with 
advanced technologies by MY 2007.
    The importance of improving the fuel economy of light trucks is 
evident from the effect that those vehicles are having on the overall 
fuel economy of light vehicles. As was noted in the NEP:

    Despite the adoption of more efficient transportation 
technologies, average fuel economy for passenger vehicles has 
remained relatively flat for ten years and is, in fact, at a twenty 
year low, in large part due to the growth and popularity of low fuel 
economy pickup trucks, van and sport utility vehicles.

(p. 4-9)
    We have concluded that the increases to the light truck CAFE 
standards adopted in this final rule will contribute appropriately to 
energy conservation and the comprehensive energy program set forth in 
NEP. In assessing the impact of the standards, we accounted for the 
increased vehicle mileage that accompanies reduced costs to consumers 
associated with greater fuel efficiency and have concluded that the 
final rule will lead to considerable fuel savings. While increasing 
fuel economy without increasing the cost of fuel will lead to some 
additional vehicle travel, the overall impact on fuel conservation 
remains positive.
    We acknowledge that, despite the CAFE program, the United States' 
dependence on foreign oil and petroleum consumption has increased in 
recent years. Nonetheless, data suggest that past fuel economy 
increases have had a major impact on U.S. petroleum use. The NAS 
determined that if the fuel efficiency of the vehicle fleet had not 
improved since the 1970s, the U.S. gasoline consumption and oil imports 
would be about 2.8 million barrels per day higher than they are today. 
Increasing fuel economy by 10 percent will produce an estimated 8 
percent reduction in fuel consumption. Increases in the fuel economy of 
new vehicles eventually raise the fuel efficiency of all vehicles as 
older cars and trucks are scrapped.
    Further, we do not believe that the increases in the light truck 
CAFE standards applicable to the 2005-2007 MYs will unduly lead to so-
called ``energy waste.'' This theory, presented in comments responding 
to our Request for Comments and NPRM, rests on the notion that efforts 
to reduce energy use can result in negative economic effects from 
losses in product values, profits and worker incomes. As discussed 
above, the agency has determined that the CAFE standards can be 
achieved without significant adverse economic or safety consequences. 
Within the bounds of technological feasibility and economic 
practicability, the final rule will, in fact, enhance ``energy 
efficiency'' without adverse ancillary effects.

X. Balancing of Statutory Factors

    In determining the maximum feasible average fuel economy levels for 
the MY 2005-07 standards, we have specifically considered all four of 
the factors specified by the statute--technological feasibility, 
economic practicability, the effect of other motor vehicle standards of 
the Government on fuel economy, and the need of the United States to 
conserve energy. We have also specifically weighed the benefits to the 
nation of higher average fuel economy standards against the 
difficulties of individual manufacturers.
    We have determined that the established CAFE standards are the 
maximum feasible levels for each of the model years. Although the MY 
2007 standard is a challenging one, the additional lead time available 
and the likelihood of continuing technological advancement makes a CAFE 
standard of 22.2 mpg technologically feasible and economically 
practicable in light of the nation's need to conserve energy and to 
reduce our dependence on foreign oil. The Volpe analysis confirms that 
these standards are cost-beneficial and technologically feasible. CAFE 
standards above those established in this rule tip the balance and 
render it unlikely that the standards could be achieved without 
significantly negative economic consequences.

XI. Rulemaking Analyses and Notices

A. Executive Order 12866 and DOT Regulatory Policies and Procedures

    Executive Order 12866, ``Regulatory Planning and Review'' (58 FR 
51735, October 4, 1993), provides for making determinations whether a 
regulatory action is ``significant'' and therefore subject to OMB 
review and to the requirements of the Executive Order. The Order 
defines a ``significant regulatory action'' as one that is likely to 
result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or Tribal governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    This final rule is economically significant as adopted. 
Accordingly, OMB reviewed it under Executive Order 12866. The rule is 
also significant within the meaning of the Department of 
Transportation's Regulatory Policies and Procedures.
    Because the rule is economically significant, the agency has 
prepared an FEA and placed it in the docket and on the agency's Web 
site.
    Costs: We estimated costs based on the specific technologies that 
were

[[Page 16898]]

