[Federal Register Volume 71, Number 66 (Thursday, April 6, 2006)]
[Rules and Regulations]
[Pages 17566-17679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-3151]



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Part II





Department of Transportation





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National Highway Traffic Safety Administration



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49 CFR Parts 523, 533 and 537



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

  Federal Register / Vol. 71, No. 66 / Thursday, April 6, 2006 / Rules 
and Regulations  

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 523, 533 and 537

[Docket No. NHTSA 2006-24306]
RIN 2127-AJ61


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

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

ACTION: Final rule.

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SUMMARY: This final rule reforms the structure of the corporate average 
fuel economy (CAFE) program for light trucks and establishes higher 
CAFE standards for model year (MY) 2008-2011 light trucks. Reforming 
the CAFE program will enable it to achieve larger fuel savings, while 
enhancing safety and preventing adverse economic consequences.
    During a transition period of MYs 2008-2010, manufacturers may 
comply with CAFE standards established under the reformed structure 
(Reformed CAFE) or with standards established in the traditional way 
(Unreformed CAFE). This will permit manufacturers and the agency to 
gain experience with implementing the Reformed CAFE standards. In MY 
2011, all manufacturers will be required to comply with a Reformed CAFE 
standard.
    Under Reformed CAFE, fuel economy standards are restructured so 
that they are based on a measure of vehicle size called ``footprint,'' 
the product of multiplying a vehicle's wheelbase by its track width. A 
target level of fuel economy is established for each increment in 
footprint. Smaller footprint light trucks have higher targets and 
larger ones, lower targets. A particular manufacturer's compliance 
obligation for a model year will be calculated as the harmonic average 
of the fuel economy targets for the manufacturer's vehicles, weighted 
by the distribution of manufacturer's production volumes among the 
footprint increments. Thus, each manufacturer will be required to 
comply with a single overall average fuel economy level for each model 
year of production.
    The Unreformed CAFE standards are: 22.5 miles per gallon (mpg) for 
MY 2008, 23.1 mpg for MY 2009, and 23.5 mpg for MY 2010. To aid the 
transition to Reformed CAFE, the Reformed CAFE standards for those 
years are set at levels intended to ensure that the industry-wide costs 
of the Reformed standards are roughly equivalent to the industry-wide 
costs of the Unreformed CAFE standards in those model years. For MY 
2011, the Reformed CAFE standard is set at the level that maximizes net 
benefits. Net benefits includes the increase in light truck prices due 
to technology improvements, the decrease in fuel consumption, and a 
number of other factors viewed from a societal perspective. All of the 
standards have been set at the maximum feasible level, while accounting 
for technological feasibility, economic practicability and other 
relevant factors.
    Since a manufacturer's compliance obligation for a model year under 
Reformed CAFE depends in part on its actual production in that model 
year, its obligation cannot be calculated with absolute precision until 
the final production figures for that model year become known. However, 
a manufacturer can calculate its obligation with a reasonably high 
degree of accuracy in advance of that model year, based on its product 
plans for the year. Prior to and during the model year, the 
manufacturer will be able to track all of the key variables in the 
formula used for calculating its obligation (e.g., distribution of 
production and the fuel economy of each of its models). This final rule 
announces estimates of the compliance obligations, by manufacturer, for 
MYs 2008-2011 under Reformed CAFE, using the fuel economy targets 
established by NHTSA and the product plans submitted to NHTSA by the 
manufacturers in response to an August 2005 request for updated product 
plans.
    This rulemaking is mandated by the Energy Policy and Conservation 
Act (EPCA), which was enacted in the aftermath of the energy crisis 
created by the oil embargo of 1973-74. The concerns about reliance on 
petroleum imports, energy security, and the effects of energy prices 
and supply on national economic well-being that led to the enactment of 
EPCA remain very much alive today. America is still overly dependent on 
petroleum. Sustained growth in the demand for oil worldwide, coupled 
with tight crude oil supplies, are the driving forces behind the sharp 
price increases seen over the past several years and are expected to 
remain significant factors in the years ahead. Increasingly, the oil 
consumed in the U.S. originates in countries with political and 
economic situations that raise concerns about future oil supply and 
prices. In the long run, technological innovation will play an 
increasingly larger role in reducing our dependence on petroleum.
    We recognize that financial difficulties currently exist in the 
motor vehicle industry and that a substantial number of job reductions 
have been announced recently by large full-line manufacturers. 
Accordingly, we have carefully balanced the costs of the rule with the 
benefits of conservation. Compared to Unreformed CAFE, Reformed CAFE 
enhances overall fuel savings while providing vehicle manufacturers 
with the flexibility they need to respond to changing market 
conditions. Reformed CAFE will also provide a more equitable regulatory 
framework by creating a level-playing field for manufacturers, 
regardless of whether they are full-line or limited-line manufacturers. 
We are particularly encouraged that Reformed CAFE will reduce the 
adverse safety risks generated by the Unreformed CAFE program. The 
transition from the Unreformed CAFE to the Reformed CAFE system will 
begin soon, but ample lead time is provided before Reformed CAFE takes 
full effect in MY 2011.

DATES: Today's final rule is effective August 4, 2006. Petitions for 
reconsideration must be received by May 22, 2006.

ADDRESSES:  Petitions for reconsideration must be submitted to: 
Administrator, National Highway Traffic Safety Administration, 400 
Seventh Street, SW., Nassif Building, Washington, DC 20590-001.

FOR FURTHER INFORMATION CONTACT: For technical issues, call Ken Katz, 
Lead Engineer, Fuel Economy Division, Office of International Vehicle, 
Fuel Economy, and Consumer Standards, at (202) 366-0846, facsimile 
(202) 493-2290, electronic mail [email protected]. For legal issues, 
call Stephen Wood or Christopher Calamita of the Office of the Chief 
Counsel, at (202) 366-2992, or e-mail them at [email protected] or 
[email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive summary
    A. Events leading to today's final rule
    B. Today's final rule
    C. Energy demand and supply and the value of conservation
II. Background
    A. 1974 DOT/EPA report to Congress on potential for motor 
vehicle fuel economy improvements
    B. Energy Policy and Conservation Act of 1975
    C. 1979-2002 light truck standards
    D. 2001 National Energy Policy
    E. 2002 NAS study of CAFE reform
    F. 2003 final rule establishing MY 2005-2007 light truck 
standards

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    G. 2003 comprehensive plans for addressing vehicle rollover and 
compatibility
    H. 2003 ANPRM
    1. Need for reform
    2. Reform options
    I. Recent Developments
    1. Factors underscoring need for reform
    2. Revised Product Plans
III. Summary of the NPRM
IV. Summary of public comments
V. The Unreformed CAFE standards for MYs 2008-2010
    A. Legal authority and requirements under EPCA
    B. Establishing Unreformed standards according to EPCA--process 
for determining maximum feasible levels
    C. Baseline for determining manufacturer capabilities in MYs 
2008-2010
    D. Technologically feasible additions to product plans
    E. Improved product plans
    F. Economic practicability and other economic issues
    1. Costs
    2. Benefits
    3. Comparison of estimated costs to estimated benefits
    4. Uncertainty
    G. Unreformed standards for MYs 2008-2010
VI. The Reformed CAFE standards for MYs 2008-2011
    A. Overview of Reformed CAFE
    B. Authority for Reformed CAFE
    C. Legal issues related to Reformed CAFE
    1. Maximum feasible
    2. Backstop
    3. Transition period
    D. Structure of Reformed CAFE
    1. Footprint based function
    2. Continuous function
    a. Overview of establishing the continuous function standard
    b. Industry-wide considerations in defining the stringency of 
the standard
    c. Improving the light truck fleet
    d. Defining the function and the preliminary shape of the curve
    e. Final level of the curve (and the targets)
    3. Application of the continuous function based standard
    4. Why this approach to reform and not another?
    a. Continuous function vs. the proposed step-function 
(categories)
    b. Continuous function and targets vs. classes and standards
    c. Consideration of additional attributes
    d. Backstop and ``fuel saving'' mechanisms
    5. Benefits of reform
    a. Increased energy savings
    b. Reduced incentive to respond to the CAFE program in ways 
harmful to safety
    i. Reduces incentive to reduce vehicle size and to offer smaller 
vehicles
    ii. Reduces the difference between car and light truck CAFE 
standards
    c. More equitable regulatory framework
    d. More responsive to market changes
    E. Comparison of estimated costs to estimated benefits
    1. Costs
    2. Benefits
    3. Uncertainty
    F. MY 2008-2011 Reformed CAFE standards
VII. Technology issues
    A. Reliance on the NAS report
    B. Technologies included in the manufacturers' product plans
    C. Lead Time
    D. Technology effectiveness and practical limitations
    E. Technology incompatibility
    F. Weight reduction
VIII. Economic assumptions
    A. Costs of technology
    B. Fuel prices
    C. Consumer valuation of fuel economy and payback period
    D. Opportunity costs
    E. Rebound effect
    F. Discount rate
    G. Import externalities (monopsony, oil disruption effects, and 
costs of maintaining U.S. presence and strategic petroleum reserve)
    H. Uncertainty analysis
    I. The 15 percent gap
    J. Pollution and greenhouse gas valuation
    K. Increased driving range and vehicle miles traveled
    L. Added costs from congestion, crashes, and noise
    M. Employment impacts
IX. MY 2008-2010 Transition period
    A. Choosing the Reformed or Unreformed CAFE system
    B. Application of credits between compliance options
X. Impact of other Federal motor vehicle standards
    A. Federal motor vehicle safety standards
    1. FMVSS 138, Tire Pressure Monitoring System 2 FMVSS 202, Head 
Restraints
    3. FMVSS 208, Occupant Crash Protection (Rear Center Seat Lap/
Shoulder Belts)
    4. FMVSS 208, Occupant Crash Protection (35 mph Frontal Impact 
Testing)
    5. FMVSS 301, Fuel System Integrity
    B. Potential future safety standards and voluntary safety 
improvements
    1. Anti-lock Brakes and Electronic Stability Control (ESC)
    2. Roof Crush, FMVSS 216
    3. Side Impact and Ejection Mitigation Air Bags (Thorax and Head 
Air Bags)
    4. Offset Frontal Crash Testing
    C. Cumulative weight impacts of the safety standards and 
voluntary improvements
    D. Federal Motor Vehicle Emissions Standards
    1. Tier 2 requirements
    2. Onboard vapor recovery
    3. California Air Resources Board--Clean Air Act Section 209 
standards
XI. Need of the Nation to Conserve Energy
XII. Comparison of the final and proposed standards
    A. Changes in the Volpe model
    B. Higher fuel price forecasts
    C. Revisions to the Reformed CAFE system
    D. Updated product plans
    E. Evaluating the adopted Reformed CAFE
XIII. Applicability of the CAFE standards
    A. Inclusion of MDPVs in MY 2011
    B. ``Flat-floor'' provision
XIV. Additional issues
    A. Limited-line manufacturer standard
    B. Credit trading
    C. Reporting requirements
    D. Preemption
XV. Rulemaking analyses and notices
    A. Executive Order 12866 and DOT Regulatory Policies and 
Procedures
    B. National Environmental Policy Act
    C. Regulatory Flexibility Act
    D. Executive Order 13132 Federalism
    E. Executive Order 12988 (Civil Justice Reform)
    F. Unfunded Mandates Reform Act
    G. Paperwork Reduction Act
    H. Regulation Identifier Number (RIN)
    I. Executive Order 13045
    J. National Technology Transfer and Advancement Act
    K. Executive Order 13211
    L. Department of Energy review
    M. Privacy Act
XVI. Regulatory Text

I. Executive Summary

A. Events Leading to Today's Final Rule

    In the notice of proposed rulemaking (NPRM) that the agency 
published on August 30, 2005, the agency proposed to reform the light 
truck CAFE program. The Reformed CAFE standard was to be based on a 
step function.\1\ To aid the transition to the Reformed CAFE system, we 
proposed to provide manufacturers with two alternative compliance 
options (Unreformed and Reformed) for manufacturers in MYs 2008-2010. 
The agency proposed requiring compliance with the Reformed CAFE system, 
beginning in MY 2011. The agency noted in the NPRM that it was 
publishing a separate notice inviting the manufacturers to submit more 
updated product plans and stated that it recognized that the new plans 
might differ enough from the previously submitted plans to necessitate 
changes in the shape of the step function as well as in the levels of 
stringency of the standards.
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    \1\ As proposed, the structure of Reformed CAFE for each model 
year would have three basic elements--
    (1)--six footprint categories of vehicles.
    (2)--a target level of average fuel economy for each footprint 
category, as expressed by a step function (see figure 1 below).
    (3)--a Reformed CAFE standard based on the harmonic production-
weighted average of the fuel economy targets for each category.
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    In addition, the agency invited public comment on a number of 
additional changes to the CAFE program. One was whether to base the 
Reformed CAFE on a continuous function instead of a step function. A 
second was whether to include large sport utility vehicles (SUVs) in 
the CAFE standards. A third was whether to revise the ``flat floor'' 
criterion for classifying vehicles as light trucks so that minivans and 
passenger vans would be treated as light trucks.
    In response to the NPRM and request for new product plans, the 
agency

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obtained a great deal of new information. Compared to the plans that 
the manufacturers submitted to the agency in early 2004, the new plans 
submitted in November 2005 contained a significant increase in the 
variety and amount of efforts to improve fuel economy. The agency also 
received critiques of the analyses it performed to determine the fuel 
economy capabilities of the manufacturers in MYs 2008-2011.
    In response to the public comments, the agency revised its analyses 
and assumptions including those related to the rate at which increased 
amounts of fuel saving technologies can be added to a manufacturer's 
fleet. The new assumptions are closer to the assumptions made by the 
National Academies of Science in a 2002 study of the CAFE program, and 
provide increased assurance that the standards adopted today will be 
economically practicable.
    NHTSA also made other changes. It decided to base Reformed CAFE on 
a continuous function instead of a step function in order to reduce the 
incentive under Reformed CAFE for manufacturers to downsize (thus 
reducing safety) or upsize (thus reducing fuel economy) vehicles. It 
also decided to add the larger SUVs and passenger vans to the mandatory 
Reformed CAFE program in MY 2011 and beyond to increase long-term 
energy savings.

B. Today's Final Rule

    The final rule adopted today reforms the structure of the CAFE 
regulatory program so that it achieves higher fuel savings while 
enhancing safety and preventing adverse economic consequences. We have 
previously set forth our concerns about the way in which the current 
CAFE program operates and sought comment on approaches to reforming the 
CAFE program. We have also previously increased light truck CAFE 
standards, from the ``frozen'' level of 20.7 mpg applicable from MY 
1996 through MY 2004, to a level of 22.2 mpg applicable to MY 2007. In 
adopting those increased standards, we noted that we were limited in 
our ability to make further increases without reforming the program.
    The Reformed CAFE structure established and institutionalized in 
this document minimizes those limitations by establishing a system 
based on light truck size, which allows us to establish higher CAFE 
standards for MY 2008-2011 light trucks and achieve greater fuel 
savings across the industry. In addition to the improved energy 
savings, this CAFE program enhances safety by eliminating the previous 
regulatory incentive to downsize vehicles and by raising the light 
truck standards so that there is no regulatory incentive from the CAFE 
program to design small vehicles as light trucks instead of passenger 
cars. It prevents adverse economic consequences by incorporating 
greater consideration of economic practicability issues into the 
projections of the timing and rate at which manufacturers can introduce 
fuel economy improving technologies into their fleets, and by setting 
the Reformed CAFE standards, beginning in MY 2011, at the level at 
which marginal benefits equal marginal costs.
    During a transition period of MYs 2008-2010, manufacturers may 
comply with CAFE standards established under the reformed structure 
(Reformed CAFE) or with standards established in the traditional way 
(Unreformed CAFE). This will permit manufacturers to gain experience 
with the Reformed CAFE standards. The Reformed CAFE standards for those 
model years are set at levels intended to ensure that the industry-wide 
costs of those standards are roughly equivalent to the industry-wide 
costs of the Unreformed CAFE standards for those model years. The 
additional lead time provided by the transition period will aid, for 
example, those manufacturers that, for the first time, face a binding 
CAFE standard (i.e., one set above their planned level of CAFE) and 
will be required to make fuel economy improvements to achieve 
compliance. In MY 2011, all manufacturers are required to comply with a 
Reformed CAFE standard. The Reformed CAFE standard for that model year 
is set at the level that maximizes net benefits by setting the fuel 
economy targets at the point at which marginal benefits of the last 
added increment of fuel savings equal the marginal costs of the added 
technology that produced those savings.
    As in prior CAFE rulemakings establishing Unreformed standards, 
this final rule sets the Unreformed standards for MYs 2008-2010 with 
particular regard to the capabilities of and impacts on the ``least 
capable'' full line manufacturer (i.e., a full line manufacturer is one 
that produces a wide variety of types and sizes of vehicles) with a 
significant share of the market. A single CAFE level, applicable to 
each manufacturer, is established for each model year.
    The Unreformed CAFE standards for MYs 2008-2010 are:

MY 2008: 22.5 mpg
MY 2009: 23.1 mpg
MY 2010: 23.5 mpg

We estimate that compliance with these standards will save 4.4 billion 
gallons of fuel over the lifetime of the vehicles sold during those 
model years, compared to the savings that would occur if the standards 
remained at the MY 2007 level of 22.2 mpg.
    Under Reformed CAFE, each manufacturer's required level of CAFE is 
based on target levels set according to vehicle size. The targets are 
assigned according to a vehicle's ``footprint''--the product of the 
average track width (the distance between the centerline of the tires) 
and wheelbase (basically, the distance between the centers of the 
axles). Each vehicle footprint value is assigned a target specific to 
that footprint value. This differs from what we proposed. The proposed 
reform was based on a discontinuous (or ``step'') function. The 
proposal segmented the light truck fleet into six discrete categories 
based on ranges of footprint and assigned a target fuel economy value 
for each category. The reform adopted in today's final rule is based on 
a continuous function. Under it, targets are assigned along the 
continuum of footprint values in the light truck fleet. Each footprint 
value has a different target. The target values reflect the 
technological and economic capabilities of the industry. The target for 
a given footprint value is the same for all manufacturers, regardless 
of differences in their overall fleet mixes. Compliance is determined 
by comparing a manufacturer's harmonically averaged fleet fuel economy 
in a model year with a required fuel economy level calculated using the 
manufacturer's actual production levels and the category targets.
    The Reformed CAFE standards adopted today are more stringent than 
those proposed in the NPRM. Under the Reformed CAFE system in the NPRM, 
we estimated that the average CAFE level required of light truck 
manufacturers would be 23.9 mpg. It is important to note that the MY 
2011 standard as adopted in this rule applies to a larger population of 
vehicles than that in the NPRM. Today's final rule includes medium duty 
passenger vehicles (MDPVs) (i.e., larger passenger vans and SUVs) as 
part of the MY 2011 regulated fleet. We estimate that the average CAFE 
level required of manufacturers under this rule in MY 2011 will be 24.0 
mpg. Thus, the MY 2011 standard is more stringent than that proposed 
while regulating more vehicles, i.e., larger vehicles with typically 
low fuel economy performance.
    As stated above, manufacturers provided updated product plans that

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reflect changes made to the evaluated light truck fleet used in the 
NPRM, partly in response to changes in fuel prices. Changing market 
conditions, a regulatory landscape revised by our proposal, and the 
more stringent fuel efficiency levels required under Reform CAFE will 
result in the production of MY 2008-2011 light truck fleets that will 
consume approximately 11 billion fewer gallons of fuel over their 
lifetimes than the fleets that were originally planned in 2004.
    Apart from the updated product plans, the agency has revised some 
of the assumptions inputted into the Reformed CAFE analysis. In 
response to comments and consistent with the findings of the National 
Academy of Sciences, we revised the phase-in rates to provide for 
additional lead-time when projecting technology applications. The 
agency also revised fuel prices and the vehicle miles traveled 
schedule, which is used to calculate fuel savings, in response to 
higher fuel price forecasts.
    Given the revised product plans, the revisions to the model 
assumptions, and the more stringent standards adopted in this rule, the 
Reformed standards will save approximately 7.8 billion additional 
gallons of fuel over the lifetime of the vehicles sold during those 
four model years. The Reformed standards for MYs 2008-2010 will save 
approximately 500 million more gallons of fuel than the Unreformed 
standards for those model years. As noted above, the Reformed standard 
for MY 2011 is the first Reformed standard set through a process the 
explicitly maximizes net benefits. It will save more than 2.8 billion 
gallons of fuel over the lifetime of vehicle sold in that model year.
    In order to provide a comparison of the fuel savings of the final 
rule versus the proposed rule, we recalculated the fuel savings from 
the proposed Reformed CAFE standards using the updated product plans 
and the final rule assumptions. Under this analysis, we calculated that 
the proposed Reformed standards would save 5.4 billion gallons under 
these more current assumptions. This compares to the 7.8 billion 
gallons of fuel saved under the more stringent Reformed CAFE standards 
adopted today.
    If all manufacturers comply with the Reformed CAFE standards, the 
total costs would be approximately $6.7 billion for MYs 2008-2011, 
compared to the costs they would incur if the standards remained at the 
MY 2007 level of 22.2 mpg. The resulting vehicle price increases to 
buyers of MY 2008 light trucks would be paid back \2\ in additional 
fuel savings in an average of 2.9 years and to buyers of MY 2011 light 
trucks in an average of 4,4 years, assuming fuel prices ranging from 
$1.96 to $2.39 per gallon (in 2003 dollars).\3\ We estimate that the 
total benefits under the Unreformed CAFE standards for MYs 2008-2010 
plus the Reformed CAFE standard for MY 2011 are approximately $7.6 
billion (2003 dollars, discounted at 7%), and under the Reformed CAFE 
standards for MYs 2008-2011 are approximately $8.1 billion (2003 
dollars, discounted at 7%).
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    \2\ The payback period represents the length of time required 
for a vehicle buyer to recoup the higher cost of purchasing a more 
fuel-efficient vehicle through savings in fuel use. When a more 
stringent CAFE standard requires a manufacturer to improve the fuel 
economy of some of its vehicle models, the manufacturer's added 
costs for doing so are reflected in higher prices for these models. 
While buyers of these models pay higher prices to purchase these 
vehicles, their improved fuel economy lowers their owners' costs for 
purchasing fuel to operate them. Over time, buyers thus recoup the 
higher purchase prices they pay for these vehicles in the form of 
savings in outlays for fuel. The length of time required to repay 
the higher cost of buying a more fuel-efficient vehicle is referred 
to as the buyer's ``payback period.''
    The length of this payback period depends on the initial 
increase in a vehicle's purchase price, the improvement in its fuel 
economy, the number of miles it is driven each year, and the retail 
price of fuel. We calculated payback periods using the fuel economy 
improvement and average price increase for each manufacturer's 
vehicles estimated to result from the proposed standard, the U.S. 
Energy Information Administration's forecast of future retail 
gasoline prices, and estimates of the number of miles light trucks 
are driven each year as they age developed from U.S. Department of 
Transportation data. Energy Information Administration, Annual 
Energy Outlook 2005 (AEO 2005), Table 100, http://www.eia.doe.gov/oiaf/aeo/supplement/index.html; and U.S. Department of 
Transportation, 2001 National Household Travel Survey, http://nhts.ornl.gov/2001/index.shtml. Under these assumptions, payback 
periods for the final rule alternatives (i.e., Unreformed and 
Reformed CAFE) range from 2.9 to 4.9 years. .
    \3\ The fuel prices used to calculate the length of the payback 
periods are those expected over the life of the MY 2008-2011 light 
trucks, not the current fuel prices. Those future fuel prices were 
obtained from the AEO 2006 (Early Report).
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    We have determined that the standards under both Unreformed CAFE 
and Reformed CAFE represent the maximum feasible fuel economy level for 
each system. In reaching this conclusion, we have balanced the express 
statutory factors and other relevant considerations, such as safety 
concerns, effects on employment and the need for flexibility to 
transition to a Reformed CAFE program that can achieve greater fuel 
savings in a more economically efficient way.
    The Reformed CAFE approach incorporates several important elements 
of reform suggested by the National Academy of Sciences in its 2002 
report (Effectiveness and Impact of Corporate Average Fuel Economy 
(CAFE) Standards). The agency believes that these reforms give the 
Reformed CAFE approach four basic advantages over the Unreformed CAFE 
approach.
    First, Reformed CAFE increases energy savings. The energy-saving 
potential of Unreformed CAFE is limited because only a few full-line 
manufacturers are required to make improvements. In effect, the 
capabilities of these full-line manufacturers, whose offerings include 
larger and heavier light trucks, constrain the stringency of the 
uniform, industry-wide standard. As a result, the Unreformed CAFE 
standard is generally set below the capabilities of limited-line 
manufacturers, who sell predominantly lighter and smaller light trucks. 
Under Reformed CAFE, which accounts for size differences in product 
mix, virtually all light-truck manufacturers will be required to use 
advanced fuel-saving technologies to achieve the requisite fuel economy 
for their vehicles. Thus, Reformed CAFE will continue to require full-
line manufacturers to improve the overall fuel economy of their fleets, 
while also requiring limited-line manufacturers to enhance the fuel 
economy of the vehicles they sell.
    Second, Reformed CAFE offers enhanced safety. Due to the structure 
of Unreformed CAFE standards, vehicle manufacturers that need to 
supplement their product plans in order to comply with the standards 
can increase their likelihood of compliance by pursuing a variety of 
compliance strategies that entail safety risks: Downsizing of vehicles, 
design of some vehicles to permit classification as ``light trucks'' 
for CAFE purposes, and offering smaller and lighter vehicles to offset 
sales of larger and heavier vehicles. The adverse safety effects of 
downsizing and downweighting have already been documented for passenger 
cars in the CAFE program. For example, when a manufacturer designs a 
vehicle to permit its classification as a light truck, it may increase 
the vehicle's propensity to roll over.
    Reformed CAFE is designed to lessen each of these safety risks. 
Downsizing of vehicles is discouraged under Reformed CAFE since as 
vehicles become smaller, the applicable fuel economy target becomes 
more stringent. Moreover, Reformed CAFE lessens the incentive to design 
smaller vehicles to achieve a ``light truck'' classification, since 
many small light trucks are subject to targets that have at least the 
same degree of stringency as passenger car standards, if not higher 
stringency.
    Third, Reformed CAFE provides a more equitable regulatory framework 
for