applied to improve each manufacturer's fuel economy from the level of 
the manufacturer's plans up to the level of the final rule. Table 1 
provides those cost estimates on an average per vehicle basis and Table 
2 provides those estimates on a fleet-wide basis.
    Benefits: We also determined benefits from the level of the 
manufacturer's plans up to the level of the final rule. The benefits 
are derived mainly from fuel savings over the lifetime of the vehicle. 
However, the benefits also include the results of a number of 
additional analyses that relate to the value of oil import 
externalities, criteria pollutant emissions, and a variety of 
beneficial transportation impacts brought about by the ``rebound 
effect''. Table 1 provides the benefit estimates on a per vehicle basis 
and Table 2 provides them on a fleet-wide basis.
    Net Benefits: We compared the costs and benefits and concluded that 
the fuel economy standards are cost beneficial on a societal basis.
    Safety Impacts: The agency believes the manufacturers can meet the 
fuel economy levels without weight reductions. Thus, there need not be 
a safety impact due to reducing weights for light trucks.
    Table 3 provides the level of the final rule, an adjusted baseline 
weighted average fuel economy based on the manufacturers' product 
plans, and a weighted average fuel economy for the fleet after assuming 
increases in technology to bring the manufacturers' average fuel 
economy up to the level of the standard. Some manufacturers already (in 
MY 2001) exceed the standard levels, thus the weighted average exceeds 
the level of the final rule. Finally, Table 3 shows the lifetime fuel 
savings in millions of gallons.

   Table 1.--Incremental Cost and Social Benefit Analysis Per Average
                       Vehicle--Over its Lifetime
                         [In year 2000 dollars]
------------------------------------------------------------------------
                                                                  Net
               Model year                  Costs     Benefits   benefits
------------------------------------------------------------------------
2005...................................        $22        $29         $7
2006...................................         67         83         16
2007...................................        106        121         15
------------------------------------------------------------------------


 Table 2.--Incremental Total Cost Benefit Analysis Over the Lifetime of
                                the Fleet
                   [In millions of year 2000 dollars]
------------------------------------------------------------------------
                                                                  Net
               Model year                  Costs     Benefits   benefits
------------------------------------------------------------------------
2005...................................       $170       $218        $48
2006...................................        537        645        108
2007...................................        862        955         93
------------------------------------------------------------------------


                                Table 3.--Savings in Millions of Gallons of Fuel
----------------------------------------------------------------------------------------------------------------
                                                            Estimated
                                                               fuel
                                               Adjusted      economy
                                  Proposed     baseline     level with
                                    fuel     fuel economy   technology   Lifetime fuel savings    Lifetime fuel
          Model year              economy     level based   additions       (in millions of     savings--present
                                  standard        on        needed to   gallons)--undiscounted  discounted value
                                   (mpg)     manufacturer      meet
                                              plans (mpg)    standard
                                                              (mpg)
----------------------------------------------------------------------------------------------------------------
2005..........................         21.0         21.13        21.29                432                  263
2006..........................         21.6         21.31        21.78              1,273                  774
2007..........................         22.2         21.60        22.31              1,892                1,151
----------------------------------------------------------------------------------------------------------------

B. National Environmental Policy Act

    Consistent with the requirements of the National Environmental 
Policy Act and the regulations of the Council on Environmental Quality, 
the agency has prepared a final Environmental Assessment for this 
action, responding to comments to the draft Environmental Assessment, 
and has placed this analysis in the docket. Based on the final 
Environmental Assessment, the agency has concluded that the action will 
not have a significant effect on the quality of the human environment.

C. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq., 
as amended by the Small Business Regulatory Enforcement Fairness Act 
(SBREFA) of 1996), whenever an agency is required to publish a notice 
of rulemaking for any proposed or final rule, it must prepare and make 
available for public comment a regulatory flexibility analysis that 
describes the effect of the rule on small entities (i.e., small 
businesses, small organizations, and small governmental jurisdictions). 
The Small Business Administration's regulations at 13 CFR part 121 
define a small business, in part, as a business entity ``which operates 
primarily within the United States.'' (13 CFR 121.105(a)). No 
regulatory flexibility analysis is required if the head of an agency 
certifies the rule will not have a significant economic impact on a 
substantial number of small entities. SBREFA amended the Regulatory 
Flexibility Act to require Federal agencies to provide a statement of 
the factual basis for certifying that a rule will not have a 
significant economic impact on a substantial number of small entities.
    NHTSA has considered the effects of this final rule under the 
Regulatory Flexibility Act and certifies that this final rule will not 
have a significant economic impact on a substantial number of small 
entities. The rationale for this certification is that there are not 
any single stage light truck manufacturers within the United States 
with 1,000 or fewer employees.

D. Executive Order 13132, Federalism

    Executive Order 13132 requires NHTSA to develop an accountable 
process to ensure ``meaningful and timely input by State and local 
officials in the development of regulatory policies that have 
federalism implications.'' Executive Order 13132 defines the term 
``Policies that have federalism implications'' to include regulations 
that have ``substantial direct effects on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.'' Under Executive Order 13132, NHTSA may not issue a 
regulation that has federalism implications, that imposes substantial 
direct compliance costs, and that is not required by statute, unless 
the Federal

[[Page 16899]]

government provides the funds necessary to pay the direct compliance 
costs incurred by State and local governments, or NHTSA consults with 
State and local officials early in the process of developing the 
regulation.
    This final rule will not have substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government as specified in Executive Order 13132. The 
statute under which the CAFE program is administered clearly says that 
states may not adopt or enforce any law or regulation that relates to 
fuel economy standards. 49 U.S.C. 32919(a). Thus, the requirements of 
section 6 of the Executive Order do not apply to this rule.