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different vehicle manufacturers. Under Unreformed CAFE, the cost 
burdens and compliance difficulties have been imposed nearly 
exclusively on the full-line manufacturers. Reformed CAFE spreads the 
regulatory cost burden for fuel economy more broadly across the 
industry.
    Fourth, Reformed CAFE is more market-oriented because it more fully 
respects economic conditions and consumer choice. Reformed CAFE does 
not force vehicle manufacturers to adjust fleet mix toward smaller 
vehicles unless that is what consumers are demanding. Instead, it 
allows the manufacturers to adjust the mix of their product offerings 
in response to the market place. As a result, as the industry's sales 
volume and mix changes in response to economic conditions (e.g., 
gasoline prices and household income) and consumer preferences (e.g., 
desire for seating capacity or hauling capability), the level of CAFE 
required of manufacturers under Reformed CAFE will, at least partially, 
adjust automatically to these changes. Accordingly, Reformed CAFE 
reduces the need that the agency might otherwise have to revisit 
previously established standards in light of changed market conditions, 
a difficult process that undermines regulatory certainty for the 
industry. In the mid-1980's, for example, the agency relaxed several 
Unreformed CAFE standards because fuel prices fell more than had been 
expected when those standards were established and, as a result, 
consumer demand for small vehicles with high fuel economy did not 
materialize as expected.
    In addition to reforming the structure of the light truck CAFE 
program, we are also expanding its applicability. Starting in MY 2011, 
the CAFE program will include MPDVs, light trucks that have a gross 
vehicle weight rating (GVWR) less than 10,000 lbs., a GVWR greater than 
8,500 lbs. or a curb weight greater than 6,000 lbs., and that primarily 
transport passengers. We estimate this will bring an additional 240,000 
vehicles into the CAFE program in that model year.

C. Energy Demand and Supply and the Value of Conservation

    As we noted in the notice of proposed rulemaking (NPRM),\4\ many of 
the concerns about energy security and the effects of energy prices and 
supply on national economic well-being that led to the enactment of 
EPCA in 1975 persist today.\5\ The demand for oil is steadily growing 
in the U.S. and around the world. By 2030, U.S. demand for petroleum 
products is expected to increase 33 percent compared to 2004.\6\ World 
oil demand is expected to increase by nearly 44 percent between 2004 
and 2025.\7\ Most of these increases would occur in the transportation 
sector. To meet this projected increase in world demand, worldwide 
productive capacity would have to increase by more than 36 million 
barrels per day over current levels. OPEC producers are expected to 
supply nearly 40 percent of the increased production. By 2025, 60 
percent of the oil consumed in the U.S. would be imported oil. Strong 
growth in the demand for oil worldwide, coupled with tight crude oil 
supplies, is the driving force behind the sharp price increases seen 
over the past four years. Increasingly, the oil consumed in the U.S. 
originates in countries with political and economic situations that 
raise concerns about future oil supply and prices.
---------------------------------------------------------------------------

    \4\ 70 FR 51414, August 30, 2005.
    \5\ The sources of the figures in this section can be found 
below in section VIII, ``Need for Nation to conserve energy.''
    \6\ Annual Energy Outlook 2006 with projections to 2030 (Early 
Release), http://www.eia.doe.gov/oiaf/aeo/index.html.
    \7\ Id.
---------------------------------------------------------------------------

    Energy is an essential input to the U.S. economy and having a 
strong economy is essential to maintaining and strengthening our 
national security. Conserving energy, especially reducing the nation's 
dependence on petroleum, benefits the U.S. in several ways. Reducing 
total petroleum use decreases our economy's vulnerability to oil price 
shocks. Reducing dependence on oil imports from regions with uncertain 
conditions enhances our energy security. Reducing the growth rate of 
oil use will help relieve pressures on already strained domestic 
refinery capacity, decreasing the likelihood of future product price 
volatility.
    Today's final rule is one piece of President Bush's strategy to 
move the nation beyond a petroleum-based economy. Aside from the fuel 
savings that will be realized by today's final rule, the Administration 
is focusing research on bio-based transportation fuels, improved 
batteries for hybrid vehicles, and the on-going hydrogen fuel 
initiative. The President's Advanced Energy Initiative and today's 
final rule will build on the progress made by the Administration's 2001 
National Energy Policy and the increased CAFE standards for MY 2005-
2007 light trucks.

II. Background

    In proposing the CAFE standards for MYs 2008-2011, the agency 
provided a detailed summary of the history of fuel economy standards, 
and in particular, fuel economy standards for light trucks. Below we 
have provided a summary of that discussion. For more background on the 
light truck CAFE program, refer to the NPRM.

A. 1974 DOT/EPA Report to Congress on Potential for Motor Vehicle Fuel 
Economy Improvements

    In 1974, the Department of Transportation (DOT) and Environmental 
Protection Agency (EPA) submitted to Congress a report entitled 
``Potential for Motor Vehicle Fuel Economy Improvement (1974 
Report).\8\ This report was prepared in compliance with Section 10 of 
the Energy Supply and Environmental Coordination Act of 1974, Public 
Law 93-319 (the Act). In the 1974 Report, DOT/EPA said that performance 
standards regulating fuel economy could take either of two modes: a 
production-weighted average standard for each manufacturer's entire 
fleet of vehicles or a fuel economy standard tailored to individual 
classes of vehicles. Included as a possible form for a production-
weighted standard was a variable standard based on the costs or 
potential to improve for each manufacturer (1974 Report, p. 77).
---------------------------------------------------------------------------

    \8\ The 1974 report is available in the docket for this 
rulemaking.
---------------------------------------------------------------------------

    DOT/EPA concluded in the 1974 Report that a production-weighted 
standard establishing one uniform specific fuel economy average for all 
manufacturers would, if sufficiently stringent to have the needed 
effect, impact most heavily on manufacturers who have lower fuel 
economy, while not requiring manufacturers of current vehicles with 
better fuel economy to maintain or improve their performance. (1974 
Report, p. 12) Production-weighted standards specifically tailored to 
each manufacturer would eliminate some inequities, but were considered 
to be difficult to administer fairly. (Ibid.)

B. Energy Policy and Conservation Act of 1975

    Congress enacted the Energy Policy and Conservation Act (EPCA Pub. 
L. 94-163) during the aftermath of the energy crisis created by the oil 
embargo of 1973-74. The Act established an automobile fuel economy 
regulatory program by adding Title V, ``Improving Automotive 
Efficiency,'' to the Motor Vehicle Information and Cost Savings Act. 
Title V has been amended from time to time and codified without

[[Page 17571]]

substantive change as Chapter 329 of title 49, United States Code. 
Chapter 329 provides for the issuance of average fuel economy standards 
for passenger automobiles and separate standards for automobiles that 
are not passenger automobiles (light trucks).
    For the purposes of the CAFE statute, ``automobiles'' include any 
``4-wheeled vehicle that is propelled by fuel (or by alternative fuel) 
manufactured primarily for use on public streets, roads, and highways 
(except a vehicle operated only on a rail line), and rated at not more 
than 6,000 pounds gross vehicle weight.'' They also include any such 
vehicle rated at between 6,000 and 10,000 pounds gross vehicle weight 
(GVWR) if the Secretary decides by regulation that an average fuel 
economy standard for the vehicle is feasible, and that either such a 
standard will result in significant energy conservation or the vehicle 
is substantially used for the same purposes as a vehicle rated at not 
more than 6,000 pounds GVWR.\9\
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    \9\ In 1978, we extended the CAFE program to include vehicles 
rated between 6,000 and 8,500 pounds GVWR (March 23, 1978; 43 FR 
11995, at 11997). Vehicles rated at between 6,000 and 8,500 pounds 
GVWR first became subject to the CAFE standards in MY 1980.
---------------------------------------------------------------------------

    The CAFE standards set a minimum performance requirement in terms 
of an average number of miles a vehicle travels per gallon of gasoline 
or diesel fuel. Individual vehicles and models are not required to meet 
the mileage standard. Instead, each manufacturer must achieve a 
harmonically averaged level of fuel economy for all specified vehicles 
manufactured by a manufacturer in a given MY. The statute distinguishes 
between ``passenger automobiles'' and ``non-passenger automobiles.'' We 
generally refer to non-passenger automobiles as light trucks.
    In enacting EPCA and after considering the variety of approaches 
presented in the 1974 Report, Congress made a clear and specific choice 
about the structure of the average fuel economy standard for passenger 
cars. Congress established a common statutory CAFE standard applicable 
to each manufacturer's fleet of passenger automobiles.
    Congress was considerably less decided and prescriptive with 
respect to what sort of standards and procedures should be established 
for light trucks. It neither made a clear choice among the approaches 
(or among the forms of those approaches) identified in the 1974 Report 
nor precluded the selection of any of those approaches or forms. 
Further, it did not establish by statute a CAFE standard for light 
trucks. Instead, Congress provided the Secretary with a choice of 
establishing a form of a production-weighted average standard for each 
manufacturer's entire fleet of light trucks, as suggested in the 1974 
Report, or a form of production-weighted standards for classes of light 
trucks. Congress directed the Secretary to establish maximum feasible 
CAFE standards applicable to each manufacturer's light truck fleet, or 
alternatively, to classes of light trucks, and to establish them at 
least 18 months prior to the start of each model year. When determining 
a ``maximum feasible level of fuel economy,'' the Secretary is directed 
to balance factors including the nation's need to conserve energy, 
technological feasibility, economic practicability and the impact of 
other motor vehicle standards on fuel economy.

C. 1979-2002 Light Truck Standards

    NHTSA established the first light truck CAFE standards for MY 1979 
and applied them to light trucks with a GVWR up to 6,000 pounds (March 
14, 1977; 42 FR 13807). Beginning with MY 1980, NHTSA raised this GVWR 
ceiling to 8,500 pounds. For MYs 1979-1981, the agency established 
separate standards for two-wheel drive (2WD) and four-wheel drive (4WD) 
light trucks without a ``combined'' standard reflecting the combined 
capabilities of 2WD and 4WD light trucks. Manufacturers that produced 
both 2WD vehicles and 4WD vehicles could, however, decide to treat them 
as a single fleet and comply with the 2WD standard.
    Beginning with MY 1982, NHTSA established a combined standard 
reflecting the combined capabilities of 2WD and 4WD light trucks, plus 
optional 2WD and 4WD standards. Manufacturers had the option of 
complying under the combined fleet standard, or under the separate 2WD 
and 4WD standards. Although the combined standard reflected the 
combined capabilities of 2WD and 4WD light trucks, it did not 
necessarily reflect the combined capabilities of the 2WD and 4WD fleets 
of an individual manufacturer (e.g., a manufacturer may have found it 
easier to comply with the combined standard than the 2WD and 4WD 
standards separately, or vice versa). After MY 1991, NHTSA dropped the 
optional 2WD and 4WD standards.
    As explained in the NPRM, NHTSA twice found it necessary to reduce 
a light truck standard when it received new information relating to the 
agency's past projections. In 1979, the agency reduced the MY 1981 2WD 
standard after Chrysler demonstrated that there were smaller than 
expected fuel economy benefits from various technological improvements 
and larger than expected adverse impacts from other federal vehicle 
standards and test procedures (December 31, 1979; 44 FR 77199).
    In 1984, the agency reduced the MY 1985 light truck standards after 
we concluded that market demand for light truck performance, as 
reflected in engine mix and axle ratio usage, had not materialized as 
anticipated when the agency initially established the MY 1985 
standards. The agency said that this resulted from lower than 
anticipated fuel prices. The agency concluded that the only actions 
then available to manufacturers to improve their fuel economy levels 
for MY 1986 would have involved product restrictions likely resulting 
in significant adverse economic impacts. The reduction of the MY 1985 
standard was upheld by the U.S. Circuit Court of Appeals for the 
District of Columbia. Center for Auto Safety v. NHTSA, 793 F.2d 1322 
(D.C. Cir. 1986) (rejecting the contention that the agency gave 
impermissible weight to the effects of shifts in consumer demand toward 
larger, less fuel-efficient trucks on the fuel economy levels 
manufacturers could achieve).\10\
---------------------------------------------------------------------------

    \10\ NHTSA similarly found it necessary on occasion to reduce 
the passenger car CAFE standards in response to new information. The 
agency reduced the MY 1986 passenger car standard because a 
continuing decline in gasoline prices prevented a projected shift in 
consumer demand toward smaller cars and smaller engines and because 
the only actions available to manufacturers to improve their fuel 
economy levels for MY 1986 would have involved product restrictions 
likely resulting in significant adverse economic impacts. (October 
4, 1985; 40 FR 40528) This action was upheld in Public Citizen v. 
NHTSA, 848 F.2d 256 (D.C. Cir. 1988). NHTSA also reduced the MY 
1987-88 passenger car standards (October 6, 1986; 51 FR 35594) and 
MY 1989 passenger car standard (October 6, 1988; 53 FR 39275) for 
similar reasons.
---------------------------------------------------------------------------

    On November 15, 1995, the Department of Transportation and Related 
Agencies Appropriations Act for FY 1996 was enacted, which limited the 
ability of the agency to establish CAFE standards for light trucks 
(Section 330, Pub. L. 104-50). Pursuant to that Act, we then issued a 
final rule limited to MY 1998, setting the light truck CAFE standard 
for that year at 20.7 mpg, the same level as the standard we had set 
for MY 1997 (61 FR 14680; April 3, 1996). The same limitation on the 
setting of CAFE standards was included in the Appropriations Acts for 
each of FYs 1997-2001. The agency followed the same process as for MY 
1998, established the light truck CAFE standard at 20.7 mpg, for MYs 
1999-2002.

[[Page 17572]]

    While the Department of Transportation and Related Agencies 
Appropriations Act for FY 2001 (Pub. L. 106-346) contained a 
restriction on CAFE rulemaking identical to that contained in prior 
appropriation acts, the conference committee report for that Act 
directed NHTSA to fund a study by the NAS to evaluate the effectiveness 
and impacts of CAFE standards (H. Rep. No. 106-940, at p. 117-118).
    In a letter dated July 10, 2001, following the release of the 
President's National Energy Policy, Secretary of Transportation Mineta 
asked the House and Senate Appropriations Committees to lift the 
restriction on the agency spending funds for the purposes of improving 
CAFE standards. The Department of Transportation and Related Agencies 
Appropriations Act for FY 2002 (Pub. L. 107-87), which was enacted on 
December 18, 2001, did not contain a provision restricting the 
Secretary's authority to prescribe fuel economy standards.

D. 2001 National Energy Policy

    The National Energy Policy,\11\ released in May 2001, stated that 
``(a) fundamental imbalance between supply and demand defines our 
nation's energy crisis'' and that ``(t)his imbalance, if allowed to 
continue, will inevitably undermine our economy, our standard of 
living, and our national security.'' The National Energy Policy was 
designed to promote dependable, affordable and environmentally sound 
energy for the future. The Policy envisions a comprehensive long-term 
strategy that uses leading edge technology to produce an integrated 
energy, environmental and economic policy. It set forth five specific 
national goals: ``modernize conservation, modernize our energy 
infrastructure, increase energy supplies, accelerate the protection and 
improvement of the environment, and increase our nation's energy 
security.''
---------------------------------------------------------------------------

    \11\ http://www.whitehouse.gov/energy/National-Energy-Policy.pdf.
---------------------------------------------------------------------------

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

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

E. 2002 NAS Study of CAFE Reform

    In response to direction from Congress, NAS published a lengthy 
report in 2002 entitled ``Effectiveness and Impact of Corporate Average 
Fuel Economy (CAFE) Standards.'' \12\
---------------------------------------------------------------------------

    \12\ The NAS submitted its preliminary report to the Department 
of Transportation in July 2001 and released its final report in 
January 2002.
---------------------------------------------------------------------------

    The report concludes that the CAFE program has clearly contributed 
to increased fuel economy and that it was appropriate to consider 
further increases in CAFE standards. (NAS, p. 3 (Finding 1)) It cited 
not only the value of fuel savings, but also adverse consequences 
(i.e., externalities) associated with high levels of petroleum 
importation and use that are not reflected in the price of petroleum 
(e.g., the adverse impact on energy security). The report further 
concluded that technologies exist that could significantly reduce fuel 
consumption by passenger cars and light trucks within 15 years, while 
maintaining vehicle size, weight, utility and performance. (NAS, p. 3 
(Finding 5)) Light duty trucks were said to offer the greatest 
potential for reducing fuel consumption. (NAS, p. 4 (Finding 5)) The 
report also noted that vehicle development cycles--as well as future 
economic, regulatory, safety and consumer preferences--would influence 
the extent to which these technologies could lead to increased fuel 
economy in the U.S. market. The report noted that the widespread 
penetration of even existing technologies will probably require 4-8 
years. To assess the economic trade-offs associated with the 
introduction of existing and emerging technologies to improve fuel 
economy, the NAS conducted what it called a ``cost-efficient 
analysis''--``that is, the committee [that authored the report] 
identified packages of existing and emerging technologies that could be 
introduced over the next 10 to 15 years that would improve fuel economy 
up to the point where further increases in fuel economy would not be 
reimbursed by fuel savings.'' (NAS, p. 4 (Finding 6))
    Recognizing the many trade-offs that must be considered in setting 
fuel economy standards, the report took no position on what CAFE 
standards would be appropriate for future years. It noted, 
``(s)election of fuel economy targets will require uncertain and 
difficult trade-offs among environmental benefits, vehicle safety, 
cost, oil import dependence, and consumer preferences.''
    The report found that, to minimize financial impacts on 
manufacturers, and on their suppliers, employees, and consumers, 
sufficient lead-time (consistent with normal product life cycles) 
should be given when considering increases in CAFE standards. The 
report stated that there are advanced technologies that could be 
employed, without negatively affecting the automobile industry, if 
sufficient lead-time were provided to the manufacturers.
    The report expressed concerns about increasing the standards under 
the CAFE program as currently structured. While raising CAFE standards 
under the existing structure would reduce fuel consumption, doing so 
under alternative structures ``could accomplish the same end at lower 
cost, provide more flexibility to manufacturers, or address inequities 
arising from the present'' structure. (NAS, pp. 4-5 (Finding 10))\13\ 
Further, the committee said, ``to the extent that the size and weight 
of the fleet have been constrained by CAFE requirements * * * those 
requirements have caused more injuries and fatalities on the road than 
would otherwise have occurred.'' (NAS, p. 29) Specifically, they noted: 
``the downweighting and downsizing that occurred in the late 1970s and 
early 1980s, some of which was due to CAFE standards, probably resulted 
in an additional 1300 to 2600 traffic fatalities in 1993.'' (NAS, p. 3 
(Finding 2)).
---------------------------------------------------------------------------

    \13\ The report noted the following about the concept of equity:
    Potential Inequities
    The issue of equity or inequity is subjective. However, one 
concept of equity among manufacturers requires equal treatment of 
equivalent vehicles made by different manufacturers. The current 
CAFE standards fail this test. If one manufacturer was positioned in 
the market selling many large passenger cars and thereby was just 
meeting the CAFE standard, adding a 22-mpg car (below the 27.5-mpg 
standard) would result in a financial penalty or would require 
significant improvements in fuel economy for the remainder of the 
passenger cars. But, if another manufacturer was selling many small 
cars and was significantly exceeding the CAFE standard, adding a 22-
mpg vehicle would have no negative consequences.
    (NAS, p. 102).
---------------------------------------------------------------------------

    To address those structural problems, the report suggested various 
possible

[[Page 17573]]

reforms.\14\ The report found that the ``CAFE program might be improved 
significantly by converting it to a system in which fuel targets depend 
on vehicle attributes.'' (NAS, p. 5 (Finding 12)). The report noted 
that a system in which fuel economy targets were dependent on vehicle 
weight, with lower fuel consumption targets set for lighter vehicles 
and higher targets for heavier vehicles, up to some maximum weight, 
would create incentives to reduce the variance in vehicle weights 
between large and small vehicles, thus providing for overall vehicle 
safety. (NAS, p. 5 (Finding 12)). The report stated that such a system 
has the potential to increase fuel economy with fewer negative effects 
on both safety and consumer choice.
---------------------------------------------------------------------------

    \14\ In assessing and comparing possible reforms, the report 
urged consideration of the following factors:
    Fuel use responses encouraged by the policy,
    Effectiveness in reducing fuel use,
    Minimizing costs of fuel use reduction,
    Other potential consequences
    --Distributional impacts
    --Safety
    --Consumer satisfaction
    --Mobility
    --Environment
    --Potential inequities, and Administrative feasibility.
    (NAS, p. 94).
---------------------------------------------------------------------------

    The report noted further that under an attribute-based approach, 
the required CAFE levels could vary among the manufacturers based on 
the distribution of their product mix. NAS stated that targets could 
vary among passenger cars and among trucks, based on some attribute of 
these vehicles such as weight, size, or load-carrying capacity. The 
report explained that a particular manufacturer's average target for 
passenger cars or for trucks would depend upon the fractions of 
vehicles it sold with particular levels of these attributes (NAS, p. 
87). For example, if weight were the criterion, a manufacturer that 
sells mostly light vehicles would have to achieve higher average fuel 
economy than would a manufacturer that sells mostly heavy vehicles.
    The report illustrated an example of an attribute-based system 
using a continuous function (NAS, p. 109). Essentially, as illustrated, 
the continuous function was represented as a line, which graphed 
``gallons per mile'' versus ``curb weight.'' Under the continuous 
function example, a vehicle's target fuel economy would be determined 
by locating the vehicle's curb weight along the line and identifying 
the corresponding gallons per mile value.
    In February 2002, Secretary Mineta asked Congress ``to provide the 
Department of Transportation with the necessary authority to reform the 
CAFE program, guided by the NAS report's suggestions.''

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

    On April 7, 2003, the agency published a final rule establishing 
light truck CAFE standards for MYs 2005-2007: 21.0 mpg for MY 2005, 
21.6 mpg for MY 2006, and 22.2 mpg for MY 2007 (68 FR 16868; Docket No. 
2002-11419; Notice 3). The agency determined that these levels are the 
maximum feasible CAFE levels for light trucks for those model years, 
balancing the express statutory factors and other included or relevant 
considerations such as the impact of the standard on motor vehicle 
safety and employment. NHTSA estimated that the fuel economy increases 
required by the standards for MYs 2005-2007 would generate 
approximately 3.6 billion gallons of gasoline savings over the 25-year 
lifetime of the affected vehicles.
    We recognized in the final rule that the standard established for 
MY 2007 could be a challenge for General Motors. We recognized further 
that, between the issuance of the final rule and the last (MY 2007) of 
the model years for which standards were being established, there was 
more time than in previous light truck CAFE rulemakings for significant 
changes to occur in external factors capable of affecting the 
achievable levels of CAFE. These external factors include fuel prices 
and the demand for vehicles with advanced fuel saving technologies, 
such as hybrid electric and advanced diesel vehicles. We said that 
changes in these factors could lead to higher or lower levels of CAFE, 
particularly in MY 2007. Recognizing that it may be appropriate to re-
examine the MY 2007 standard in light of any significant changes in 
those factors, the agency reaffirms its plans to monitor the compliance 
efforts of the manufacturers.

G. 2003 Comprehensive Plans for Addressing Vehicle Rollover and 
Compatibility

    In September 2002, NHTSA completed a thorough examination of the 
opportunities for significantly improving vehicle and highway safety 
and announced the establishment of interdisciplinary teams to formulate 
comprehensive plans for addressing the four most promising problem 
areas.\15\ Based on the work of the teams, the agency issued detailed 
reports analyzing each of the problem areas and recommending 
coordinated strategies that, if implemented effectively, will lead to 
significant improvements in safety.
---------------------------------------------------------------------------

    \15\ A fifth problem area was announced in 2004, improving 
traffic safety data.
---------------------------------------------------------------------------

    Two of the problems areas are vehicle rollover and vehicle 
compatibility. The reports on those areas identify a series of vehicle, 
roadway and behavioral strategies for addressing the problems.\16\ 
Among the vehicle strategies, both reports identified reform of the 
CAFE program as one of the steps that needed to be taken to reduce 
those problems:
---------------------------------------------------------------------------

    \16\ See http://www-nrd.nhtsa.dot.gov/vrtc/ca/capubs/IPTRolloverMitigationReport/; http://www-nrd.nhtsa.dot.gov/departments/nrd-11/aggressivity/IPTVehicleCompatibilityReport/.

    The current structure of the CAFE system can provide an 
incentive to manufacturers to downweight vehicles, increase 
production of vehicle classes that are more susceptible to rollover 
crashes, and produce a less homogenous fleet mix. As a result, CAFE 
---------------------------------------------------------------------------
is critical to the vehicle compatibility and rollover problems.

    Recognizing the role of CAFE, we stated:

    It is NHTSA's goal to identify and implement reforms to the CAFE 
system that will facilitate improvements in fuel economy without 
compromising motor vehicle safety or American jobs. * * *
* * * NHTSA intends to examine the safety impacts, both positive and 
negative, that may result from any modifications to CAFE as it now 
exists. Regardless of the root causes, it is clear that the 
downsizing of vehicles that occurred during the first decade of the 
CAFE program had serious safety consequences. Changes to the 
existing system are likely to have equally significant impacts. 
NHTSA is determined to ensure that these impacts are positive.

H. 2003 ANPRM

    On December 29, 2003, the agency published an ANPRM seeking comment 
on various issues relating to reforming the CAFE program (68 FR 74908; 
Docket No. 2003-16128).\17\ The agency sought comment on possible 
enhancements to the program that would assist in further fuel 
conservation, while protecting motor vehicle safety and the economic 
vitality of the automobile industry. The agency indicated that it was 
particularly interested in structural reform. That document, while not 
espousing any particular form of reform, sought specific input on 
various options aimed

[[Page 17574]]

at adapting the CAFE program to today's vehicle fleet and needs.
---------------------------------------------------------------------------

    \17\ On the same date, we also published a request for comments 
seeking manufacturer product plan information for MYs 2008-2012 to 
assist the agency in analyzing possible reforms to the CAFE program 
which are discussed in a companion notice published today. (68 FR 
74931) The agency sought information that would help it assess the 
effect of these possible reforms on fuel economy, manufacturers, 
consumers, the economy, motor vehicle safety and American jobs.
---------------------------------------------------------------------------

1. Need for Reform
    The 2003 ANPRM discussed the principal criticisms of the current 
CAFE program that led the agency to explore light truck CAFE reform (68 
FR 74908, at 74910-13). First, the energy-saving potential of the CAFE 
program is hampered by the current regulatory structure. The Unreformed 
approach to CAFE does not distinguish between the various market 
segments of light trucks, and therefore does not recognize that some 
vehicles designed for classification purposes as light trucks may 
achieve fuel economy similar to that of passenger cars. The Unreformed 
CAFE approach instead applies a single standard to the light truck 
fleet as a whole, encouraging manufacturers to offer small light trucks 
that will offset the larger vehicles that get lower fuel economy. A 
CAFE system that more closely links fuel economy standards to the 
various market segments reduces the incentive to design vehicles that 
are functionally similar to passenger cars but classified as light 
trucks.
    Second, because weight strongly affects fuel economy, the current 
light truck CAFE program encourages vehicle manufacturers to reduce 
weight in their light truck offerings to achieve greater fuel 
economy.\18\ As the NAS report and a more recent NHTSA study have 
found, downweighting of the light truck fleet, especially those trucks 
in the low and medium weight ranges, creates more safety risk for 
occupants of light trucks and all motorists combined.\19\
---------------------------------------------------------------------------

    \18\ Manufacturers can reduce weight without changing the 
fundamental structure of the vehicle by using lighter materials or 
eliminating available equipment or options. In contrast, reducing 
vehicle size, and particularly footprint, generally entails an 
alteration of the basic architecture of the vehicle.
    \19\ However, both studies also suggest that if downweighting is 
concentrated on the heaviest light trucks in the fleet there would 
be no net safety impact, and there might even be a small fleet-wide 
safety benefit. There is substantial uncertainty about the curb 
weight cut-off above which this would occur.
---------------------------------------------------------------------------

    Third, the agency noted the adverse economic impacts that might 
result from steady future increases in the stringency of CAFE standards 
under the current regulatory structure. Rapid increases in the light 
truck CAFE standard could have serious adverse economic consequences. 
The vulnerability of full-line manufacturers to tighter CAFE standards 
does not arise primarily from poor fuel economy ratings within weight 
classes, i.e., from less extensive use of fuel economy improving 
technologies. As explained in the 2003 ANPRM, their overall CAFE 
averages are low compared to manufacturers that produce more relatively 
light vehicles because their sales mixes service a market demand for 
bigger and heavier vehicles capable of more demanding utilitarian 
functions. An attribute-based (weight and/or size) system could avoid 
disparate impacts on full-line manufacturers that could result from a 
sustained increase in CAFE standards.
2. Reform Options
    In discussing potential changes, the agency focused primarily on 
structural improvements to the current CAFE program authorized under 
the current statutory authority, and secondarily on definitional 
changes to the current vehicle classification system and whether to 
include vehicles between 8,500 to 10,000 lbs. GVWR. The NPRM explored 
the various reform options raised in the ANPRM. It is worth noting 
again several of those options.
    Included in the reform discussion was an attribute-based 
``continuous-function'' system, such as that discussed in the NAS 
report. We chose various measures of vehicle weight and/or size to 
illustrate the possible design of an attribute-based system. However, 
we also sought comment as to the merits of using other vehicle 
attributes as the basis of an attribute-based system.
    The 2003 ANPRM also presented potential reform options under which 
vehicles with a GVWR of up to 10,000 lbs. could be included under the 
CAFE program. One presented option would be to include vehicles defined 
by EPA as medium duty passenger vehicles \20\ for use in the CAFE 
program. This definition would essentially make SUVs and passenger vans 
between 8,500 and 10,000 lbs. GVWR subject to CAFE, while continuing to 
exclude most medium- and heavy-duty pickups and most medium- and heavy-
duty cargo vans that are primarily used for agricultural and commercial 
purposes.
---------------------------------------------------------------------------

    \20\ The EPA's discussion of the MDPV definition is at 65 FR 
6698, 6749-50, 6851-6852.
---------------------------------------------------------------------------

    Through the 2003 ANPRM, the agency intended to begin a public 
discussion on potential ways, within current statutory authority, to 
improve the CAFE program to better achieve our public policy 
objectives. The agency set forth a number of possible concepts and 
measures, and invited the public to present additional concepts. The 
agency expressed interest in any suggestions toward revamping the CAFE 
program in such a way as to enhance overall fuel economy while 
protecting occupant safety and the economic vitality of the auto 
market.

I. Recent developments

1. Factors underscoring need for reform
    In the NPRM, we recognized two important complicating factors that 
underscore the need for CAFE reform. One factor is the fiscal problems 
reported by General Motors and Ford, while the other is the recent 
surge in gasoline prices, a development that may be exacerbating the 
financial challenges faced by both companies.
    Two of the larger, full-line light-truck manufacturers, General 
Motors and Ford, have reported serious financial difficulties. The 
investment community has downgraded the bonds of both companies. 
Further, both companies have announced significant layoffs and other 
actions to improve their financial condition. While these financial 
problems did not give rise to the Administration's CAFE reform 
initiative, the financial risks now faced by these companies, including 
their workers and suppliers, underscore the importance to full-line 
vehicle manufacturers of establishing an equitable CAFE regulatory 
framework.
    There has also been a sharp and sustained surge in gasoline prices 
since our last light truck final rule in April 2003 and the December 
2003 ANPRM on CAFE reform. According to the Energy Information 
Administration (EIA), the retail price for gasoline in April 2003 was 
$1.59 per gallon and in December 2003 was $1.48 per gallon.\21\ When 
the NPRM was published the weekly U.S. retail price was $2.55 per 
gallon.\22\ While the retail price of gasoline has declined since 
publication of the NPRM it is still $2.34, which is $.75 per gallon 
higher than when the 2003 final rule was published.\23\
---------------------------------------------------------------------------

    \21\ See http://tonto.eia.doe.gov/oog/info/gdu/gaspump.html.
    \22\ See http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_home_page.html and http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp.
    \23\ See id.
---------------------------------------------------------------------------

    We noted in the NPRM that it is important to recognize that CAFE 
standards for MYs 2008-2011 should not be based on current gasoline 
prices. They should be based on our best forecast of what average real 
gasoline prices will be in the U.S. during the years that these 
vehicles will be used by consumers: The 36-year period beginning in 
2008 and extending to 2034.\24\ Since miles of travel tend to be

[[Page 17575]]

concentrated in the early years of a vehicle's lifetime, the projected 
gasoline price in the 2008-2020 period is particularly relevant for 
this rulemaking.
---------------------------------------------------------------------------

    \24\ To calculate the fuel savings for the light trucks 
manufactured in a model year, we consider the savings over a 26-year 
period. The number of light trucks manufactured during each model 
year that remains in service during each subsequent calendar year is 
estimated by applying estimates of the proportion of light trucks 
surviving to each age up to 26 years (see Table VIII-2 in the PRIA). 
At the end of 26 years, the proportion of light trucks remaining in 
service falls below 10 percent.
---------------------------------------------------------------------------

    The Preliminary Regulatory Impact Analysis (PRIA) for the NPRM was 
based on projected gasoline prices from the then most recent Annual 
Energy Outlook 2005 (AEO2005) (published in 2004 before the recent 
price rises), which projected gasoline prices ranging from $1.51 to 
$1.58 per gallon.\25\ The Final Regulatory Impact Analysis (FRIA) for 
today's rule is based on the revised forecast EIA published in the 
AEO2006 (Early outlook) (see FRIA p. XIII-26). The current forecasted 
price for gasoline ranges from $1.96 to $2.39 per gallon.\26\
---------------------------------------------------------------------------

    \25\ http://www.eia.doe.gov/oiaf/aeo/index.html.
    \26\ The EIA gasoline prices are provided in 2003 dollars. In 
terms of 2006 dollars (based on the 2003 GDP deflator; see, http://www.gpoaccess.gov/usbudget/fy05/sheets/hist10z1.xls) the forecasted 
range of fuel prices would be $2.04 to 2.49.
---------------------------------------------------------------------------

2. Revised product plans
    In response to a request for comment (RFC) \27\ published in 
conjunction with the NRPM, the agency has received updated product 
plans from the vehicle manufacturers. While the NPRM was based on 
product plans received in response to the 2003 ANPRM, the final rule 
relied on product plans received in response to the August 2005 RFC.
---------------------------------------------------------------------------

    \27\ 70 FR 51466; August 30, 2005; Docket No. NHTSA-2005-22144-
03.
---------------------------------------------------------------------------

III. Summary of the NPRM

    On August 30, 2005, the agency published a notice of proposed 
rulemaking (NPRM) to establish CAFE standards for model years (MYs) 
2008 through 2011, and more importantly to reform the CAFE program (70 
FR 51414). The NPRM was one piece of the Department of Transportation's 
continuing effort to achieve higher fuel savings while enhancing safety 
and preventing adverse economic consequences. We noted that the 
previous rulemaking efforts increased the light truck CAFE standards, 
from the ``frozen'' level of 20.7 mpg applicable from MY 1996 through 
MY 2004, to a level of 22.2 mpg applicable to MY 2007. However, in 
order to continue moving forward with improved fuel savings while 
enhancing safety and preventing adverse economic consequences the 
agency proposed to reform the light truck CAFE system.
    In the NPRM, we proposed fuel economy standards for light trucks in 
MYs 2008-2010, established under the traditional CAFE system 
(Unreformed CAFE system). We also proposed standards for MYs 2008-2010 
established under a proposed reformed CAFE system (Reformed CAFE). 
During MYs 2008-2010, manufacturers would have an option of complying 
with standards established under the Unreformed or the Reformed CAFE 
system. We proposed that this period would serve as a transition period 
to provide manufacturers an opportunity to adjust to changes in the 
CAFE system and to provide this agency and the manufacturers' 
opportunity to gain experience with the new system. For MY 2011, we 
proposed standards established under Reformed CAFE only.
    The Unreformed standards for MYs 2008-2010 were proposed with 
particular regard to the capabilities of and impacts on the ``least 
capable'' full-line manufacturer (a full-line manufacturer is one that 
produces a wide variety of types and sizes of vehicles) with a 
significant share of the market. A single CAFE level, applicable to 
each manufacturer, was proposed each model year as follows:

MY 2008: 22.5 mpg
MY 2009: 23.1 mpg
MY 2010: 23.5 mpg

We estimated that these standards could save 4.4 billion gallons of 
fuel over the lifetime of the vehicles sold during those model years, 
compared to the savings that would occur if the standards remained at 
the MY 2007 level of 22.2 mpg.
    The proposed Reformed CAFE system relied on a category and target 
system in which the light truck fleet was segmented according to size 
and a manufacturer's required fuel economy level would be based on its 
actual fleet distribution across the categories as compared to 
applicable fuel economy targets. As proposed, the structure of Reformed 
CAFE for each model year would have three basic elements--
    (1)--six footprint \28\ categories of vehicles.
---------------------------------------------------------------------------

    \28\ Footprint is an aspect of vehicle size--the product of 
multiplying a vehicle's wheelbase by its average track width.
---------------------------------------------------------------------------

    (2)--a target level of average fuel economy for each footprint 
category, as expressed by a step function (The step or ``staircase'' 
nature of the function can be seen in Figure 1 below.).
    (3)--a Reformed CAFE standard based on the harmonic production-
weighted average of the fuel economy targets for each category.

[[Page 17576]]

[GRAPHIC] [TIFF OMITTED] TR06AP06.000

    To define the proposed category boundaries (step boundaries), we 
first plotted the light truck production volumes by footprint. We then 
sought to designate the category boundaries at points where there was 
low volume footprint immediately adjacent to and to left of a high 
volume footprint. Our intent in doing this was to reduce any incentive 
for manufacturers to increase footprint in order to move a model into a 
category with a lower fuel economy target. We sought to create a 
reasonable number of categories that would also combine, to the extent 
practicable, similar vehicle types into the same category. Each 
category was then assigned a fuel economy target.
    The proposed fuel economy targets were determined by a three-step 
process. First, the agency applied feasible technology to each of the 
seven largest light truck manufacturers' fleets \29\ individually until 
the marginal cost of the added technology equaled the marginal benefit 
of the additional technology. Next, initial targets were determined by 
placing all of the improved vehicles into the six categories and 
calculating a production-weighted fuel economy average within each 
category. Finally, the initial targets were adjusted by equal 
increments of fuel savings to a level at which marginal cost equaled 
marginal benefit for industry as a whole. This final level provided the 
targets as proposed, which would be used to determine a manufacturer's 
required fuel economy level.
---------------------------------------------------------------------------

    \29\ The seven largest light truck manufacturers are General 
Motors, Ford, DaimlerChrysler, Toyota, Honda, Hyundai, and Nissan.
---------------------------------------------------------------------------

    Under the proposed reform, the required level of CAFE for a 
particular manufacturer for a model year would be calculated after 
inserting the following data into the standard for that model year: 
that manufacturer's actual total production and its production in each 
footprint category for that model year.\30\ The calculation of the 
required level would be made by dividing the manufacturer's total 
production for the model year by the sum of the six fractions (one for 
each category) obtained by dividing the manufacturer's production in a 
category by the category's target.
---------------------------------------------------------------------------

    \30\ Since the calculation of a manufacturer's required level of 
average fuel economy for a particular model year would require 
knowing the final production figures for that model year, the final 
formal claculation of that level would not occur until after those 
figures are submitted by the manufacturer to EPA. That submission 
would not, of course, be made until after the end of that model 
year.
---------------------------------------------------------------------------

    As proposed, a manufacturer's required fuel economy was represented 
as the following formula:
[GRAPHIC] [TIFF OMITTED] TR06AP06.001

    During the MY 2008-2010 transition period, we proposed that 
manufacturers may comply with CAFE standards established under Reformed 
CAFE or with standards established under Unreformed CAFE. To further 
ease the transition, and to ensure that the Reformed standards were 
economically practical, the proposed Reformed CAFE standards were set 
at levels at which the industry-wide cost of those standards were 
roughly equivalent to the industry-wide cost of the Unreformed CAFE 
standards for those model years.

[[Page 17577]]

    As proposed, all manufacturers would be required to comply with a 
Reformed CAFE standard in MY 2011. The proposed Reformed CAFE standard 
for that model year was set at the level that maximized net benefits.
    Under the NPRM, the range of targets for each model year was as 
follows:

MY 2008: From 26.8 mpg for the smallest vehicles to 20.4 mpg for the 
largest;
MY 2009: From 27.4 mpg for the smallest vehicles to 21.0 mpg for the 
largest;
MY 2010: From 27.8 mpg for the smallest vehicles to 20.8 mpg for the 
largest;
MY 2011: From 28.4 mpg for the smallest vehicles to 21.3 mpg for the 
largest

We estimated that the standards based on these targets would save 
approximately 10.0 billion gallons of fuel over the lifetime of the 
vehicles sold during those four model years, compared to the savings 
that would occur if the standards remained at the MY 2007 level of 22.2 
mpg. The Reformed standards for MYs 2008-2010 were estimated to save 
525 million more gallons of fuel than the Unreformed standards for 
those years. We estimated the proposed MY 2011 standard to save an 
additional 2.8 billion gallons of fuel.
    We tentatively determined that the proposed standards under both 
Unreformed CAFE and Reformed CAFE represent the maximum feasible fuel 
economy level for each system. In reaching this conclusion, we balanced 
the express statutory factors and other relevant considerations, such 
as safety concerns, effects on employment and the need for flexibility 
to transition to a Reformed CAFE program that can achieve greater fuel 
savings in a more economically efficient way.
    The proposed Reformed CAFE approach incorporated several important 
elements of reform suggested by the National Academy of Sciences in its 
2002 report (Effectiveness and Impact of Corporate Average Fuel Economy 
(CAFE) Standards; NAS report). The agency outlined four basic 
advantages that the proposed Reformed CAFE approach has over the 
Unreformed CAFE approach: enlarged energy savings, enhanced safety, a 
more equitable regulatory framework for different vehicle 
manufacturers, and a more market oriented approach that more fully 
respects economic conditions and consumer choice. Reformed CAFE forces 
vehicle manufacturers to ensure that they are incorporating available 
technologies to enhance fuel efficiency in all the vehicles they 
produce.
    In addition to the proposed step function approach, the agency also 
discussed a continuous function approach. We explained that under a 
continuous function approach there would be no categories, but instead 
each footprint value would be assigned a fuel economy target. We 
provided an example of a continuous function standard and requested 
comment on such an approach.
    Aside from proposing structural changes to the CAFE program, the 
agency also discussed the potential of expanding the applicability of 
the program to include heavier and heavier rated light trucks in MY 
2011. The agency requested comment on the inclusion of vehicles 
classified by the Environmental Protection Agency (EPA) as medium duty 
passenger vehicles (MDPVs) \31\ in the light truck CAFE program.
---------------------------------------------------------------------------

    \31\ In 40 CFR 86-1803-01, EPA defines ``MPDV'' as a light truck 
rated at more than 8,500 lbs GVWR, or that has a vehicle curb weight 
of more than 6,000 pounds, or that has a basic vehicle frontal area 
in excess of 45 square feet. ``MDPV'' does not include a vehicle 
that:
    Is an ``incomplete truck'' as defined in this subpart; or
    Has a seating capacity of more than 12 persons; or
    Is designed for more than 9 persons in seating rearward of the 
driver's seat; or
    Is equipped with an open cargo area (for example, a pick-up 
truck box or bed) of 72.0 inches in interior length or more. A 
covered box not readily accessible from the passenger compartment 
will be considered an open cargo area for purposes of this 
definition.
---------------------------------------------------------------------------

    Along with soliciting comment on the CAFE proposal, the agency also 
requested updated product plan information and other data to assist in 
developing a final rule. We noted that based on public comments and 
other information, new data and analysis, and updated product plans, 
the standards adopted in the final rule could well be different then 
those proposed.