E. The Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires Federal agencies to prepare a written assessment of the costs, 
benefits, and other effects of proposed or final rules that include a 
Federal mandate likely to result in the expenditure by State, local, or 
tribal governments, in the aggregate, or by the private sector, of more 
than $100 million in any one year (adjusted for inflation with base 
year of 1995). Before promulgating a rule for which a written statement 
is needed, section 205 of the UMRA generally requires NHTSA to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, most cost-effective, or least burdensome alternative 
that achieves the objectives of the rule. The provisions of section 205 
do not apply when they are inconsistent with applicable law. Moreover, 
section 205 allows NHTSA to adopt an alternative other than the least 
costly, most cost-effective, or least burdensome alternative if the 
agency publishes with the final rule an explanation why that 
alternative was not adopted.
    This final rule will not result in the expenditure by State, local, 
or tribal governments, in the aggregate, of more than $100 million 
annually, but it will result in the expenditure of that magnitude by 
vehicle manufacturers and/or their suppliers. In promulgating this 
rule, NHTSA considered whether average fuel economy standards lower and 
higher than those adopted would be appropriate. NHTSA has concluded 
that the standards established by this final rule are the maximum 
feasible standards for the light truck fleet for MYs 2005-2007, based 
on a balancing of the statutory considerations.

F. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA), a person is not 
required to respond to a collection of information by a Federal agency 
unless the collection displays a valid OMB control number. There are no 
new information collection requirements in this final rule.

G. Executive Order 13045

    Executive Order 13045 (62 FR 19885, April 23, 1997) applies to any 
rule that: (1) is determined to be economically significant as defined 
under E.O. 12866, and (2) concerns an environmental, health or safety 
risk that NHTSA has reason to believe may have a disproportionate 
effect on children. If the regulatory action meets both criteria, we 
must evaluate the environmental health or safety effects of the planned 
rule on children, and explain why the planned regulation is preferable 
to other potentially effective and reasonably feasible alternatives 
considered by us.
    This rule does not have a disproportionate effect on children. The 
primary effect of this rule is to conserve energy resources by setting 
CAFE standards for light trucks.

H. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act (NTTAA) requires NHTSA to evaluate and use existing voluntary 
consensus standards \13\ in its regulatory activities unless doing so 
would be inconsistent with applicable law (e.g., the statutory 
provisions regarding NHTSA's vehicle safety authority) or otherwise 
impractical. In meeting that requirement, we are required to consult 
with voluntary, private sector, consensus standards bodies. Examples of 
organizations generally regarded as voluntary consensus standards 
bodies include the American Society for Testing and Materials (ASTM), 
the Society of Automotive Engineers (SAE), and the American National 
Standards Institute (ANSI). If NHTSA does not use available and 
potentially applicable voluntary consensus standards, we are required 
by the Act to provide Congress, through OMB, an explanation of the 
reasons for not using such standards.
---------------------------------------------------------------------------

    \13\ Voluntary consensus standards are technical standards 
developed or adopted by voluntary consensus standards bodies. 
Technical standards are defined by the NTTAA as ``performance-based 
or design-specific technical specifications and related management 
systems practices.'' They pertain to ``products and processes, such 
as size, strength, or technical performance of a product, process or 
material.''
---------------------------------------------------------------------------

    There are no voluntary consensus standards for U.S. fuel economy. 
Therefore, setting this final rule does not involve the use of any 
voluntary standards.

I. Executive Order 13211

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

J. Department of Energy Review

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

K. Regulation Identifier Number (RIN)

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

List of Subjects in 49 CFR Part 533

    Energy conservation, Motor vehicles.

PART 533--[AMENDED]

0
In consideration of the foregoing, 49 CFR part 533 is amended as 
follows:
0
1. The authority citation for part 533 continues to read as follows:

    Authority: 15 U.S.C. 2002; delegation of authority at 49 CFR 
1.50.

0
2. Section 533.5 is amended by revising Table IV in paragraph (a) to 
read as follows:


Sec.  533.5  Requirements.

    (a) * * *

[[Page 16900]]



                                Table IV
------------------------------------------------------------------------
                         Model year                            Standard
------------------------------------------------------------------------
1996........................................................        20.7
1997........................................................        20.7
1998........................................................        20.7
1999........................................................        20.7
2000........................................................        20.7
2001........................................................        20.7
2002........................................................        20.7
2003........................................................        20.7
2004........................................................        20.7
2005........................................................        21.0
2006........................................................        21.6
2007........................................................        22.2
------------------------------------------------------------------------

* * * * *

    Issued on: March 31, 2003.
Jeffrey W. Runge,
Administrator.
[FR Doc. 03-8222 Filed 4-1-03; 3:41 pm]
BILLING CODE 4910-59-P