IV. Summary of Public Comments

    NHTSA received over 45,000 individual submissions to the rulemaking 
docket prior to the close of the comment period, including ones from 
vehicle manufacturers and associations, environmental and consumer 
advocacy groups, members of Congress, and private individuals. The vast 
majority of the submissions were letters or e-mails prepared by various 
organizations and submitted by private individuals to the docket.
    Light truck manufacturers and their trade associations that 
commented on the proposal included General Motors Corporation (Docket 
No. 2005-22223-1493), Ford Motor Company (Docket No. NHTSA-2005-22223-
1570), DaimlerChrysler (Docket No. 20005-22223-1573), Toyota (Docket 
No. NHTSA-2005-22223-1724), Honda (Docket No. NHTSA-2005-22223-1649), 
Nissan (Docket No. NHTSA-2005-22223-2058), Mitsubishi Motor Company 
(Docket No. NHTSA-2005-22223-1819), Hyundai (Docket No. NHTSA-2005-
22223-2035), Porsche (Docket No. NHTSA-2005-22223-1688), BMW of North 
America (Docket No. NHTSA-2005-22223-1616), Volkswagen of North America 
(Docket No. NHTSA-2005-22223-1674), the Alliance of Automobile 
Manufacturers (Alliance; Docket No. NHTSA-2005-22223-1642), and the 
Association of International Automobile Manufacturers (Docket No. 
NHTSA-2005-22223-1645).
    Manufacturers generally agreed that distinguishing vehicles within 
the light truck fleet according to a size metric, i.e., footprint, 
adequately recognized differences in manufacturers' compliance efforts 
due to differences in fleet mix. They stated that step-function 
standard based on footprint would provide manufacturers greater 
flexibility in complying with the CAFE requirements while at the same 
time, address safety concerns associated with the program. Contrary to 
their general support for the proposed step function standard, 
manufacturers expressed reservations with a continuous function 
standard as discussed in the NPRM. Manufacturers stated that a 
continuous function standard would be overly complex to administer and 
with which to comply.
    While manufacturers expressed general support for the structure of 
the proposed Reformed CAFE, manufacturers generally expressed concern 
with the process, as well as the assumptions relied upon in that 
process, used to define the Reformed CAFE standards. Manufacturers 
argued that the agency's reliance on a cost-benefit analysis to 
determine the stringency of the light truck CAFE standards did not 
adequately account for the capabilities of the industry, and in some 
instances would not satisfy the ``economic practicability'' 
consideration required under EPCA. Additionally, manufacturers took 
issue with the economic and technological assumptions employed in the 
Reformed CAFE analysis, as well as in the Unreformed CAFE analysis. 
Manufacturers asserted that the agency did not properly account for 
technological and market risks that have the potential to render the 
standards infeasible.
    With regard to the applicability of the light truck CAFE program, 
the vehicle

[[Page 17578]]

manufacturers generally opposed including vehicles with a GVWR greater 
than 8,500 lbs in the light truck program. Manufacturers asserted that 
standards were not practical for these vehicles; these vehicles are 
used in a substantially different manner than lighter vehicles, making 
the CAFE standards inappropriate; and that regulation of these vehicles 
would not result in significant fuel savings.
    Environmental, consumer and safety advocacy groups commenting on 
the proposal included Environmental Defense (Docket No. NHTSA-2005-
22223-1491, 1698-1703, 1805), Natural Resource Defense Council (NRDC; 
Docket No. NHTSA-2005-22223-1705 through 1710), the Union of Concerned 
Scientists (Docket No. NHTSA-2005-22223-1977, 1978), the Insurance 
Institute for Highway Safety (IIHS; Docket No. NHTSA-2005-22223-2082), 
Center for Biological Diversity (Docket No. NHTSA-2005-22223-1638 
through 1641), National Environmental Trust (Docket No. NHTSA-2005-
22223-1483, 1484), Sierra Club (Docket No. NHTSA-2005-22223-1623), U.S. 
PIRG (Docket No. NHTSA-2005-22223-1623), Alliance to Save Energy--
American Council for an Energy-Efficient Economy (ACEEE; (Docket No. 
NHTSA-2005-22223-1711), the American Jewish Committee (Docket No. 
NHTSA-2005-22223-1420), Alliance for Affordable Energy et al. (Docket 
No. NHTSA-2005-22223-1726),\32\ AAA (Docket No. NHTSA-2005-22223-1804), 
and Public Citizen (Docket No. NHTSA-2005-22223-2188, 2189).
---------------------------------------------------------------------------

    \32\ Signatories to the Alliance for Affordable Energy et al., 
included representatives from Environmental and Energy Study Group, 
Environmental Energy Solutions, Global Possibilities, Institute for 
Environmental Research Education, Mainstay Energy, National 
Environmental Trust, North Carolina Solar Center, Oregon 
Environmental Council, Redwood Alliance, The Stella Group, Ltd., SUN 
DAY Campaign, SustainableBusiness.com, Triangle Clean Cities 
Coalition, and Vermont Energy Investment Corp.
---------------------------------------------------------------------------

    In general, the environmental and consumer groups stated that the 
increased fuel prices, the need of the nation to conserve energy and 
the availability of ``effective technologies'' necessitate more 
stringent standards. Several of these commenters stated that the light 
truck standard should approach that for passenger cars or higher. These 
groups generally asserted that any reform proposal must include a 
mechanism to guarantee the fuel savings projected by the agency under 
the new standards. Many of these groups expressed concern that the 
proposed structure and reliance on vehicle footprint in the Reformed 
CAFE system would permit manufacturers to ``upsize'' their fleets, 
which would result in reduced fuel savings. Several commenters stated 
that the statutory requirement to set ``maximum feasible'' standards 
makes it impermissible for the agency to limit the level of the new 
standards based on the concepts of ``optimal economic efficiency'' or 
``least capable manufacturer.'' They argued that setting the Reformed 
CAFE standards during the transition period at levels that impose the 
same costs as the Unreformed standards was inconsistent with the 
``maximum feasible'' requirement. Additionally, some of these groups 
disagreed with the agency's statement regarding the preemption of State 
regulation of greenhouse gas emissions from motor vehicles. The Center 
for Biological Diversity asserted that the accompanying draft 
Environmental Assessment was inadequate.
    IIHS expressed concern that the category system as proposed would 
provide an incentive for unsafe compliance strategies. IIHS stated that 
the category system still provided an incentive to downsize a vehicle 
within a category in order to improve its fuel economy. IIHS stated 
that downsizing, particularly among the smaller vehicles, can have a 
negative impact on safety. To address this issue, IIHS recommended that 
the agency adopt a continuous function approach as discussed in the 
NPRM.
    A number of comments representing the interests of States were 
received. These comments generally voiced opposition to various parts 
of the NPRM. The New York State Department of Environmental 
Conservation (NY DEC; Docket No. NHTSA-22223-1646), the State of New 
Jersey Department of Environmental Protection (Docket No. NHTSA-22223-
1651), NESCAUM \33\ (Docket No. NHTSA-22223-1625), the Pennsylvania 
Department of Environmental Protection (PA DEP; Docket No. NHTSA-22223-
1807), the California Air Resources Board (Docket No. NHTSA-22144-31), 
STAPPA/ALAPCO \34\ (Docket No. NHTSA-22223-1494), and the Connecticut 
Department of Environmental Protection (Docket No. NHTSA-22223-1624) 
disagreed with the statement in the NPRM preamble about preemption of 
State greenhouse gas regulations for motor vehicles and requested that 
not include any such statement in the final rule. These commenters 
generally also requested that the agency increase the stringency of the 
final fuel economy requirements as well as regulate the fuel economy of 
light trucks with a GVWR up to 10,000 lbs. The Attorneys General for 
California, Massachusetts, New York, Connecticut, New Jersey, Maine, 
Oregon, Vermont, and the New York City Corporation Counsel (Attorneys 
General; Docket No. NHTSA-22223-2223) also objected to the preemption 
language, and further stated that the agency is obligated to perform an 
environmental impact statement under the National Environmental Policy 
Act. The California Energy Commission expressed support for the 
Reformed CAFE structure, but stated that, because of uncertainty in the 
economic assumptions relied upon by the agency, standards should be 
established at this time for model year 2008 only (Docket No. NHTSA-
22144-19).
---------------------------------------------------------------------------

    \33\ NESCAUM (Northeast States for Coordinated Air Use 
Management) is an interstate association of air quality control 
divisions representing the six New England States, as well as New 
York and New Jersey.
    \34\ State and Territorial Air Pollution Program Administrators 
and the Association of Local Air Pollution Control Officials.
---------------------------------------------------------------------------

    Members of Congress also submitted comment, expressing concern over 
the proposal. A letter signed by Representatives Tammy Baldwin, Jim 
McDermott, Susan Davis, Raul Grijalva, Barbara Lee, Michael Michaud, Ed 
Case, Robert Wexler, Pete Stark, Dennis Cardoza, Allyson Y. Schwartz, 
and Jim Moran stated that the proposal contains a number of positive 
aspects, particularly the use of footprint instead of weight as the 
basis for Reformed CAFE (Docket No. NHTSA-22223-1334). However, 
Representative Baldwin et. al asked that the agency establish more 
stringent standards and establish standards for vehicles with a GVWR 
between 8,500 and 10,000 lbs, stating that such revisions are necessary 
to reduce the nation's demand for foreign oil and to lower gasoline 
costs for consumers.
    Comments were also received from a variety of additional 
organizations and interests. The Competitive Enterprise Institute 
(Docket No. NHTSA-22223-1682) commented that the proposal would provide 
more flexibility to manufacturers and be more accommodating to consumer 
preference, but argued that increased CAFE standards have the potential 
to affect motor vehicle safety adversely. The Mercatus Center (Docket 
No. NHTSA-22223-1632) and Criterion Economics (Docket No. NHTSA-22223-
1976) raised concerns relating to many of the analytic assumptions used 
in the preliminary regulatory impact analysis. The Sport Utility 
Vehicle Owners of America (Docket No. NHTSA-22223-1599) and Marine 
Retailers Association of America (Docket No. NHTSA-22223-84) argued 
that there was a need to

[[Page 17579]]

consider the utility of light trucks, particularly towing capacity.
    As stated above, the vast majority of comments received were 
submitted by individual citizens. Private individuals expressed concern 
that the proposed standards would not be sufficient to meet the 
nation's need to conserve energy, would not protect the nation from 
future spikes in fuel prices, would negatively impact the environment, 
and would encourage manufacturers to build larger vehicles with lower 
fuel economy.
    NRDC provided citizens with a letter requesting that the agency 
increase the light truck standard by 1 mpg a year over five years. 
These letters raised concern that the fuel economy standards as 
proposed would not adequately address the nation's need to conserve 
fuel.
    The Union of Concerned Scientists also provided citizens with form 
letters that requested the agency to regulate vehicles with a GVWR 
greater than 8,500 lbs, to consider ``cost-efficient technologies'' for 
``mid-size SUVs,'' and to provide a mechanism to ensure that 
manufacturers do not ``up-size'' vehicles. Other similar documents were 
also submitted to the docket.
    Some expressed belief that sufficient technology is available that 
would enable the manufacturers to exceed the proposed CAFE standards.
    While the above discussion very briefly describes the comments 
submitted by the various interested parties, more detailed discussions 
of the comments and the agency's responses are embedded in the analysis 
and discussion which follow.

V. The Unreformed CAFE Standards for MYs 2008-2010

    The agency is establishing Unreformed CAFE standards of 22.5 miles 
per gallon (mpg) for model year (MY) 2008, 23.1 mpg for MY 2009, and 
23.5 mpg for MY 2010. We estimate that these standards will save 4.4 
billion gallons of fuel over the lifetime of vehicles sold during those 
model years, compared to the savings that would occur if the standards 
remained at the MY 2007 level of 22.2 mpg. We have determined that 
these requirements represent the maximum feasible fuel economy levels 
achievable by industry in those model years.
    Consistent with the NPRM, the Unreformed CAFE standards in MYs 
2008-2010 are one option for compliance during a transition period in 
which manufacturers may comply with either the Reformed or Unreformed 
CAFE systems. During the transition period, the requirements under the 
Reformed CAFE systems are linked to those of the Unreformed system, in 
the sense that the Reformed CAFE standards for MYs 2008-2010 are set at 
levels intended to ensure that the industry-wide cost of the Reformed 
standards are roughly equivalent to the industry-wide cost of the 
Unreformed CAFE standards in those model years.
    As stated in the NPRM, this transition approach has several 
important advantages. We have determined the Unreformed standards to be 
economically practicable. The Reformed standards spread the cost burden 
across the industry to a greater extent. As such, equalizing the cost 
between the Unreformed and the Reformed CAFE systems ensures that the 
costs associated with the transition period do not result in 
economically severe compliance requirements. Further, this approach 
promotes an orderly and effective transition to the Reformed CAFE 
system since experience will be gained prior to MY 2011. In this 
section, we describe how we developed the Unreformed CAFE standards.
    In arriving at the Unreformed CAFE standards, we used the same type 
of analyses as in the NPRM and as we employed in establishing light 
truck CAFE standards for MYs 2005-2007. First, we analyzed the 
confidential product planning data submitted by the manufacturers to 
ascertain the ``baseline'' capabilities and fuel economy of each 
manufacturer that has a significant share of the light truck market. 
Second, we conducted a three-stage manual engineering analysis (the 
Stage Analysis), in conjunction with a computer-based engineering 
analysis (the Volpe Analysis), to determine what technologies each 
company with a significant share of the market could use to enhance its 
overall fleet fuel economy average. In order to perform the two 
analyses, the agency relied on the National Academy of Sciences (NAS) 
report entitled, ``Effectiveness and Impact of Corporate Average Fuel 
Economy (CAFE) Standards,'' which contains costs and effectiveness 
estimates for various technologies that could be used to enhance 
vehicle fuel economy.
    As explained in the August 2005 NPRM,\35\ the Stage Analysis 
involves application of the agency's engineering expertise and judgment 
about possible adjustments to the detailed product plans submitted by 
individual manufacturers. More specifically, Stage I analysis involves 
the application of technologies which are deemed to be available for 
use by MY 2008 and which would not require significant changes to the 
vehicle's driveline components (i.e., the engine and transmission). 
Stage II analysis involves the application of more advanced 
transmission upgrades and engine improvements that are readily 
available in the marketplace. Stage III analysis involves the 
application of diesel and hybrid powertrains to select products.
---------------------------------------------------------------------------

    \35\ 70 FR 51414 (August 30, 2005).
---------------------------------------------------------------------------

    The Volpe Analysis was described in detail in the NPRM and Final 
Rule establishing light truck CAFE standards for MYs 2005-2007.\36\ The 
Volpe analysis uses a technology application algorithm to 
systematically apply consistent cost and performance assumptions to the 
entire industry, as well as consistent assumptions regarding economic 
decision-making by manufacturers. The resultant computer model (the 
CAFE Compliance and Effects Model), developed by technical staff of the 
DOT Volpe National Transportation Systems Center in consultation with 
NHTSA staff, is used to help estimate the overall economic impact of 
the Unreformed CAFE standards. The Volpe analysis shows the economic 
impact of the standards 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 net economic 
and other benefits, the agency is able to set the standards that are 
economically practicable and technologically feasible. The Stage 
Analysis and the Volpe Analysis rely on the same product plan 
information from manufacturers, consider many of the same technologies 
(the Stage Analysis considers some manufacturer-specific technologies 
not represented in the Volpe Analysis), and apply similar conditions 
regarding the applicability of those technologies.
---------------------------------------------------------------------------

    \36\ See 67 FR 77015 (December 16, 2002) and 68 FR 16868 at 
16871 (April 7, 2003). Docket Nos. NHTSA-2002-11419-55 and NHTSA-
2002-11419-18361.
---------------------------------------------------------------------------

    We note that the Volpe model has been updated and refined with 
respect to its representation of some fuel-saving technologies, but 
remains fundamentally the same. The updated model has also been peer 
reviewed.\37\ The model documentation, including a description of the 
input assumptions and process, as well as peer review reports and the 
agency's response to reviewers, were made available in the rulemaking 
docket for the August 2005 NPRM.\38\
---------------------------------------------------------------------------

    \37\ The agency's response to the peer review is provided in the 
docket at NHTSA-2005-22223-52.
    \38\ See Docket Nos. NHTSA-20005-22223-3, 4, 5.
---------------------------------------------------------------------------

    We received a significant number of comments in response to the 
proposed

[[Page 17580]]

Unreformed CAFE standards, expressing a wide range of views. While some 
of those commenting argued that technology is available to set the 
standards higher, others argued that insufficient lead time, as well as 
technological and monetary constraints, make it unlikely that the 
proposed standards would be attainable. We have reviewed these comments 
and adjusted many aspects of the analyses used to determine the 
Unreformed CAFE standards in order to account for issues brought to our 
attention. Responses to comments that raised specific technology and 
economic assumptions issues are discussed in detail below in sections 
VIII. Technology issues, and IX.

Economic Assumptions

    In the balance of this section, we describe in further detail how 
we developed the Unreformed CAFE standards. After considering the 
foregoing and taking into consideration the statutory criteria 
specified in 49 U.S.C. 32092(f) \39\, we are adopting the Unreformed 
CAFE standards specified above, having concluded that they constitute 
the maximum feasible standards for MYs 2008-2010.
---------------------------------------------------------------------------

    \39\ The statutory criteria, which are addressed elsewhere in 
this document, are: (1) The nation's need to conserve energy; (2) 
technological feasibility; (3) economic practicability (including 
employment consequences); and the impact of other regulations on 
fuel economy.
---------------------------------------------------------------------------

A. Legal Authority and Requirements Under EPCA

    As previously stated, EPCA requires that the CAFE standards set a 
minimum performance standard at a level determined by the Secretary of 
Transportation to be the ``maximum feasible'' average fuel economy 
achievable by manufacturers in a given model year (49 U.S.C. 32902). To 
guide determinations of the maximum feasible fuel economy level, 
Congress specified four statutory criteria that must be considered: 
technological feasibility, economic practicability, the effect of other 
Federal motor vehicle standards on fuel economy, and the need of the 
United States to conserve energy. The agency is permitted to consider 
additional societal considerations and historically has considered the 
potential for adverse safety consequences when deciding upon a maximum 
feasible level.\40\ The overarching principle that emerges from the 
enumerated factors and the court-sanctioned practice of considering 
safety and links them together is that CAFE standards should be set at 
a level that will achieve the greatest amount of fuel savings without 
leading to significant adverse societal consequences.
---------------------------------------------------------------------------

    \40\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F. 2d 
1322 (D.C. Cir. 1986) (Administrator's consideration of market 
demand as component of economic practicability found to be 
reasonable); Public Citizen 848 F.2d 256 (Congress established broad 
guidelines in the fuel economy statute; agency's decision to set 
lower standard was a reasonable accommodation of conflicting 
policies). As the United States Court of Appeals pointed out in 
upholding NHTSA's exercise of judgment in setting the 1987-1989 
passenger car standards, ``NHTSA has always examined the safety 
consequences of the CAFE standards in its overall consideration of 
relevant factors since its earliest rulemaking under the CAFE 
program.'' Competitive Enterprise Institute v. NHTSA (CEI I), 901 
F.2d 107, 120 at n.11 (D.C. Cir. 1990).
---------------------------------------------------------------------------

    We have set the Unreformed standards with particular regard to the 
``least capable manufacturer with a significant share of the market,'' 
in response to the direction in the conference report on the CAFE 
statute language to consider industry-wide considerations, but not 
necessarily base the standards on the manufacturer with the greatest 
compliance difficulties.\41\ This approach is consistent with the 
Conference Report on the legislation enacting the CAFE statute:
---------------------------------------------------------------------------

    \41\ ``Least capable manufacturer'' is something of a misnomer 
as a major manufacturer could install substantial amounts of fuel 
saving technologies and still be the major manufacturer with lowest 
projected CAFE due to its mix of vehicles.

    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 
must consider the industry's ability to improve fuel economy, but with 
appropriate consideration given to the difficulties of individual 
manufacturers.
    In response to this congressional direction, we have traditionally 
given particular regard to the ``least capable manufacturer with a 
substantial share of the market.'' The agency 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.
    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.'' \42\ See, e.g., Public Citizen, 848 F.2d at 264. In 
essence, in determining the maximum feasible level of CAFE, the agency 
assesses what is technologically feasible for manufacturers to achieve 
without leading to significant adverse economic consequences, such as a 
significant loss of jobs or the unreasonable elimination of consumer 
choice.
---------------------------------------------------------------------------

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

    At the same time, the law does not preclude a CAFE standard that 
poses considerable challenges to any individual manufacturer. The 
Conference Report makes clear, and the case law affirms: ``(A) 
determination of maximum feasible average fuel economy should not be 
keyed to the single manufacturer which might have the most difficulty 
achieving a given level of average fuel economy.'' CAS, 793 F.2d at 
1338-39. 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.\43\
---------------------------------------------------------------------------

    \43\ 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 minimis, share of the market. See, 
e.g., CAS, 793 F.2d at 1326 (noting that the agency set the MY 1982 
light truck standard at a level that might be above the capabilities 
of Chrysler, based on the conclusion that the energy benefits 
associated with the higher standard would outweigh the harm to 
Chrysler, and further noting that Chrysler had 10-15 percent market 
share while Ford had 35 percent market share). On other occasions, 
the agency reduced an established CAFE standard to address 
unanticipated market conditions that rendered the standard 
unreasonable and likely to lead to severe economic consequences. 49 
FR 41250, 50 FR 40528, 53 FR 39275; see Public Citizen, 848 F.2d at 
264.

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

[[Page 17581]]

    By focusing primarily on the least capable manufacturer with a 
significant share of the market, this approach has ensured that the 
standards are technologically feasible and economically practicable for 
manufacturers with a significant share of the market. If a standard is 
technologically feasible and economically practicable for the ``least 
capable'' manufacturer, it can be presumed to be so for the ``more 
capable'' manufacturers. Together, the manufacturers with a significant 
share of the market represented a very substantial majority of the 
light trucks manufactured and thus were deemed to represent ``industry-
wide considerations.''

B. Establishing Unreformed Standards According to EPCA--Process for 
Determining Maximum Feasible Levels

    In establishing the Unreformed standards for MYs 2008-2010, the 
agency relied upon its historical standard setting process, which 
includes consideration of the ``least capable manufacturer with a 
significant share of the market.''
    NRDC, Environmental Defense and the Union of Concerned Scientists 
stated that the ``least capable manufacturer'' approach applied by the 
agency in setting standards under the Unreformed CAFE standards 
violates EPCA and Congress' expressed intent. NRDC argued that ``while 
the agency is permitted to consider the single, least capable 
manufacturer in assessing economic practicability, it simply may not 
allow that manufacturer's capabilities to drive the standard setting 
process,'' and referred to CAS.
    In CAS, the petitioners alleged that the agency had given 
``impermissible weight to shifts in consumer demand toward larger, less 
fuel-efficient trucks''\44\ in reducing the MY 1985 standard for light 
trucks and in establishing the MY 1986 standard for light trucks. In 
reducing the MY 1985 standard as well as in establishing the MY 1986 
one, NHTSA considered the impacts of different levels of standards on 
the least capable manufacturer. The Court noted the conference report 
for EPCA ``states that the fuel economy standards delegated to NHTSA 
are to be the product of balancing the benefits of higher fuel economy 
levels against the difficulties individual manufacturers would face in 
achieving those levels,''\45\ Then it quoted language to that effect 
from the conference report. In the end, the Court upheld the standards 
established through consideration of the least capable manufacturer 
with a significant share of the market, stating that ``a standard with 
harsh economic consequences for the auto[mobile] industry * * * would 
represent an unreasonable balancing of EPCA's policies.''\46\
---------------------------------------------------------------------------

    \44\ Id. at 1323-4.
    \45\ Id. at 1338.
    \46\ Id. at 1340.
---------------------------------------------------------------------------

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

C. Baseline for Determining Manufacturer Capabilities in MYs 2008-2010

    In order to determine the maximum feasible fuel economy levels for 
MYs 2008-2010 under the Unreformed CAFE system, we first determined 
each manufacturer's fuel economy baselines for MYs 2008-2010. That is, 
we determined the fuel economy levels that manufacturers were planning 
to achieve in those years.
    The manufacturer baselines relied upon for the proposed Unreformed 
CAFE standards were based upon information submitted by manufacturers 
in response to the December 29, 2003 request for product plans \47\, 
and any additional manufacturer updates. In conjunction with the August 
2005 NPRM, we issued a RFC seeking updated product plans to enable 
NHTSA to use the most accurate and up-to-date product plan information 
in establishing the Reformed and Unreformed CAFE standards.\48\
---------------------------------------------------------------------------

    \47\ See 68 FR 74931; see also Docket No. NHTSA-2003-16709-1.
    \48\ See Docket No. NHTSA-2005-22144.
---------------------------------------------------------------------------

    In response to the RFC, we received product plans from 
DaimlerChrysler, Ford, General Motors, Honda, Hyundai, Mitsubishi, 
Nissan, Subaru and Toyota. To supplement the data provided in response 
to the RFC, we also relied on product data available from public 
sources. Taken together, it was this updated information that the 
agency used in development of the standards for today's final rule.
    We note that BMW, Porsche, and Volkswagen previously paid fines in 
lieu of complying with the MY 2002 and 2003 light truck CAFE standards. 
The agency assumes that because of that past history and their low 
light truck production volumes Porsche and Volkswagen will continue to 
pay fines instead of bringing their fleets into compliance. For purpose 
of the NPRM, we also assumed that BMW would continue to pay fines. 
However, BMW has indicated that it does not intend to pay fines in the 
model years subject to this rulemaking. We have adjusted our analysis 
accordingly.
    Finally, in response to a comment from DaimlerChrysler, we removed 
Mitsubishi's information from DaimlerChrysler's product plans due to 
DaimlerChrysler's recent sale of its entire share of Mitsubishi stock 
and adjusted DaimlerChrysler's baseline capabilities accordingly.
    Based on the updated manufacturer's responses and the available 
public data, we determined the baseline capabilities as follows:

                   Table 1.--Estimated Market Shares and Planned CAFE Levels (Without Credits)
----------------------------------------------------------------------------------------------------------------
                                                             Market        MY 2008       MY 2009       MY 2010
                      Manufacturer                          share\*\        (mpg)         (mpg)         (mpg)
----------------------------------------------------------------------------------------------------------------
General Motors..........................................          25.8         21.36         21.43         21.59
Ford....................................................          19.4         21.53         21.79         22.65
DaimlerChrysler.........................................          23.0         21.96         22.01         22.42
Toyota..................................................          11.6         22.51         22.44         22.65
Honda...................................................           6.5         24.56         24.56         24.56
Nissan..................................................           5.7         21.01         20.70         21.13

[[Page 17582]]

 
Hyundai.................................................           3.6         23.22         23.49         23.36
Subaru..................................................           1.1         25.87         27.15         27.05
BMW.....................................................           0.8         21.29         21.29         21.29
Porsche.................................................           0.2         16.80         16.80         16.80
Isuzu...................................................           0.4         20.38         20.24         20.14
Suzuki..................................................           0.3         21.93         21.93         21.93
Volkswagen..............................................           0.3         18.78         18.78         18.78
Mitsubishi..............................................           1.3         24.33         24.41        24.70
----------------------------------------------------------------------------------------------------------------
*Based on 2005 production data.

    After ascertaining the baseline capabilities of individual 
manufacturers, the agency applied the Stage analysis to analyze the 
potential technological improvements to the product offerings for each 
manufacturer with a substantial share of the light truck market, as 
well as for the remaining light truck manufacturers.\49\
---------------------------------------------------------------------------

    \49\ A more detailed discussion of these issues is contained in 
the Chapter VI of the FRIA, which has been placed in the docket for 
this notice. Some of the information included in the FRIA, including 
the details of manufacturers' future product plans, has been 
determined by the Agency to be confidential business information, 
the release of which could cause competitive harm. The public 
version of the FRIA omits the confidential information. The FRIA 
also discusses in detail the fuel-economy-enhancing technologies 
expected to be available during the MY 2008-2011 time period.
---------------------------------------------------------------------------

    The Alliance and Ford argued that in establishing manufacturer 
baselines for our analysis, the agency erroneously assumed that each 
manufacturer's fleet average would be at 22.2 mpg for Model Year 2007. 
These commenters stated that this assumption is incorrect, because some 
manufacturers did not submit product plan information to support this 
assumption and other manufacturers achieve compliance with the CAFE 
requirements through the use of credits and payment of fines. The 
Alliance and Ford also stated that some manufacturers (in anticipation 
of future CAFE increases) might have taken steps in support of higher 
fleet averages and might have already incorporated fuel saving 
technologies.
    In response, we note that the agency did not assume that each 
manufacturer's fleet average would be 22.2 mpg for MY 2007. We used the 
manufacturer's plans to determine the fleet average. When a 
manufacturer's plans were below 22.2 mpg, we estimated the technologies 
and costs necessary to bring their fleet average up to a 22.2 mpg 
baseline. These costs were assigned to the MY 2007 standards, and such 
costs were not included in the costs for MY 2008.
    With respect to alternative fuel vehicles, we note that 
manufacturers may improve their calculated fuel economy performance by 
placing these vehicles into the market through MY 2012.\50\ However, 49 
U.S.C. 32902(h) prohibits us from taking such benefits into 
consideration in determining the maximum feasible fuel economy 
standard. Accordingly, the baseline projections cannot reflect those 
credits.\51\
---------------------------------------------------------------------------

    \50\ The applicability of the alternative fuel provision in 
Sec.  32905 was extended in the Energy Policy Act of 2005 (Pub. L. 
109-58).
    \51\ Sec. 32902(h) states that when establishing fuel economy 
standards, the agency:
    (1) May not consider the fuel economy of dedicated automobiles; 
and
    (2) Shall consider dual fueled automobiles to be operated only 
on gasoline or diesel fuel.
---------------------------------------------------------------------------

D. Technologically Feasible Additions to Product Plans

    As explained in the August 2005 NPRM, we performed a Stage analysis 
to determine what fuel-saving technologies could be applied to a 
manufacturer's baseline. At each of the three stages, we add 
technologies based on our engineering judgment and expertise about 
possible adjustments to the detailed product plans submitted by the 
manufacturers. Our decision on whether and when to add a technology 
reflects our consideration of the practicability of applying a specific 
technology and the necessity for sufficient lead-time in its 
application. In addition to considering lead time and practicability, 
the agency adds technologies in a cost-minimizing fashion. That is, we 
add technologies in order of lower to higher costs as explained in the 
FRIA (see FRIA p. VI-13).
    While technologies are applied in order of ``effective cost,'' the 
level of technology added to a manufacturer's fleet is based on the 
agency's engineering expertise. Technologies are not added until net 
benefits are maximized as under the Reformed CAFE system. Instead, the 
agency uses engineering expertise to apply technology. We impose phase-
in caps for applications of technology over time and do not make 
significant changes until a vehicle is refreshed or redesigned to 
account for product cycles. As such, the price of fuel does not 
directly factor into the application of technology under the Unreformed 
CAFE system to the degree that it does under the Reformed CAFE system.
    New product plan data in response to the NPRM indicated that 
manufacturers had shifted the fleet mix and improved the fuel economy 
of some vehicles. These changes reduced the amount of technology 
available to be applied. For this reason, more costly technologies 
(diesel and hybrids) were projected onto the fleet. The agency feels 
justified in doing so because higher gasoline prices will increase the 
demand for these types of technologies.
    In evaluating which technologies to apply, and the sequence in 
which to apply them, we follow closely the NAS report. The NAS report 
estimated the incremental benefits and the incremental costs of 
technologies that may be applicable to actual vehicles of different 
classes and intended uses.\52\ The NAS report also identified what it 
called ``cost-efficient technology packages'' (i.e., combinations of 
technologies that would result in fuel economy improvements sufficient 
to cover the purchase price increases that such technologies would 
require).\53\
---------------------------------------------------------------------------

    \52\ See NAS Report at p. 40. See also Docket No. 2005-22223-10, 
``Fuel Economy Potential of 2010 Light Duty Trucks.'' This document 
was prepared under the auspices of the U.S. Department of Energy for 
NHTSA, in order to update the estimates provided by the 2001 NAS 
Report.
    \53\ See NAS Report at p. 64.
---------------------------------------------------------------------------

    The Stage I analysis includes technologies that are available for 
use by MY 2008, but that some manufacturers are not currently choosing 
to use in their product plans or are using in a limited manner. 
However, many of these technologies are currently being used in today's 
light truck fleet. They include non-powertrain applications such as 
low-rolling-resistance tires, low-friction lubricants, aerodynamic drag 
reduction, and electric-power steering pumps.

[[Page 17583]]

    The Stage II analysis includes two major categories of 
technological improvements to the manufacturers' fleets. The first 
category is transmission improvements, which includes the introduction 
and expanded use of 5-speed and 6-speed transmissions and continuously 
variable transmissions (CVTs). The second category is engine 
improvements, which includes gradually upgrading light truck engines to 
include multi-valve overhead camshafts; introducing engines with more 
than 2 valves per cylinder; applying variable valve timing or variable 
valve lift and timing to multi-valve overhead camshaft engines; and 
applying cylinder deactivation to 6- and 8-cylinder engines.
    The Stage III analysis includes projections of the potential CAFE 
increase that could result from the application of diesel engines and 
hybrid powertrains to select products. Both diesel engines and hybrid 
powertrains appear in several manufacturers plans within the MY 2008-
2010 timeframe, and other manufacturers have publicly indicated that 
they are looking seriously into both technologies.
    The Stage analysis also includes the possibility that manufacturers 
could utilize some vehicle weight reduction as a fuel economy 
improvement technology on light trucks with curb weights over 5,000 
pounds.\54\ However, the weight reduction was only applied in 
conjunction with a planned vehicle redesign, and sometimes in concert 
with a reduction in aerodynamic drag.
---------------------------------------------------------------------------

    \54\ Based on the results of Dr. Kahane's revised weight and 
safety analysis, the net weight-safety effect of removing 100 lbs. 
from a light truck--if footprint is held constant--is zero for all 
light trucks with curb weights above 3,900 lbs. However, the Stage 
analysis only considered weight reduction for vehicles with a curb 
weight in excess of 5,000 lbs. given the statistical uncertainty 
with the 3,900 lbs. figure. Further discussion of the application of 
weight reduction is provided below.
---------------------------------------------------------------------------

    The agency again relied on the NAS report, which contains costs and 
effectiveness estimates for various technologies that could be used to 
enhance a vehicle's fuel economy. In most instances, NHTSA used the NAS 
report's mid-range estimate of the potential fuel economy benefits of 
specific technologies. However, if NHTSA projected the use of a 
technology specific to a manufacturer, NHTSA relied on effectiveness 
estimates provided by that manufacturer when applying that technology 
to that manufacturer and if appropriate, to other manufacturers.
    In arriving at the Unreformed CAFE standard, the agency took into 
account the concerns raised by the manufacturers in response to the 
August 2005 NPRM. Specifically, the agency is aware that vehicle 
manufacturers require sufficient lead time to incorporate changes and 
new features into their vehicles. The agency is also aware that the 
vehicle manufacturers are unable to deploy new technologies throughout 
their entire light truck fleet in one model year. Similarly, NHTSA also 
recognizes that vehicle manufacturers follow design cycles when 
introducing or significantly modifying a product. In revising and 
applying the Stage Analysis, NHTSA took these concerns into 
consideration.
    For each of the largest manufacturers that provided product plans 
with baselines below our proposed levels for at least one model year, 
the agency projected the use of several Stage I technologies, beginning 
with MY 2008, and several more technologies, beginning with MY 2009. We 
note that in performing the Stage Analysis, the agency relied on 
product plans submitted by the manufacturers as well as comments 
received in response to the August 2005 NPRM. The agency removed 
incompatible technologies and technologies already incorporated into 
manufacturers' product plans from the Stage Analysis. More importantly, 
the agency delayed and ``staggered'' applications of technologies such 
that they are not implemented across the entire fleet in one model 
year. Most new technologies were added in conjunction with model 
changes or vehicle introductions. That is, instead of adding 
technologies to existing vehicles in the middle of their product cycle, 
we added technologies to vehicles at the time the vehicles were 
undergoing major engineering changes or when they were introduced.
    Aside from reliance on the NAS report, we also relied to a limited 
extent on technologies present in the manufacturers' confidential 
product plans. If a technology was present in a manufacturer's product 
plans, we evaluated the opportunity for additional application of the 
technology within that manufacturer's fleet, and if appropriate, other 
manufacturers' fleets. The following are examples of non-confidential 
technologies used in the Stage Analysis.

Stage 1

    Electrical power steering--We first applied this technology to 
lighter vehicles that do not require a conversion to a 42-volt 
electrical system. The agency avoided using this technology for heavier 
vehicles in the near term. The power demands for lighter vehicles do 
not require a 42-volt system for operation of electric power steering. 
However, for larger vehicles it appears that a 42-volt system is 
required to accommodate electric power steering, and adding a 42-volt 
system was deemed a technology that can be only introduced in 
conjunction with model changes or product introductions.
    In all cases, electric power steering was added to the Stage 
Analysis to coincide with model changes. By MY 2008, electrical power 
steering was included on some of the lighter vehicles undergoing model 
changes. By MYs 2009 and 2010, this technology was gradually added to 
heavier vehicles at the beginning of their respective product cycles. 
That way, installation of electrical power steering can coincide with 
the necessary conversion of these heavier vehicles to a 42-volt 
electrical system.
    Low-friction lubricants--This technology does not require 
engineering changes to vehicle engines. Therefore, it was implemented 
in MYs 2008 and 2009 on a large percentage of the eligible fleet 
without ``staggering'' the implementation. That is, the agency believes 
that this technology can be implemented within a relatively short lead 
time. The agency did not apply low-friction lubricants to vehicles with 
engines that require higher-friction lubricants.
    Aerodynamic drag reduction--This technology was applied to certain 
vehicles to coincide with a major vehicle redesign or a vehicle 
introduction. Because aerodynamic drag reduction typically involves 
actual vehicle body changes, we were especially careful not to 
attribute any aerodynamic drag reduction, except at the beginning of a 
new product cycle.
    Low-rolling-resistance tires--This technology was added to lighter, 
passenger-car-based (unibody construction) light trucks that were 
deemed compatible with passenger-car-like tires. Due to compatibility 
concerns expressed by several manufacturers, these tires were not 
applied to light trucks intended for significant off-road duty or 
pickup trucks with substantial cargo carrying capabilities. Because 
this technology does not require vehicle engineering resources, we 
implemented this technology such that it does not necessarily coincide 
with a planned vehicle introduction or redesign. We believe that in 
this case, the lead time is sufficient for the manufacturers to make 
arrangements to purchase sufficient quantities.
    Engine accessory improvement--The agency projected the use of this 
technology for several manufacturers. This technology category 
encompasses a variety of engine accessory

[[Page 17584]]

improvement technologies that several manufacturers are currently 
incorporating, such as improved fuel and oil pumps. If a manufacturer 
provided NHTSA with descriptions for these specific technologies, they 
were applied to that manufacturer's vehicles where appropriate. If 
manufacturers provided no information regarding their incorporation of 
engine accessory improvement technologies, NHTSA applied a potential 
engine accessory improvement to vehicles that had an engine and engine 
technologies that would benefit from and be compatible with specific 
engine accessory improvements. The agency believes that this technology 
is cost-effective. This technology generally affects the operation of 
the engine, thus this technology was added in conjunction with a 
planned introduction of new models.
    Stoichiometric Spark Ignition Direct Injection--This technology was 
added to select vehicles, i.e., those vehicles produced by 
manufacturers that have product plans which reflect a familiarity with 
the technology. This technology was applied in conjunction with a 
planned vehicle redesign. Implementation of this technology was delayed 
in response to comments and in recognition of cost issues associated 
with insufficient lead time.
    Weight reduction--As explained below, this fuel economy improvement 
method was used sparingly on vehicles with a curb weights in excess of 
5,000 pounds and was applied in conjunction with a planned vehicle 
redesign.

Stage 2

    5-speed and 6-speed automatic transmissions--These technologies 
were added to some vehicles that, based on the manufacturers' product 
plans, were projected to continue using 4-speed automatic 
transmissions. As with Stage I technologies, when a transmission 
upgrade is used in the Stage Analysis, it is timed to coincide with 
model changes. Further, we first implemented this technology in 
vehicles that share major mechanical components with vehicles already 
equipped with 5- or 6-speed transmissions. For example, we project this 
technology on certain pickup trucks that share their platforms and 
engines with multipurpose passenger motor vehicles already equipped 
with 6-speed transmissions, knowing that these transmissions were 
readily available to the manufacturer and were compatible with the 
basic vehicle architecture.
    Cylinder deactivation--In response to comments, the agency did not 
apply this technology to vehicles with incompatible existing engine 
architecture. The agency applied this technology to select vehicles. In 
doing so, the agency took into account whether this technology was 
already available to the manufacturers. In some instances, this 
technology was already utilized by vehicle manufacturers on some of 
their light trucks, and the agency believes that adopting this 
technology to other light trucks would save costs, especially if the 
technology is implemented at the time of vehicle redesign.
    Dual overhead cam (DOHC)--The agency did not use, or delayed the 
implementation of this technology in vehicles where the comments 
indicated that the change from single overhead cam (SOHC) would be too 
complicated and would not produce significant fuel economy improvements 
because of incompatibility with the existing engine architecture. In 
other vehicles, implementation of DOHC was timed to coincide with a 
planned vehicle or engine redesign. In applying this technology, the 
agency examined the manufacturers' current vehicles. In some instances 
the manufacturers carry both DOHC engines and SOHC engines of the same 
displacement and basic architecture. In these instances, the agency 
projected a gradual switch to only the DOHC engines.
    Continuous Variable Transmission (CVT)--CVT technology was relied 
upon in the analysis for the NPRM. The agency did not apply CVTs in the 
final rule. The updated product plans reflected that manufacturers had 
applied CVTs or 6-speeds instead to all of those vehicles to which the 
agency's analysis applied CVTs in the NPRM.
    Front Axle Disconnect--Where this technology was implemented, it 
was timed to coincide with planned vehicle redesign. In addition, in 
response to comments regarding the general effectiveness of this 
technology vis-[aacute]-vis its effectiveness in specific vehicle 
applications, we revised downward the projected fuel economy benefits 
attributed to this technology.
    Variable Valve Lift and Timing--Based on comments, this technology 
was not used on certain vehicles because the basic engine architecture 
was incompatible. According to commenters, this technology is 
incompatible with overhead valve engines. Instead, this technology was 
applied to certain vehicles already equipped with overhead cam engines 
featuring variable valve timing.

Stage III

    Stage III technologies were not included in the Stage Analysis for 
all manufacturers because some manufacturers can meet the Unreformed 
CAFE standards without the need to use any diesel or hybrid technology. 
For some vehicle manufacturers, we estimated higher sales of light 
trucks equipped with hybrid engines compared to the manufacturer's 
product plans. This revised estimate is based on continuing strong 
demand and increased popularity of hybrid vehicles. For other 
manufacturers, we projected the use of direct-injection diesel engines 
in place of large displacement gasoline V8 engines.

E. Improved Product Plans

    The agency's revised Stage Analysis produced the following 
individual projections:

            Table 2.--Manufacturers' Fuel Economy Capabilities as Projected Under the Stage Analysis
----------------------------------------------------------------------------------------------------------------
                                                                    Model year      Model year      Model year
                          Manufacturer                                 2008            2009            2010
----------------------------------------------------------------------------------------------------------------
DaimlerChrysler.................................................         *22.475          23.059          23.599
Ford............................................................          22.455          23.060          23.935
General Motors..................................................          22.506          23.060          23.450
Nissan..........................................................          22.452          23.091          23.470
Toyota..........................................................          22.506          23.054         24.044
----------------------------------------------------------------------------------------------------------------
*While compliance is calculated with the standard is in tenths of a mile per gallon, our initial analysis
  projects fuel economy capabilities to thousandths of mpg.


[[Page 17585]]

    The technologically-feasible fuel economy levels determined under 
the Stage Analysis provide the basis for the Unreformed CAFE standards. 
The Volpe model is then used to estimate benefits and costs of these 
standards. The Volpe model analyzes what technologies can be added to 
meet the standard determined by the Stage Analysis. More specifically, 
the Volpe model uses a technology application algorithm developed by 
Volpe Center staff in consultation with NHTSA staff to apply 
technologies to manufacturers' baselines in order to achieve the fuel 
economy levels produced under the Stage Analysis. This algorithm 
systematically applies consistent cost and performance assumptions to 
the entire industry, as well as consistent assumptions regarding 
economic decision-making by manufacturers. Technologies are selected 
and applied in order of ``effective cost,'' (total cost - fine 
reduction - fuel savings value) / (number of affected vehicles).\55\ 
This formula is a private cost concept (i.e., it looks at costs to the 
manufacturer). It is used to predict how a manufacturer would sequence 
the addition of technologies to meet a given standard.
---------------------------------------------------------------------------

    \55\ In the current model year, the system begins by carrying 
over any technologies applied in the preceding model year, based on 
commonality of engines and transmissions, as well as any identified 
predecessor/successor relationships among vehicle models. At each 
subsequent step toward compliance by a given manufacturer in the 
current model year, the system considers all engines, transmissions, 
and vehicles produced by the manufacturer and all technologies that 
may be applied to those engines, transmissions, and vehicles, where 
the applicability of technologies is governed by a number of 
constraints related to engineering and product planning. The system 
selects the specific application of a technology (i.e., the 
application of a given technology to a given engine, transmission, 
vehicle model, or group of vehicle models) that yields the lowest 
``effective cost'', which the system calculates by taking (1) the 
cost (retail price equivalent) to apply the technology times the 
number of affected vehicles, and subtracting (2) the reduction of 
civil penalties achieved by applying the technology, and subtracting 
(3) the estimated value to vehicle buyers of the reduction in fuel 
outlays achieved by applying the technology, and dividing the sum of 
these components by the number of affected vehicles.
---------------------------------------------------------------------------

    Although similar, the two analyses do not apply exactly the same 
technologies. Both are merely technologically feasible ways of 
achieving the given standard, not predictions of how manufacturers will 
actually meet it. As discussed below, additional analysis was performed 
to ensure that the Unreformed CAFE standards are economically 
practicable for the industry.
    We note that the standards adopted today are the same as those 
proposed in the NPRM, even though the agency performed the Stage 
analysis on updated product plans as provided by the manufacturers. 
This result is largely due to the fact that there is a limited pool of 
technology that can be applied to the manufacturers' fleets in the time 
period subject to this rulemaking.
    The updated product plans reflected that some technologies 
previously applied by the agency in the Stage analysis were now applied 
by the manufacturers in their product plans, which meant that these 
technologies were no longer available for the Stage analysis. Because 
the pool of feasible technologies that can be applied in the lead time 
provided is limited, the agency projected fewer additional technologies 
for the updated product plans beyond the improvements made by the 
manufacturers.
    As a result of having limited technologies and practical 
constraints on how and when those technologies can be applied, the 
difference between the NPRM improved fleet and the final rule improved 
fleet is largely a matter of the level of technology voluntarily added 
by manufacturers in their revised product plans submitted in response 
to the NPRM. Consequently, the two improved fleets provide similar fuel 
economies.

F. Economic Practicability and Other Economic Issues

    As explained above, the agency has historically viewed the question 
of whether a CAFE standard is economically practicable in terms of 
whether the standard is ``within the financial capability of the 
industry, but not so stringent as to threaten substantial economic 
hardship for the industry.'' See, e.g., Public Citizen, 848 F.2d at 
264. In the Stage analysis, technologies are applied to project fuel 
economy levels that would be technologically feasible for a 
manufacturer. When considering economic practicability, the agency 
assesses whether technologically-feasible levels may lead to adverse 
economic consequences, such as a significant loss of sales or the 
unreasonable elimination of consumer choice. The agency must ``weigh 
the benefits to the nation of a higher fuel economy standard against 
the difficulties of individual automobile manufacturers.'' CAS, 793 
F.2d at 1332.
    The agency has estimated not only the anticipated costs that would 
be borne by General Motors, Ford, DaimlerChrysler, Nissan and Toyota to 
comply with the standards under the Unreformed CAFE system, but also 
the significance of the societal benefits anticipated to be achieved 
through fuel savings and other economic benefits from reduced petroleum 
use. The baselines provided by Honda and Hyundai for MYs 2008-2010 
exceeded the standards in each of those model years. In regard to 
economic impacts on manufacturers and societal benefits, we have relied 
on the Volpe model to determine a probable range of costs and benefits.
    The Volpe model is used to evaluate the standards initially 
produced under the Stage Analysis in order to estimate their overall 
economic impact as measured in terms of increases in new vehicle prices 
on a manufacturer-wide, industry-wide, and average per-vehicle basis. 
Like the Stage Analysis, the Volpe model relies on the detailed product 
plans submitted by manufacturers, as well as available data relating to 
manufacturers that had not submitted detailed information. The Volpe 
model is used to trace the incremental steps (and their associated 
costs) that a manufacturer would take toward achieving the standards 
initially suggested by the Stage Analysis. In applying technologies, 
the Volpe model is programmed to be as consistent as practical with the 
technology application method and constraints of the Stage analysis.
    Based on the Stage and Volpe analyses, we have concluded that these 
standards would not significantly affect employment or competition, and 
that--while challenging--they are achievable and that they will benefit 
society considerably. For this analysis, we have, where possible, 
translated the benefits into dollar values and compared those values to 
our estimated costs for this proposed rule.
    In estimating the costs and benefits of this rulemaking, the agency 
employed a variety of cost estimates (e.g., the cost of technology, 
lead-time) and economic assumptions (e.g., price of fuel, rebound 
effect). As the cost estimates and economic assumptions apply, in many 
cases, equally to the Unreformed and Reformed CAFE system analyses, we 
have addressed these comments below in Section VIII. Technology issues, 
and Section IX. Economic assumptions. The discussion that follows 
provides our estimates for the costs and benefits of the Unreformed 
CAFE standards adopted today.
1. Costs
    In terms of vehicle costs for complying with the Unreformed CAFE 
standards, we estimate the average incremental cost per vehicle to be 
$64 for MY 2008, $185 for MY 2009, and $195 for MY 2010. The total 
incremental costs (the cost necessary to bring the corporate average 
fuel economy for light

[[Page 17586]]

trucks from 22.2 mpg (the standard for MY 2007) to the final rule 
levels are estimated to be $536 million for MY 2008, $1,621 million for 
MY 2009, and $1,752 million for MY 2010.
    Our cost estimates for the Unreformed CAFE system are based on the 
application of technologies and the resulting costs to individual 
manufacturers. We assumed that manufacturers would apply technologies 
on a cost-effectiveness basis (as described above). More specifically, 
within the range of values anticipated for each technology, as 
estimated by the NAS study, we selected the mid-point for cost and fuel 
consumption impacts during the model years under consideration.
    Using the estimated costs and fuel savings for the different 
technologies, the agency then examined the projections provided by 
different manufacturers for their light truck fleet fuel economy for 
MYs 2008-2010. Although the details of the projections by individual 
manufacturers are confidential, we generally observed that present fuel 
economy performance indicates that some manufacturers will, if their 
planned fleets remain unchanged, be able to meet the proposed standards 
without significant expenditures. In contrast, other manufacturers will 
need to expend significantly more effort than they were planning to 
meet the final Unreformed CAFE standards.
    Some manufacturers might achieve more fuel savings than others 
using similar technologies on a vehicle-by-vehicle basis due to 
differences in vehicle weight and other technologies present. However, 
this analysis assumes an equal impact from specific technologies for 
all manufacturers and vehicles. The technologies were ranked based on 
the cost per percentage point improvement in fuel consumption and 
applied where available and appropriate to each manufacturer's fleet in 
their order of rank. The complete list of the technologies and the 
agency's estimates of cost and associated fuel savings can be found in 
Table VI-4 of the FRIA.
2. Benefits
    In Chapter VIII of the FRIA, the agency analyzes the economic and 
environmental benefits of the Unreformed CAFE standards by estimating 
fuel savings over the lifetime of each model year (approximately 36 
years). Benefit estimates include both the benefits to consumers in 
terms of reduced fuel usage and other savings, such as the reduced 
externalities generated by the importing, refining, and consuming of 
petroleum products.
    The total benefits of the increases in the levels of the Unreformed 
CAFE standards are estimated to be $577 million for MY 2008, $1,876 
million for MY 2009 and $2,109 million for MY 2010, based on fuel 
prices ranging from $1.96 to $2.39 in 2003 dollars per gallon and a 
discount rate of seven percent.
3. Comparison of Estimated Costs to Estimated Benefits
    Table 3 compares the incremental costs and benefits for the 
Unreformed CAFE standards.

            Table 3.--Comparison of Incremental Costs and Benefits for the Unreformed CAFE Standards
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                                      MY 2008         MY 2009         MY 2010
----------------------------------------------------------------------------------------------------------------
Total Incremental Costs*........................................            $536          $1,621          $1,752
Total Incremental Benefits*.....................................             577           1,876          2,109
----------------------------------------------------------------------------------------------------------------
* Relative to the 22.2 mpg standard for MY 2007.

    These estimates are provided as present values determined by 
applying a 7 percent discount rate to the future impacts.\56\ The 
discount rate is intended to measure the reduction in the value to 
society of benefits when they are deferred until some future date 
rather than received immediately. The benefits are discounted to 
provide an appropriate comparison of costs to the value of future 
benefits. To the extent possible, we translated impacts other than 
direct fuel savings into dollar values and then factored them into our 
cumulative estimates. We obtained forecasts of light truck sales for 
future years from AEO 2005.\57\ Based on these forecasts, NHTSA 
estimated that approximately 8.6 million light trucks affected by this 
final rule would be sold in MY 2008. For MYs 2009 and 2010, we 
estimated 8.9 million and 9.0 million light truck sales, respectively.
---------------------------------------------------------------------------

    \56\ In the FRIA, we also evaluated the final rule using a 3 
percent discount rate for discounting benefits.
    \57\ The agency relied on AEO 2005 projections for the total 
sales figures. The manufacturers provided us with projected sales 
for passenger cars and light trucks. However, taken together, the 
sales projections provided by the individual companies to NHTSA 
yielded unrealistically high industry-wide sales volumes. Percentage 
of total sales per manufacturer was based on past sales data. A 
complete discussion of light truck sales projections is provided in 
the FRIA (FRIA p. VIII-8).
---------------------------------------------------------------------------

    We calculated the reduced fuel consumption of MY 2008-2010 light 
trucks by comparing their consumption under the final rule for those 
years to either the manufacturers' plans if they were above 22.2 mpg, 
or the consumption they would have if the MY 2007 CAFE standard of 22.2 
mpg remained in effect during those years. First, the estimated fuel 
consumption of MY 2008-2010 light trucks was determined by dividing the 
total number of miles driven during the vehicles' remaining lifetime by 
the fuel economy level they were projected to achieve under the 22.2 
mpg standard.
    Then, we assumed that if these same light trucks were produced to 
comply with higher CAFE standards for those years, their total fuel 
consumption during each future calendar year would equal the total 
number of miles driven (including the increased number of miles driven 
because of the ``rebound effect,'' the tendency of drivers to respond 
to increases in fuel economy in the same manner as they respond to 
decreases in fuel prices, i.e., by driving more),\58\ divided by the 
higher fuel economy they would achieve as a result of that standard. 
The fuel savings during each future year that will result from the 
higher CAFE standard is the difference between each model year's fuel 
use and the fuel use that would occur under either the manufacturer's 
plans or if the MY 2007 standard remained in effect. This analysis 
results in estimated lifetime fuel savings of 555 million, 1,813 
million, and 2,023 million gallons for MYs 2008, 2009, and 2010, 
respectively.
---------------------------------------------------------------------------

    \58\ As described in detail in the FRIA, we use a 20 percent 
rebound effect based on a thorough review of the literature (FRIA p. 
VIII-45). We are nonetheless aware that there is ongoing research in 
this area, and will continue to assess this assumption in future 
rulemakings in light of new evidence.
---------------------------------------------------------------------------

    A more detailed explanation of our analysis is provided in Chapter 
VIII of the FRIA and the final EA (see EA p. 26).

[[Page 17587]]

4. Uncertainty
    The agency recognizes that the data and assumptions relied upon in 
our analysis have inherent limitations that do not permit precise 
estimates of benefits and costs. NHTSA performed a probabilistic 
uncertainty analysis to examine the degree of uncertainty in its costs 
and benefits estimates. Factors examined included technology costs, 
technology effectiveness in improving fuel economy, fuel prices, the 
value of oil import externalities, and the rebound effect. This 
analysis employed Monte Carlo simulation techniques to examine the 
range of possible variation in these factors. As a result of this 
analysis, the agency thinks it very likely that the benefits of the 
Unreformed CAFE standards will exceed their costs for all three model 
years. A detailed discussion of the uncertainty analysis is provided in 
Chapter X of the FRIA.

G. Unreformed Standards for MYs 2008-2010

    We believe the standards established today are challenging enough 
to encourage the further development and implementation of fuel-
efficient technologies and are achievable within the applicable 
timeframe. Accordingly, we have concluded that the standards for the 
Unreformed CAFE system are technologically feasible and economically 
practicable for those manufacturers with a substantial share of the 
light truck market (General Motors, Ford, and DaimlerChrysler), and are 
capable of being met without substantial product restrictions, and will 
enhance the ability of the nation to conserve fuel and reduce its 
dependence on foreign oil. 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.
    The Unreformed CAFE light truck standards for MYs 2008-2010 are as 
follows:

MY 2008: 22.5 mpg
MY 2009: 23.1 mpg
MY 2010: 23.5 mpg

VI. The Reformed CAFE Standards for MYs 2008-2011

A. Overview of Reformed CAFE

    The structure of Reformed CAFE for each model year, as adopted in 
today's final rule, has two basic elements--
    (1) a function that sets the target fuel economy levels for each 
value of vehicle footprint; \59\ and
---------------------------------------------------------------------------

    \59\ Footprint is an aspect of vehicle size--the product of 
multiplying a vehicle's wheelbase by its average track width
---------------------------------------------------------------------------

    (2) a Reformed CAFE standard based on each manufacturer's 
production-weighted harmonic average of the fuel economy targets for 
footprint value. Unlike the proposed Reformed CAFE system, which relied 
on a step function and associated categories, the final Reformed CAFE 
system relies on a continuous mathematical function relating fuel 
economy targets to vehicle footprint.
    The required level of CAFE for a particular manufacturer for a 
given model year is calculated using the target-setting function for 
that model year in conjunction with that manufacturer's actual total 
production and its production at each footprint value for that model 
year.\60\ The manufacturer's required CAFE level is calculated by 
dividing its total production for the model year by the sum of the 
values obtained by dividing the manufacturer's production of each 
vehicle model included in its fleet by the fuel economy target for that 
model.
---------------------------------------------------------------------------

    \60\ Since the calculation of a manufacturer's required level of 
average fuel economy for a particular model year would require 
knowing the final production figures for that model year, the final 
formal calculation of that level would not occur until after those 
figures are submitted by the manufacturer to EPA. That submission 
would not, of course, be made until after the end of that model 
year.
---------------------------------------------------------------------------

B. Authority for Reformed CAFE

    In the same manner as we explained the step function proposal to be 
consistent with EPCA,\61\ the continuous function Reformed CAFE 
standard similarly conforms to the mandate to establish maximum 
feasible fuel economy standards. The continuous function standard is 
applicable on a fleet average basis and reflects the agency's balancing 
of the nation's need to conserve energy, the effect of other standards 
on fuel economy, technological feasibility, economic practicability and 
other public policy considerations. Further, like the proposed step 
function standard, the continuous function achieves the congressional 
policy objectives embedded in EPCA.
---------------------------------------------------------------------------

    \61\ See 70 FR 51415, 51445.
---------------------------------------------------------------------------

    The continuous function standard retains the fleetwide compliance 
aspect mandated by the CAFE statute. By maintaining reliance on 
harmonic averaging, the continuous function standard promotes the CAFE 
statute's overriding goal of conserving energy in a manner that 
preserves manufacturer flexibility and consumer choice. (H. Rpt. 94-
340, p. 87; S. Rpt. 94-179, p. 6.)
    The discretion provided to the agency by Congress to determine 
whether to establish a single fuel economy level applicable to all 
manufacturers or to set a series of fuel economy levels applicable to 
individual manufacturers equally supports using a step function or a 
continuous function to establish fuel economy targets for vehicles of 
different sizes.\62\ Under either type of function, a manufacturer's 
required fuel economy level is dependent on the manufacturer's fleet 
mix. Moreover, just as the category targets described in the NPRM are 
equally applicable to all manufacturers, the fuel economy targets 
defined by a continuous function are equally applicable to all 
manufacturers for a given model year.
    A continuous function standard is based on similar technological 
and economic considerations employed in establishing the proposed step 
function standard, and which we believe ensure the technological 
feasibility and economic practicability of the proposed MY 2011 
standard. Moreover, a continuous function is defined based on the 
modeled capabilities of the same percentage of the fleet as in the step 
function proposal (i.e., 97 percent of the light truck fleet). Reliance 
on 97 percent of the fleet better reflects industry-wide considerations 
than the primary focus on the ``least capable manufacturer with a 
substantial share of the market'' in the Unreformed CAFE structure.
    In the NPRM we recognized the financial challenges facing the motor 
vehicle industry and that a substantial number of job losses had been 
announced by large full-line manufacturers. Since publication of the 
NPRM, two manufacturers of light trucks, each with a significant share 
of the market, have continued to report financial difficulties. The 
financial risks faced by these companies, including their workers and 
suppliers, underscored the importance to full-line vehicle 
manufacturers of establishing an equitable CAFE regulatory framework. 
Compared to Unreformed CAFE, the Reformed CAFE will enhance overall 
fuel savings while providing manufacturers the flexibility they need to 
respond to changing market conditions. The reforms adopted today will 
provide a more equitable regulatory framework by creating a level 
playing field for manufacturers, regardless of

[[Page 17588]]

whether they are full-line or limited-line manufacturers.

C. Legal Issues Related to Reformed CAFE

1. Maximum feasible
    EPCA requires that the light truck CAFE levels be established at 
the ``maximum feasible average fuel economy level'' achievable by the 
manufacturers in that model year (49 U.S.C. 32902(a)). When deciding on 
the maximum feasible level, the agency must consider technological 
feasibility, economic practicability, the effect of other motor vehicle 
standards of the Federal government on fuel economy, and the need of 
the nation to conserve energy (49 U.S.C. 32902(f)). The agency must 
balance these considerations, along with other factors such as safety, 
when determining the level of CAFE standards.
    As indicated above, and described in greater detail below, the 
Reformed CAFE system uses incremental cost-benefit analysis (as 
implemented within the Volpe model) to establish standards. The 
technology cost and benefit assumptions employed by the model are based 
on those presented in the NAS report. However, consideration is given 
to manufacturers' critiques of the technology assumptions employed by 
NAS. The agency also relies on the product plans provided by 
manufacturers when projecting potential technology applications. The 
standard arrived at through this process is then evaluated to determine 
potential sales and employment impacts. As explained in the following 
discussion, the totality of this analysis results in a standard that is 
both technologically feasible and economically practicable. As 
discussed elsewhere in this notice, the standard reflects consideration 
of the impact of other Federal motor vehicle standards on fuel economy, 
and as evidenced by our estimates that the resulting standard for MY 
2011 will save approximately 2.8 billion gallons of fuel, also 
addresses the nation's need to conserve energy.
    Vehicle manufacturers and the Alliance expressed concern that the 
agency's new methodology for setting CAFE standards (i.e., using cost-
benefit analysis to identify the pattern and stringency of fuel economy 
targets) risked losing the key economic practicability check that was 
previously provided by assessing a proposed standard's effect on the 
least capable manufacturer, an approach that had proven reasonable and 
workable in many prior CAFE rulemakings. In general, these commenters 
argued that the agency must continue to consider the ``least capable 
manufacturer'' to ensure that standards set under the Reformed CAFE 
system do not result in adverse economic impacts on any individual 
manufacturer. General Motors and Ford argued that NHTSA's proposed 
methodology does not sufficiently consider the capabilities of the 
``least capable manufacturer,'' and thus violates its statutory duty to 
set standards that are ``economically practicable.''
    We noted in the NPRM that the term ``least capable'' manufacturer 
is something of a misnomer under the Reformed system, since each 
manufacturer's projected level of CAFE is determined by two factors: 
(1) The extent to which small or large vehicles predominate in its 
planned production mix, and (2) the type and amount of fuel-saving 
technologies the manufacturer is deemed capable of applying. Two 
manufacturers may apply the same type and amount of fuel-saving 
technologies to their fleets, yet have differing CAFE levels, if their 
fleet mixes are not identical. Thus, a full-line manufacturer could 
have a lower overall CAFE than a manufacturer concentrating its 
production in the smaller footprint range, even though the former 
manufacturer has applied as much (or more) technology to the models it 
produces as has the latter manufacturer. The manufacturer concentrating 
its production in smaller vehicles would have a higher CAFE level due 
to the higher fuel economies of smaller vehicles. Thus, ``large 
manufacturer with the lowest fuel economy average'' might better 
describe the former than ``least capable manufacturer.''
    The Reformed CAFE system establishes standards with regard to the 
capabilities of a wider range of manufacturers than just the ``least 
capable manufacturer.'' The fuel economy capabilities of an individual 
manufacturer are projected based on each of the seven largest 
manufacturers' specific product plans. Consideration of what specific 
technologies each manufacturer can apply and at what rate each 
technology can be applied is also made at the individual manufacturer 
level. Further, a manufacturer's required fuel economy level reflects 
that manufacturer's actual fleet mix.
    Instead of requiring a uniform level of CAFE--which is inherently 
more challenging for manufacturers whose fleets have high percentages 
of larger vehicles to meet than for those whose product lines emphasize 
smaller models--the Reformed system specifies fuel economy targets that 
vary according to vehicle footprint; these targets are higher for 
smaller light trucks and lower for large ones. It uses these targets to 
determine a required CAFE level for each manufacturer that reflects the 
size distribution and production volumes of its light truck models. By 
setting each manufacturer's required fleet-wide CAFE level to reflect 
its size mix, the Reformed system requires some effort by each 
manufacturer to improve the fuel efficiency of its individual models, 
regardless of their size distribution.
    As stated above, the Volpe model applies technologies to a 
manufacturer's fleet until the cost of an additional technology 
application equals the benefits of the resulting improvement in fuel 
economy. Because these benefits include the value of reducing economic 
and environmental externalities from producing fuel, this process 
results in a ``socially optimal'' level of fuel economy. Before we 
arrive at the level of optimal economic efficiency, it is important to 
understand the assumptions relied on by the model when applying 
technology.
    As with the Stage analysis, the Volpe model's assumptions about 
technology cost and effectiveness are based on estimates provided in 
the NAS report, and incorporate information provided by manufacturers. 
The agency continues to rely on the NAS report to determine technology 
costs and effectiveness because the estimates developed in the NAS 
study were developed by recognized experts in vehicle technology, and 
were widely peer reviewed. This study is the most up to date peer 
reviewed study available. While the agency is working to update the NAS 
data, in a study conducted through an interagency agreement with the 
Department of Energy, this update requires additional work. To that 
end, the agency continues to rely on the NAS report.
    Because the alternative estimates submitted by vehicle 
manufacturers and others as part of their comments on the NPRM have not 
been subjected to the same review process, the agency continues to view 
those reported in the NAS study as the most reliable estimates 
available. Further, because the Volpe model applies these technologies 
to individual vehicle models described in the product plans provided by 
manufacturers, this ensures that technologies are not added to vehicles 
already employing them, and that the model reliably projects potential 
fuel economy improvements for actual vehicle models that manufacturers 
plan to produce during each future model year. As such, the standard is 
based on actual characteristics of specific vehicle

[[Page 17589]]

models and fleet mixes from manufacturers' product plans.
    The agency has also responded to information provided by 
manufacturers concerning the practicability of applying various 
technologies. As explained in greater detail below in Section XIII. 
Comparison of the final and proposed standards, the revised assumptions 
and constraints include: extending lead times provided for implementing 
certain technologies, reducing annual phase-in percentages for certain 
technologies, and reducing instances of mid-product cycle technology 
applications. The model then relies on these revised assumptions in 
conjunction with the NAS study's original estimates of technology costs 
and effectiveness, to determine the ``socially optimal'' fuel economy 
level.
    Ford stated that by focusing on ``optimal economic efficiency,'' 
NHTSA has adopted a surrogate measure of economic practicability that 
(as contrasted with its traditional assessment whose starting point is 
the ``least capable manufacturer'') does not consider many of the 
effects that the higher standards would have on individual 
manufacturers. DaimlerChrysler noted that Congress specifically 
directed NHTSA to consider industry-wide capabilities in setting CAFE 
standards, not just cost-effectiveness for consumers. As such, 
DaimlerChrysler argued that retaining a ``least capable manufacturer'' 
analysis would help ensure that the standard continues to be within the 
industry's ability to afford in terms of capital costs and annual 
expenditures.
    In response to these comments, the agency notes that determining 
the socially optimal level of fuel economy targets under the 
assumptions inputted into the Volpe model provides a benchmark for 
assessing the economic practicability of the resulting standard. 
Because these socially optimal targets are determined by equalizing the 
monetized social benefits of improved fuel economy further to the costs 
of the technologies that would produce such benefits,\63\ this process 
avoids the application of technologies whose benefits are insufficient 
to justify their costs when the agency determines a manufacturer's 
capability. In other words, this approach ensures that each identified 
private technology investment projected by the model produces marginal 
benefits at least equal to marginal cost.
---------------------------------------------------------------------------

    \63\ For a discussion of the technology costs and determination 
of the social benefits of improved fuel economy, refer to the FRIA.
---------------------------------------------------------------------------

    The agency did identify and consider a variety of benefits and 
costs that either could not be monetized or could not be quantified. On 
the benefit side, for example, there is a significant reduction in 
carbon dioxide emissions, which can not be monetized. There is no 
agreement in the literature on values or range of values for monetizing 
such a benefit to the United States. On the cost side, for example, 
there is a risk of adverse safety impacts from downweighting, which 
cannot be quantified. This is because the agency is unable to predict 
to what extent manufacturers may rely on downweighting, and therefore 
cannot quantify the number of additional deaths and injuries that may 
occur as a result. Overall, the agency determined that there is no 
compelling evidence that these unmonetized benefits and costs would, 
taken together, alter its assessment of the level of the standard for 
MY 2011 that would maximize net benefits. Thus, the agency determined 
the stringency of that standard on the basis of monetized net benefits.
    Standards set at a level more stringent than those set at the 
socially optimal level would not be economically efficient for society. 
Standards more stringent than those established under the Reformed CAFE 
system adopted in this document would require the industry to continue 
applying technology past the point at which doing so increases net 
social benefits.
    Standards set at a level less stringent than those set at the 
socially optimal level would result in a lost opportunity for applying 
cost-beneficial technologies. Under less stringent standards, 
technologies that provide benefits at least equal to their costs would 
not be projected onto manufacturers' product plans. As such, the 
standards would not capture fuel savings that are cost-effective to 
achieve.
    In considering manufacturers' costs for applying technology, the 
agency's analysis accounts for the opportunity costs associated with 
investing in that technology. When a manufacturer invests its capital 
in additional technology, those resources are unavailable for other 
investment opportunities, and the returns the manufacturer could have 
earned on alternative investments or other uses of its capital 
resources (such as application to safety or performance attributes of a 
vehicle, or retiring existing debt) represent an additional cost of 
improving fuel economy. To ensure that this additional cost of using 
capital resources is reflected in its assessment of the economic 
practicability of improving fuel economy, the agency discounts the 
future fuel savings and other benefits that result from higher fuel 
economy using a 7 percent discount rate.
    The agency is relying on a 7 percent discount rate partly because 
this rate reflects the economy-wide opportunity cost of capital. The 
agency believes that a substantial portion of the cost of this 
regulation may come at the expense of other investments the auto 
manufacturers might otherwise make. Several large manufacturers are 
resource-constrained with respect to their engineering and product-
development capabilities. As a result, other uses of these resources 
will be foregone while they are required to be applied to technologies 
that improve fuel economy.
    If a manufacturer were able to capture all of the benefits to both 
vehicle buyers and society as a whole that result from improved fuel 
savings, it would apply technology to the level where the present value 
of increased future benefits when discounted at 7 percent just equaled 
the costs of applying additional technology.\64\ Applying technology to 
improve fuel economy beyond this level would entail costs--including 
the opportunity cost of the additional capital resources devoted to 
improving fuel economy--that would exceed the resulting benefits. 
Failing to improve fuel economy to this level would leave opportunities 
to obtain fuel savings and related benefits that exceeded the 
associated costs of the technologies necessary to obtain them.
---------------------------------------------------------------------------

    \64\ The main benefit of improving fuel economy is the savings 
in fuel costs experienced by vehicle buyers, since as a light 
truck's fuel economy increases, the amount and cost of the fuel 
required to operate it decreases. At the same time, reducing the 
amount of fuel light trucks consume also generates benefits to 
society and the economy as a whole, including reduced emissions of 
some criteria pollutants that occur during fuel refining and reduced 
economic costs from importing and consuming petroleum. Because these 
benefits accrue to individuals and firms other than those who 
purchase new vehicles, they are referred to as external benefits.
---------------------------------------------------------------------------

    In commenting on the Reformed CAFE system, the Alliance stated that 
standards should not be set so high as the cost of the added technology 
outweighs the societal benefits of the improved fuel economy. Because 
the social optimal level of fuel economy ensures that the marginal 
benefit (either to the consumer or to society) of an increase in fuel 
economy is equal to cost of the technology producing the additional 
benefit, the social optimum level is economically practicable for 
society.
    Ford suggested NHTSA's cost-benefit analysis has not properly 
considered costs to manufacturers for making

[[Page 17590]]

necessary investments and for increasing employment levels, or 
competitive forces that may cause domestic manufacturers to absorb 
CAFE-related costs rather than passing them on to buyers. Ford argued 
that the potential inability of producers to recoup such costs from 
buyers (in the form of higher prices) must be taken into account 
explicitly, not solely through its effect on sales. DaimlerChrysler 
also argued that not all of the costs associated with improved fuel 
economy can be passed on to consumers in the form of higher vehicle 
prices.
    As stated above, a cost-benefit analysis is not the sole factor in 
the agency's consideration of economic practicability. The agency also 
performs a sales impact analysis. In determining the sales impact of 
higher prices from improved fuel economy, the agency assumes that 
consumers will value improved fuel economy. However, the analysis does 
not rely on the value of fuel savings realized over the life of the 
vehicle. Our analysis considers the value of fuel savings realized in 
the first 4.5 years of the vehicle's life. The 4.5 year period is the 
average ownership period for new cars. We determined that the fuel 
savings during this period will be recognized and valued by light truck 
purchasers. Based on our analysis, which assumes that consumers value 
fuel savings over 4.5 years, there are net benefits for the average 
light truck purchasers. Thus, the average consumer will be willing to 
pay higher prices for improved fuel economy, and manufacturers will be 
able to raise prices to recoup their investments.
    DaimlerChrysler further argued that the agency must explain how it 
will decide whether a standard set at a ``maximum net benefits'' level 
would exceed the level that is economically practicable if it does not 
take into account the capabilities of the ``least capable 
manufacturer'' with a substantial market share. DaimlerChrysler argued 
that the agency has not provided sufficient detail as to its 
methodology, as would permit informed public comment. This commenter 
stated that in certain situations, economic practicability might 
require the agency to set a lower standard than the maximum net 
benefits methodology might otherwise dictate. For example, 
DaimlerChrysler, along with the Alliance and Ford, stated that if gas 
prices were to rise high enough, every technology would theoretically 
be ``cost-beneficial.''
    Gas prices are but one factor relied on in the agency's analysis 
for setting fuel economy targets. As stated, the Volpe model also takes 
into account other factors closely associated with economic 
practicability, such as lead time and phase-in rates. While higher fuel 
prices increase the benefits associated with improved fuel economy, the 
marginal cost-benefit analysis is still bounded by the technological 
and economic assumptions employed by the model. The agency has relied 
on technologies determined by the NAS report to be ``currently in the 
production, product planning, or continued development stage, or are 
planned for introduction. * * * The feasibility of production is 
therefore well known, as are the estimated production costs'' (NAS p. 
40).\65\
---------------------------------------------------------------------------

    \65\ Complete documentation of the Volpe fuel economy model is 
available in the CAFE docket.
---------------------------------------------------------------------------

    Additionally, the model relies on assumptions that reflect 
manufacturers' comments regarding the applicability of technology. 
Manufacturers provided detailed critiques of the agency's application 
of technology in the NPRM, most of which were provided confidentially. 
Manufacturers provided alternative assumptions that they deemed more 
reasonable. Presumably, in providing comment on what were reasonable 
assumptions for the agency to apply, the manufacturers' recommendations 
inherently accounted for their capabilities, both technological and 
economic.
    Many of these assumptions are closely tied to the economic 
capabilities of the manufacturers. For example, in response to 
commenters, the agency employed longer lead time and longer phase-ins 
for various technologies. These adjustments reduce the economic impact 
of applying technology by providing greater flexibility as to when fuel 
economy improvements are expected. Additionally, we limited the number 
of mid-product cycle applications. Mid-product cycle changes typically 
are more costly than changes at the beginning of a product cycle, as 
mid-product cycle changes may necessitate changes to an established 
manufacturing line. By limiting the availability of technologies using 
these assumptions, the cost-benefit does not assume that manufacturers 
will make improvements that would be unjustifiably costly.
    The socially optimum level of fuel economy, as determined under the 
Volpe analysis, is thus indicative of the fuel economy level that is 
economically practical for both individual manufacturers and the light 
truck industry as a whole, and provides a process for careful balancing 
of the ``competing factors of EPCA'' (CEI v. NHTSA, 901 F.2d 107, 121 
(DC Cir. 1990)). Further, the agency conducts an analysis of the 
estimated sales and employment impacts on individual manufacturers from 
a standard set at the level derived from the analysis applied through 
the Volpe model to ensure the economic practicability of that standard.
    We recognize the financial difficulties facing several light truck 
manufacturers. It has been widely reported that General Motors and Ford 
are facing financial difficulties. In 2005, gasoline prices rapidly 
increased, causing a shift in consumer demand away from larger, more 
profitable SUVs and toward smaller, more fuel-efficient cars and light 
trucks, a segment of the market long dominated by Asian automobile 
manufacturers. Sales of sport utility vehicles have fallen slightly in 
each of the last few years, with the trend accelerated by a jump in gas 
prices late in 2005. The increase in gasoline prices particularly 
curbed sales of the biggest SUVs. In response, U.S. automakers 
increased sales during the 2005 summer with discounts that let 
consumers pay what was called the ``employee'' price. While this 
marketing led to near-record sales, sales again dropped off in October 
when the incentives ended. By December of 2005, General Motors and Ford 
sales were down 10.2 percent and 8.7 percent respectively.
    Aside from the recent sales losses, General Motors and Ford have 
experienced erosion in their respective market shares. General Motors, 
and to a lesser extent Ford, have seen their market share fall 
drastically over the last several years in the last year, which has 
resulted in operating losses. General Motors' market share dropped from 
28.1 percent in 2003 to 26.9 in 2004, and to 24.7 percent in 2005. This 
is compared to General Motors' market share of 35 percent in the early 
1990's. Ford has experienced a drop from 19.3 percent in 2003 to 17.8 
in 2005.\66\
---------------------------------------------------------------------------

    \66\ The market share values are from wardssuto.com. The 2005 
values are estimates.
---------------------------------------------------------------------------

    These losses in market share have coupled with operating losses. 
General Motors had an operating loss of $11.5 billion for its North 
American operations in calendar year 2005, with automotive cash flows 
related to operations at a negative $7.9 billion.\67\ During that same 
year, Ford Motor Company experienced an operating loss of $1.5 billion, 
with negative cash flows

[[Page 17591]]

from operations at $4.1 billion.\68\ In November 2005, General Motors 
announced that it would cut 30,000 jobs and close 12 manufacturing 
facilities by 2008. In January 2006, Ford announced that it would cut 
up to 30,000 jobs by closing 14 manufacturing facilities over the next 
six years. The financial difficulties facing these manufacturers was 
given due consideration.
---------------------------------------------------------------------------

    \67\ Source: SEC FORM 8-K submitted to the SEC on January 26, 
2006, and General Motors' March 16, 2006 press release as reported 
by Automotive Business Review (http://www.automotive-business-review.com/article_news.asp?guid=FE50808D-4915-4A6F-949F-7532C6F5CE75).
    \68\ Source: Ford's SEC Form 8-K submitted to the SEC January 
23, 2006.
---------------------------------------------------------------------------

    In their comments to the NPRM, several commenters, including 
General Motors and Ford, expressed concern that the marginal cost-
benefit analysis would not appropriately consider the capabilities of 
individual manufacturers and may result in standards that impose harsh 
economic impacts on an individual manufacturer. Ford specifically noted 
that if standards increased further then the costs may be too high and 
unrecoverable, further compounding the current economic hardship facing 
the industry. According to Ford, when determining the economic 
practicability of its CAFE standards, the agency must determine whether 
technologically-feasible levels would lead to adverse economic 
consequences, such as a significant loss of sales or the unreasonable 
elimination of consumer choice, a determination that Ford claimed the 
agency has not made in selecting its proposed Reformed CAFE targets.
    The agency recognizes that we must consider the potential economic 
and financial impacts of the CAFE standards on individual 
manufacturers. Aside from incorporating manufacturers' comments 
regarding the feasibility of technology applications, the agency has 
also performed a sales and employment impact analysis. The sales 
analysis looks at a purchasing decision from the eyes of a 
knowledgeable and rational consumer, comparing the estimated cost 
increases versus the payback in fuel savings over 4.5 years (the 
average new vehicle loan) for each manufacturer. This relationship 
depends on the cost effectiveness of technologies available to each 
manufacturer. Some manufacturers are estimated to increase sales and 
others to lose sales. Overall, based on a 7 percent discount rate for 
future fuel savings, the maximum sales loss is less than 11,000 
vehicles per year for the industry. We believe this will have a minor 
impact on employment.
    Further, we note that the regulatory philosophy set forth in 
Executive Order 12866, ``Regulatory Planning and Review,'' is that a 
rulemaking agency should set its regulatory requirements at the level 
that maximizes net benefits unless its statute prohibits doing so. EPCA 
neither requires nor prohibits the consideration of the fuel economy 
level at which net benefits are maximized. Additionally, EPCA does not 
require the agency to rely on the ``least capable manufacturer'' 
analysis as we have traditionally used. Reliance on the ``least 
capable'' manufacturer analysis was in response to the direction in the 
conference report on the CAFE statute language to consider industry-
wide considerations, but not necessarily base the standards on the 
manufacturer with the greatest compliance difficulties.
    Moreover, the very structure of Reformed CAFE standards makes it 
unnecessary to continue to use the ``least capable manufacturer'' 
approach in order to be responsive to guidance contained in the EPCA 
conference report. Instead of specifying a common level of CAFE, a 
Reformed CAFE standard specifies a variable level of CAFE that varies 
based on the production mix of each manufacturer. By basing the level 
required for an individual manufacturer on that manufacturer's own mix, 
a Reformed CAFE standard in effect recognizes and accommodates 
differences in production mix between full- and part-line 
manufacturers, and between manufacturers that concentrate on small 
vehicles and those that concentrate on large ones. A Reformed standard 
is also responsive to changes in fleet-mix that result from changes in 
the market.
    In contrast to comments from the manufacturers, environmental 
commenters argued that the marginal cost-benefit analysis is contrary 
to EPCA because it results in a standard that is lower than what they 
deemed to be ``maximum feasible.'' The Union of Concerned Scientists 
stated that the social optimum level is below ``maximum feasible'' 
because of the uncertainty surrounding many of the assumptions relied 
on in the model. The Union of Concerned Scientists stated that the 
model undervalues the benefits because not all externalities are 
monetized (e.g., reduction in CO2 emissions). The Union of 
Concerned Scientists recommends the agency rely on a break-even 
approach, i.e., set fuel economy levels at the point at which total 
costs equal total benefits. This commenter stated that the break-even 
approach would result in targets an average of 6 mpg higher than those 
in the proposed rule.
    The agency considered an approach under which technology was 
applied to the point of total cost equaling total benefit, but 
determined that such a standard would violate the maximum feasible 
requirement. The Volpe model was unable to achieve a level of total 
cost equaling total benefit before running out of technologies to 
apply. While the Union of Concerned Scientists stated that it performed 
a ``break-even'' analysis, it did not explain the technologies it 
relied upon in its analysis. In any event, the ``break even'' approach 
necessitates adding technologies that cost more than the benefit they 
provide.
    ACEEE commented that NHTSA's approach of setting CAFE standards 
that maximize net benefits is flawed because it is inconsistent with 
the requirements of EPCA. ACEEE stated that under the statute, NHTSA 
must set ``maximum feasible'' fuel economy standards after considering 
the ``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.'' \69\ According to 
ACEEE, there is a range of fuel economy values that are technologically 
feasible and another range of values that are economically practicable, 
and the statute requires NHTSA to set the CAFE standard at the highest 
value within the intersection of those ranges. ACEEE stated that 
NHTSA's proposed maximum benefits approach would not yield the same 
level of fuel economy, so the agency's current methodology is therefore 
impermissible. Accordingly, ACEEE urged NHTSA to adopt an approach 
whereby CAFE standards would be set at the maximum technically-feasible 
level that has positive net total economic benefits, rather than a 
level at which the added benefits from improving fuel economy further 
are offset by the costs for doing so.
---------------------------------------------------------------------------

    \69\ 49 U.S.C. 32902.
---------------------------------------------------------------------------

    NRDC similarly stated that the agency's methodology ``falls short 
of statutory compliance'' and argued that a cost-benefit analysis is 
inappropriate because key benefits of the fuel economy standards are 
``impossible to reduce to monetized quantities,'' such as ``the 
national security benefits of reduced oil dependence and environmental 
and societal benefits of reducing the severity of global warming.'' 
NRDC stated that the agency's rationale for relying on a cost-benefit 
methodology was ``arbitrary and insupportable,'' in part because EPCA 
provides for NHTSA to engage in ``technology-forcing.'' The Union of 
Concerned Scientists argued that to account for undervaluing of 
societal benefits, fuel economy targets should be established at the 
level where total benefits exceed total costs.

[[Page 17592]]

    As suggested by ACEEE, the agency establishes the standard at the 
maximum feasible fuel economy level that is economically practicable. 
The agency is not permitted to establish higher standards simply 
because they might be technologically feasible. When such standards 
would impose cost burdens on certain manufacturers that are not 
economically practicable, such standards would violate EPCA. 
Conversely, our statutory responsibility does not allow us to set lower 
standards than those it has established using this process, because the 
standards adopted today are demonstrably technologically feasible, and 
more lenient standards would not represent the maximum feasible levels 
that could be attained while remaining economically practicable.
    NRDC commented that the marginal cost-benefit analysis is 
inconsistent with a ``technology forcing standard'' \70\ and, further 
that it is inappropriate for the purposes of CAFE because the benefits 
are ``impossible to reduce to monetized quantities.'' NRDC stated that 
the enhancement of national security and the reduction of potential 
effects from reduced CO2 emissions may not fully be 
quantifiable and monetizable.
---------------------------------------------------------------------------

    \70\ We assume NRDC is using the phrase ``technology forcing'' 
to indicate a level of a standard that would require manufacturers 
to apply technologies beyond that assumed technologically feasible 
under the Volpe model.
---------------------------------------------------------------------------

    We disagree with NRDC with regard to the degree of technology 
forcing permitted under EPCA. 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.\71\ A fuel economy standard ``with 
harsh economic consequences for the auto industry * * * would represent 
an unreasonable balancing of EPCA's policies'' (CAS, 793 F.2d at 1340).
---------------------------------------------------------------------------

    \71\ In the past, the agency has set CAFE standards above its 
estimate of the capabilities of a manufacturer with less than a 
substantial, but more than a de minimus, share of the market. See, 
e.g., CAS, 793 F.2d at 1326 (noting that the agency set the MY 1982 
light truck standard at a level that might be above the capabilities 
of Chrysler, based on the conclusion that the energy benefits 
associated with the higher standard would outweigh the harm to 
Chrysler, and further noting that Chrysler had 10-15 percent market 
share while Ford had 35 percent market share). On other occasions, 
the agency reduced an established CAFE standard to address 
unanticipated market conditions that rendered the standard 
unreasonable and likely to lead to severe economic consequences. 49 
FR 41250, 50 FR 40528, 53 FR 39275; see Public Citizen, 848 F.2d at 
264.
---------------------------------------------------------------------------

    In response to arguments by the Union of Concerned Scientists and 
ACEEE, NHTSA does not agree that the EPCA requires it to set CAFE 
standards at the highest technically feasible level that would result 
in positive net economic benefits. Although EPCA does not specify a 
method for identifying standards that are economically practicable, 
Executive Order No. 12866 establishes an overall goal of achieving the 
highest net benefits, which occurs at the point where the additional 
benefits from further increasing the standards (marginal benefits) just 
equal the increase in costs for complying with a stricter standard 
(marginal costs).\72\
---------------------------------------------------------------------------

    \72\ White House Office of Management and Budget, Circular A-4, 
September 17, 2003, p. 10.
---------------------------------------------------------------------------

    NRDC also stated that the agency should use its authority to set 
standards to be ``technology forcing.'' While NRDC did not define 
``technology forcing'' we took their comment to mean that the agency 
should establish standards that require investment in developing new 
technologies. However, the agency would not be able to ensure that 
standards set at such a level would be technologically feasible, as 
these levels would require the use of technologies not yet proven.
    The standards that result from the continuous function CAFE system 
are technology-forcing in that the standards require manufacturers to 
employ technologies beyond those in their product plans, to the extent 
practicable within the lead time available. This is evidenced by the 
fact that both the Stage and benefit-cost analyses for determining the 
level of standards envision extensive application of fuel economy 
technologies that are currently in their early stages of deployment, 
but are not already included in manufacturers' product plans for the 
model years to which the adopted standards apply.
    Moreover, our cost-benefit analysis carefully considers and weighs 
all of the benefits of improved fuel savings. The main source of 
benefits from the standards is the fuel savings experienced by 
consumers. With regard to the value of increased energy security, the 
agency has estimated a monetized value of this security associated with 
improved fuel savings. We have also determined that there is no 
compelling evidence that the unmonetized benefits would alter our 
assessment of the level of the standard for MY 2011. A discussion of 
the benefit assumptions is provided in Chapter VIII of the FRIA. 
Further, the marginal cost-benefit analysis ensures that we do not set 
standards beyond what is economically optimal for society.
2. Backstop
    Consistent with our proposal, the Reformed CAFE system adopted 
today does not include a backstop or similar such mechanism. Several 
commenters, ACEE, NRDC, the Union of Concerned Scientists, and 
Environmental Defense, argued that EPCA requires the agency to 
incorporate such measures under the Reformed CAFE system. However, a 
backstop or similar mechanism as recommended by commenters would not be 
consistent with the objectives of EPCA, and in some instances could 
violate the statute.
    ``Backstop'' refers to a required fuel economy level that would be 
applicable to an individual manufacturer (or to the industry) if the 
required fuel economy level calculated under the Reformed CAFE system 
for a manufacturer (or industry) was below a predetermined minimum. The 
concept of a backstop is to prevent or minimize the loss of fuel 
savings from one model year to the next. Such a requirement would 
essentially be the same as an Unreformed CAFE standard. Stated another 
way, the Reformed CAFE standard with a backstop would require 
compliance with the greater of the following fleet-wide requirements: 
(1) An average fuel economy level calculated under the Reformed CAFE 
standard, or (2) an equal-cost fuel economy level calculated under the 
Unreformed CAFE standard.
    Under the Reformed CAFE system a manufacturer's required fuel 
economy is reflective of that manufacturer's product mix. Fuel economy 
targets are based on vehicle footprint; vehicles with a larger 
footprint are compared to less stringent targets than vehicles with a 
smaller footprint. As such, commenters stated that upsizing \73\ of 
manufacturers' fleets through increased sales of larger vehicles would 
reduce required fuel levels and fuel savings would decrease. It is this 
potential for reduced fuel savings that these commenters assert 
necessitates a backstop or fuel economy ratcheting mechanism.\74\
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    \73\ ``Upsizing'' of a fleet refers to the increase in average 
footprint that occurs through either an increase to the footprint 
value of individual vehicles, an increase in the production of 
vehicles with larger footprint values, or a combination of both.
    \74\ As described by commenters, a ``ratcheting mechanism'' is a 
regulatory mechanism that would automatically increase the 
stringency of the required fuel economy level for a manufacturer or 
the industry if fuel savings dropped below a predetermined level.
---------------------------------------------------------------------------

    As previously explained, EPCA requires the agency to establish fuel 
economy standards with consideration given to four statutory criteria, 
one of which is the Nation's need to conserve

[[Page 17593]]

energy. However, the agency has in the past reduced established fuel 
economy standards because the previous balance of the four criteria no 
longer gave sufficient consideration to the criteria of economic 
practicability. This course of action was upheld by the U.S. Circuit 
Court of Appeals for the District of Columbia, once with respect to 
light trucks, and the other time with respect to passenger cars. See, 
CAS, 793 F.2d 1322; Public Citizen, 848 F.2d 256. With regard to the 
reduction of the light truck standard, the agency determined that 
manufacturers had made reasonable efforts to comply with the standard, 
but it was a shift in market demand that was hindering compliance. 
Consumers were demanding larger vehicles with lower fuel economy 
performance than manufacturers or the agency had projected. The Court 
in CAS specifically held that EPCA permits the agency to consider 
consumer demand and the resulting market shifts in setting fuel economy 
standards. See, CAS at 1323. This precedent is contrary to the 
commenters' assertion that a backstop or ratcheting mechanism is 
statutorily required. The Courts have said that none of the four 
criteria are preeminent. Instead the agency must balance the four 
criteria in establishing fuel economy standards.
    NRDC and the Union of Concerned Scientists stated that historic 
rates of vehicle upsizing and the potential for fleet upsizing through 
shifts in production towards vehicles with larger footprints 
necessitate a backstop or ratcheting mechanism. These commenters stated 
that historic increases in light truck foot print and a shift in 
production of nameplates offered with longer wheelbases could result in 
a 30 percent and one percent reduction in the projected fuel savings, 
respectively. As such, commenters suggested that the agency adopt a 
backstop or ratcheting mechanism that would apply if the light truck 
fleet increased in size beyond some threshold, but did not identify 
what such a threshold should be.
    The regulatory mechanisms suggested by commenters would essentially 
limit the ability of manufacturers to respond to market shifts arising 
from changes in consumer demand. If consumer demand shifted towards 
larger vehicles, a manufacturer potentially could be faced with a 
situation in which it must choose between limiting its production of 
the demanded vehicles, and failing to comply with the CAFE light truck 
standard. Forcing such a choice would be contrary to the congressional 
intent for establishing EPCA.
    Congress directed that:

    [A]ny regulatory program must be carefully drafted so as to 
require of the industry what is attainable without either imposing 
impossible burdens on it or unduly limiting consumer choice as to 
the capacity and performance of motor vehicles.

H. Rep. 94-340 (p. 87). The Court's determination in CAS reflects this 
congressional directive. These comments, on the other hand, seem 
unaware of it. Consideration of consumer demand is a permissible one 
under EPCA.
    A backstop could also have the unintended consequence of resulting 
in downsizing by manufacturers, which could have negative safety 
implications. A manufacturer facing the potential of failing to comply 
with a backstop might shift its production to smaller, lighter 
vehicles.
    Furthermore, a ratcheting mechanism could result in a manufacturer 
required to comply with a fuel economy level that violates EPCA. Under 
the Reformed CAFE system, a manufacturer's required fuel economy level 
is based on targets that represent the fuel savings capabilities of 
vehicles with a given footprint value. Targets are set with 
consideration of the technological feasibility of improving the fuel 
economy of vehicles given their footprint. As such, the Reformed CAFE 
system encourages manufacturers to undertake reasonable efforts to 
improve the fuel economy of all its light trucks. If the stringency of 
targets were automatically increased due to a predetermined trigger, 
the resulting changes to required fuel economy levels would be beyond 
what was established after careful consideration of the statutory 
criteria, including the technological and economic capabilities of the 
industry. This result would violate EPCA.
    Commenters also presented additional scenarios (i.e., upsizing at 
category boundaries and upweighting to remove vehicles from the light 
truck CAFE program) that they argued would likely result in some loss 
of fuel savings. These additional scenarios are addressed below. As 
discussed further below, concerns raised by these additional scenarios 
are addressed through the Reformed CAFE system adopted today.
3. Transition Period
    The agency is providing a transition period during MYs 2008-2010, 
during which manufacturers may choose to comply with the Unreformed 
CAFE standard or the Reformed CAFE standard. This transition period 
will minimize the potential for unintended compliance burdens that may 
be experienced by a manufacturer as the result of shifting to a new 
regulatory structure. The transition period is critical given that this 
is the first comprehensive reform of the light truck CAFE program since 
its inception.
    The transition period is consistent with the recommendation of the 
NAS report. The NAS report stated that a restructuring of the CAFE 
system should include a phase-in period in order to provide 
manufacturers an opportunity to analyze the implications of the new 
standards and to redo their product plans (see NAS Report at 108). The 
Reformed CAFE standard will require certain manufacturers to improve 
their fleets, when in the past these manufacturers did not need to be 
concerned with the light truck CAFE program. These manufacturers are 
those that produce fleets predominately comprised of small light 
trucks, which by virtue of their small size have high fuel economies. 
These manufacturers traditionally had high fleet wide fuel economies 
that were above the standard. However, the Reformed CAFE system, by 
comparing vehicles to footprint specific targets will require more 
manufacturers to improve their fleets' fuel economy performance beyond 
the baseline of the manufacturers' product plans.
    Furthermore, the structure of the Reformed CAFE might require some 
manufacturers to revise their compliance strategies. For example and as 
explained below, the Reformed CAFE system minimizes the ability of 
manufacturers to offset the low fuel economy performance of larger 
vehicles by increasing the production of smaller vehicles with higher 
fuel economies. Manufacturers that relied on such a compliance strategy 
in the past might need to revise their product plans in order to comply 
with the Reformed CAFE standard. The transition period is an 
opportunity for manufacturers to gain experience with how the Reformed 
CAFE system impact their fleets and compliance strategies, while still 
providing manufacturers the option to comply under the more familiar 
Unreformed CAFE system.
    Several commenters questioned whether the agency had authority to 
establish a transition period during which manufacturers could choose 
to comply with one of two standards. The Union of Concerned Scientists 
stated that the transition period would lead to a ``worst of both 
worlds'' scenario; each manufacturer would comply with the CAFE system 
that provided the lower of the two required fuel economy levels. The 
Union of Concerned Scientists estimated that under this scenario, the

[[Page 17594]]

actual light truck fuel economy in the transition years would be as 
much as 0.4 mpg lower than it would be under either the Reformed CAFE 
system or the Unreformed CAFE system.
    First, we are unable to predict how manufacturers will choose to 
comply during the transition period. Some manufacturers might choose to 
continue to comply under the Unreformed CAFE system, given that it is a 
regulatory structure with which they are familiar. Some manufacturers 
might plan to comply with the Unreformed CAFE program, but determine 
that they comply with the Reformed CAFE, and therefore to gain 
experience with the new system switch to the Reformed system. Other 
manufacturers may choose to gain early experience with the Reformed 
CAFE system and choose to comply with the Reformed CAFE system for all 
3 years of the transition. We have concluded that it is prudent to 
provide manufacturers this flexibility in order to provide for a more 
orderly transition to Reformed CAFE.
    Second, this is not the first time that the CAFE program provided 
manufacturers a choice of standards under which to comply. In 1979, 
manufacturers were given the option of complying with the 4x4 and 4x2 
standards separately or combining all their trucks into one fleet and 
complying with the 4x2 numerical level. In 1983-1991, manufacturers 
were provided the option of complying with standards applicable to 
their 4x4 light truck fleet and 4x2 light truck fleet separately, or 
complying with a single combined standard applicable to their entire 
fleet. In establishing the later option, we stated that it provides 
manufacturers additional flexibility in complying (45 FR 81593, 81594 
(December 11, 1980)). We also noted that such a compliance mechanism 
provides a degree of stability in the standard setting structure of 
CAFE (see, id.). Although the substance of the compliance options 
adopted in this document differs from those that gave rise to 
compliance options in previous model years, the rationale is the same.
    Manufacturers commented that the flexibility of a transition period 
is necessary for manufacturers to understand the new system and avoid 
unintended consequences when revising compliance strategies and product 
plans. Toyota noted that the current system has been in place for over 
25 years, and therefore, a 3-year transition is appropriate for 
manufacturers to better understand how to plan for and implement the 
Reformed CAFE system. The Alliance, General Motors, and Mitsubishi 
stated that 3 years of lead-time is the minimum necessary to comply 
with the required fuel economy levels under the Reformed CAFE 
structure. Nissan stated that the stringency of the required fuel 
economy levels that results from the Reformed CAFE system will be 
extremely challenging, given the significant changes to the CAFE system 
that must be incorporated into a manufacturer's product planning 
process. Nissan suggested that because the proposed regulatory changes 
are so much more extensive than merely setting new CAFE levels, which 
Nissan claims the agency has stated requires at least 30-36 months lead 
time, an even longer phase-in may be appropriate.
    General Motors stated that the availability of the traditional 
standards during MY 2008-2010 would provide a safety net against 
unintended consequences from the reform process. However, General 
Motors stated that the agency need not establish the MY 2011 Reformed 
CAFE standards in the current rulemaking. Instead, General Motors 
urged, NHTSA should await the experience and data that the transition 
period will produce. General Motors expressed concern that if the 
Reformed CAFE targets begin to increase significantly because of new 
analytical methodologies, time to fully address all of the relevant 
issues may not be available due to statutory deadlines. In such an 
instance, General Motors commented that a standard grounded in the 
``least capable manufacturer'' might be preferable.
    Manufacturers develop product plans for their fleets at least 5 
years in advance, plans which incorporate consideration of CAFE 
compliance. As such, manufacturers have already begun investing in 
their fleets for some of the model years that are subject to today's 
final rule. Some manufacturers may determine that it will be necessary 
to adjust their product plans based on the new CAFE structure. Given 
the uncertainty associated with how a manufacturer will perform under 
Reformed CAFE, we are providing a transition period.
    In addition to providing manufacturers the option of complying 
under either CAFE system during the transition period, we adjusted the 
Reformed CAFE standard such that the industry wide compliance costs are 
approximately equal between the two systems. Cost equalization has an 
important advantage. Since the Unreformed CAFE standards were judged to 
be economically practicable and since the Reformed CAFE standards 
spread the cost burden across the industry to a greater extent, 
equalizing the costs between the two systems provides the agency with 
confidence that the Reformed CAFE standards are also economically 
practicable.\75\ Further, this approach promotes an orderly and 
effective transition to the Reformed CAFE system since experience with 
the new system will be gained prior to full implementation in MY 2011.
---------------------------------------------------------------------------

    \75\ We equalized aggregate industry costs between Reformed and 
Unreformed CAFE. The costs are not borne by manufacturers in the 
same way and costs for individual manufacturers may differ between 
the two systems.
---------------------------------------------------------------------------

    Several commenters questioned whether the agency had the authority 
to equalize compliance costs during the transition period. The Union of 
Concerned Scientists and ACEEE stated that equalizing costs during the 
transition years and not setting them at a level at which marginal 
costs equaled marginal benefits, resulted in Reformed CAFE standards 
are not set at the ``maximum feasible'' level. Therefore, these 
commenters concluded that the Reformed CAFE standards during the 
transition period would not comply with EPCA.\76\
---------------------------------------------------------------------------

    \76\ Additionally, the ACEEE recommended that the transition 
period be structured so that all manufacturers pay compliance costs 
equal to the least capable manufacturer, but did not provide details 
as to how the standards would be set, or whether such standards 
would be technologically feasible.
---------------------------------------------------------------------------

    With regard to the agency's authority for establishing standards 
under EPCA, the agency is not limited to the considerations provided 
for in the statute when determining what fuel economy levels will be 
maximum feasible. For example, the agency also considers the effect 
that the CAFE standards will have on safety.\77\ Just as safety is an 
appropriate consideration in determining maximum feasible fuel economy 
levels, so is the need for an orderly transition to a CAFE system that 
provides greater fuel savings than the current system.
---------------------------------------------------------------------------

    \77\ The United States Court of Appeals pointed out in upholding 
NHTSA's exercise of judgment in setting the 1987-1989 passenger car 
standards, ``NHTSA has always examined the safety consequences of 
the CAFE standards in its overall consideration of relevant factors 
since its earliest rulemaking under the CAFE program.'' Competitive 
Enterprise Institute v. NHTSA (CEI I), 901 F.2d 107, 120 at n.11 
(D.C. Cir. 1990).
---------------------------------------------------------------------------

    Because we equalized aggregate industry costs between Reformed and 
Unreformed CAFE, the costs are not borne by manufacturers in the same 
way and costs for individual manufacturers may differ between the two 
systems. Therefore, some manufacturers may have a cost incentive to 
comply under the Reformed CAFE system beginning in MY 2008. This will 
provide both the industry and the agency with

[[Page 17595]]

experience in compliance with and the administration of the new system. 
Further, some manufacturers may chose to comply under the Reformed CAFE 
in order to gain a familiarity with the new system. As such, the cost 
equalization will promote an orderly and effective transition to the 
Reformed system.
    The equalization of costs provides the industry greater flexibility 
in adjusting to the Reformed CAFE system. The three-year transition 
period as adopted encourages experimentation by manufacturers, which we 
conclude will effect a quicker transition than would result by either 
implementing an abrupt change after providing appropriate lead time or 
maintaining the status quo. The Reformed CAFE program provides for 
greater fuel savings. By effecting a quicker transition period, greater 
fuel savings will be realized over time, thereby furthering EPCA's goal 
of improving fuel savings.

D. Structure of Reformed CAFE

1. Footprint Based Function
    The proposed Reformed CAFE system was premised on using vehicle 
footprint to establish fuel economy targets for light trucks of 
different sizes. We noted that vehicle weight and shadow \78\ were 
discussed in the ANPRM, but along with commenters to the ANPRM, we had 
concerns that weight and shadow could more easily be tailored for the 
sole purpose of subjecting a vehicle to a less stringent target (70 FR 
51440). As a result, both of those attributes, if used as the 
foundation of our program, could fail to achieve our goal of enhancing 
fuel economy with a Reformed CAFE program, and use of weight could fail 
to achieve our goal of improving the safety of the program.
---------------------------------------------------------------------------

    \78\ ``Shadow'' is the area defined as the vehicle's length 
multiplied by the vehicle's width.
---------------------------------------------------------------------------

    Vehicle footprint is more integral to a vehicle's design than 
either vehicle weight or shadow and cannot easily be altered between 
model years in order to move a vehicle into a different category with a 
lower fuel economy target. Footprint is dictated by the vehicle 
platform, which is typically used for a multi-year model lifecycle. 
Short-term changes to a vehicle's platform would be expensive and 
difficult to accomplish without disrupting multi-year product planning. 
In some cases, several models share a common platform, thus adding to 
the cost, difficulty, and, therefore, unlikelihood of short-term 
changes.
    Vehicle footprint is the area defined by vehicle wheelbase 
multiplied by vehicle track width. The proposal defined wheelbase as 
the longitudinal distance between front- and rear-wheel centerlines. 
The proposed track width definition was based on the Society of 
Automotive Engineers (SAE) definition in W101 of SAE J1100, Surface 
Vehicle Recommended Practice, revised July 2002, which reads as 
follows:
    The lateral distance between the centerlines of the base tires at 
ground, including the camber angle.\79\ However, the agency was 
concerned that a vehicle's track width could be increased by off-
setting its wheels,\80\ at minimal expense, and thus subjecting the 
vehicle to a less stringent target. Therefore, the agency modified the 
W101 definition for the proposal to read as follows:
---------------------------------------------------------------------------

    \79\ Camber angle is the angle between the vertical axis of the 
wheel of an automobile and the vertical axis of the vehicle when 
viewed from the front or rear. It is used in the design of steering 
and suspension.
    \80\ Wheel offset is the distance from where a wheel is mounted 
to an axis to the centerline of the wheel. The offset can be one of 
three types.
    Zero Offset--The hub mounting surface is even with the 
centerline of the wheel.
    Positive--The hub mounting surface is toward the front or wheel 
side of the wheel. Positive offset wheels are generally found on 
front wheel drive cars and newer rear drive cars.
    Negative--The hub mounting surface is toward the back or brake 
side of the wheels centerline. ``Deep dish'' wheels are typically a 
negative offset.

    [T]rack width is the lateral distance between the centerlines of 
the tires at ground when the tires are mounted on rims with zero 
---------------------------------------------------------------------------
offset.

    Commenters generally supported the use of footprint as a metric to 
categorize light trucks. However, manufacturers raised a variety of 
concerns with the proposed definition of track width. The Alliance 
disagreed with the agency's concern regarding the potential for changes 
made to wheel offset. The Alliance stated that manufacturers determine 
wheel offsets based on suspension geometry, ride, and handling 
characteristics, weight and vehicle drivability. As such, the Alliance 
asserted that it would be unlikely for a manufacturer would alter a 
vehicle's wheel offset in response to the light truck CAFE program.
    The Alliance, Ford, General Motors, and BMW suggested that the 
agency should define track width in accordance with W113 in SAE J1100, 
which defines track width as:

    [T]he lateral distance between the wheel mounting faces,\81\ 
measured along the spindle axis.\82\

    \81\ A spindle axis is the rotating arm, or axis, unto which the 
wheels are attached.
    \82\ W113 was added to SAE J1100 in September of 2005, after the 
agency published the NPRM. (A spindle axis is the rotating arm, or 
axis, unto which the wheels are attached.)
---------------------------------------------------------------------------

    Conversely, Honda opposed use of W113, stating that W113 and wheel 
offset are related to packaging issues inside the wheel area, but not 
relevant to issues such as wear and dynamic performance. Honda stated 
that the W113 measurement could be increased without any change to 
vehicle size or dynamic performance by using wheels with a larger 
positive offset.
    Nissan recommended using SAE J1100 W101, which is based on the 
centerline of a vehicle's tires at the ground. Nissan stated that it 
relies on the W101 measurement for handling performance design 
considerations as well as safety performance design. Nissan stated that 
there is little incentive to manipulate the W101 measurement because 
even minor adjustments affect handling. Honda added that use of the 
tire centerline has more relevance to rollover risk.
    The definition of footprint adopted in today's final rule 
incorporates the definition of track width as defined in W101. The 
agency has reviewed the three different definitions of track width and 
has determined that there is the potential to affect the measurements 
under each definition. The definition proposed by the agency can be 
affected through changes to a wheel's camber angle and the thickness of 
the wheel mounting face (e.g., through the addition of washers). The 
measurement under W113 could be affected by the thickness of the wheel 
mounting face. The measurement under W101 can be affected by changes to 
wheel offset (positive or negative offset), camber angle, and the 
thickness of the wheel mounting face.
    However, W101 is most directly linked to safety in terms of 
rollover risk, as stated by Honda. The W101 measurement is taken where 
a vehicle's tires touch the ground and is used by NHTSA in calculating 
a vehicle's Static Stability Factor. If a manufacturer were to increase 
a vehicle's footprint through increasing its track width, there likely 
would be a positive safety effect.
    We also believe that use of the vehicle footprint attribute helps 
us achieve greater fuel economy without having a potential negative 
impact on safety. While past analytic work \83\ focused on the 
relationship between vehicle weight and safety, weight was understood 
to encompass a constellation of size-related factors, not just weight. 
More recent studies \84\ have begun to consider

[[Page 17596]]

whether the relationship between vehicle size and safety differs. To 
the extent that mass reduction has historically been associated with 
reductions in many other size attributes and given the construct of the 
current fleet, we believe that the relationship between size or weight 
(on the one hand) and safety (on the other) has been similar, except 
for rollover risks.
---------------------------------------------------------------------------

    \83\ See, Kahane (2003) and Van Auken, R.M. and J.W. Zellner, An 
Assessment of the Effects of Vehicle Weight on Fatality Risk in 
Model Year 1985-98 Passenger Cars and 1985-97 Light Trucks, Dynamic 
Research, Inc. February 2002. Docket No. NHTSA 2003-16318-2.
    \84\ See, Van Auken, R.M. and J.W. Zellner, Supplemental Results 
on the Independent Effects of Curb Weight, Wheelbase, and Track on 
Fatality Risk in 1985-1997 Model Year LTVs, Dynamic Research, Inc. 
May 2005. Docket No. NHTSA 2003-16318-17.
---------------------------------------------------------------------------

    Developing CAFE standards based on vehicle footprint encourages 
compliance strategies that decrease rollover risk. Manufacturers are 
encouraged to maintain track width because reducing it would subject 
the vehicle to a more stringent fuel economy target. Maintaining track 
width potentially would allow some degree of weight reduction without a 
decrease in overall safety. Moreover, by setting fuel economy targets 
for light trucks with the smallest footprints that approach (or exceed) 
27.5 mpg, the agency is providing little incentive, or even a 
disincentive, to design vehicles to be classified as light trucks in 
order to comply or offset the fuel economy of larger light trucks.
    The influence of Reformed CAFE on track width is reinforced by our 
New Car Assessment Program (NCAP) rollover ratings. As stated above, 
track width as defined by SAE J100 W101 is one of the elements of our 
Static Stability Factor, which constitutes a significant part of our 
NCAP rollover ratings and which correlates closely with real world 
rollover risk. The rollover NCAP program (as well as real world 
rollover risk) reinforces Reformed CAFE by a separate disincentive to 
decrease track width.
    Overall, use of vehicle footprint is ``weight-neutral'' and thus 
does not exacerbate the vehicle compatibility problem. A footprint-
based system does not encourage manufacturers to add weight to move 
vehicles to a higher footprint category. Nor would the system penalize 
manufacturers for making limited weight reductions. By using vehicle 
footprint in lieu of a weight-based metric, we are facilitating the use 
of promising lightweight materials that, although perhaps not cost-
effective in mass production today, may ultimately achieve wider use in 
the fleet, become less expensive, and enhance both vehicle safety and 
fuel economy.\85\ In Reformed CAFE, lightweight materials can be 
incorporated into vehicle design without moving a vehicle into a 
footprint category with a more stringent average fuel economy target.
---------------------------------------------------------------------------

    \85\ The Aluminum Association commented that using aluminum to 
decrease a vehicle's weight by 10 percent could improve its fuel 
economy by 5-8 percent. The commenter noted that the Honda Insight, 
an all aluminum vehicle, is 40 percent lighter than a comparable 
steel vehicle. It also provided data to demonstrate that all 
aluminum vehicles have comparable performance in frontal barrier 
crash tests as comparable steel vehicles. See comments provided by 
the Aluminum Association, Inc. (Docket No. 2003-16128-1120, pp. 5 
and 12).
---------------------------------------------------------------------------

2. Continuous Function
    In the NPRM, we proposed a Reformed CAFE structure utilizing a step 
function that established fuel economy targets for vehicles within 
specified ranges of footprint values. We also discussed and sought 
comments on an alternative structure that would use a continuous 
function to establish a different fuel economy target for each discrete 
footprint value. In today's final rule, we are adopting a Reformed CAFE 
structure that employs such a continuous function.
    The process for establishing a continuous function is similar to 
that for establishing a step function, which was described in detail in 
the NPRM. Moreover, a CAFE system based on a continuous function will 
provide fuel-saving benefits equivalent to those of the proposed step 
function. By varying a vehicle's fuel economy target continuously but 
gradually as its footprint changes, a continuous function will reduce 
the incentive created by a step function to upsize a vehicle whose 
footprint is near a category boundary. By comparison, the proposed step 
function would have relaxed fuel economy targets significantly for any 
vehicle that could be upsized so that it moves from one category up to 
the next. At the same time, the continuous function will also minimize 
the incentive to downsize a vehicle to improve its fuel economy since, 
unlike under the proposed category system, any reduction of footprint 
will raise a vehicle's fuel economy target. A continuous function also 
provides manufacturers with greater regulatory certainty because there 
are no category boundaries that could be redefined in future 
rulemaking. These points are discussed in greater detail below.
a. Overview of Establishing the Continuous Function Standard
    The continuous function standard is developed using a three-phrase 
process substantially similar to that used to develop the step function 
standard described in the NPRM. In ``phase one,'' the agency adds fuel 
saving technologies to each manufacturer's fleet until the incremental 
cost of improving its fuel economy further just equals the incremental 
value of fuel savings and other benefits from doing so. This is done 
for each of the seven largest manufacturers. Data points representing 
each vehicle's size and ``optimized'' fuel economy from the light truck 
fleets of those manufacturers are then plotted on a graph.
    In ``phase two,'' a preliminary continuous function is 
statistically fitted through these data points, subject to constraints 
at the upper and lower ends of the footprint range. This contrasts with 
the proposed step function standard, in which the vehicle models of the 
improved fleets were placed in the pre-defined footprint categories and 
the harmonic average fuel economy of the models assigned to each 
category was used to determine the preliminary target for that 
category. With a continuous function, the agency sets different fuel 
economy targets for each increment or value of vehicle footprint, 
rather than setting targets, that would each apply to a range of 
footprint values.
    However, establishing fuel economy targets that vary gradually by 
vehicle footprint does not differ fundamentally from the proposal to 
set different targets for specific footprint ranges. If the number of 
footprint categories in a step function were steadily increased, the 
relationship of fuel economy targets to vehicle footprint would 
increasingly resemble that under a continuous function. In fact, as the 
number of footprint categories in a step function increased, the fuel 
economy targets it established would apply to progressively smaller 
footprint ranges, until each category consisted of a single value of 
footprint just as under the continuous function.
    Once a preliminary continuous function has been statistically 
fitted to the data for a model year, the level of the function is then 
adjusted just as the step function is adjusted in ``phase three'' of 
the proposed rule. That is, the preliminary continuous function is then 
raised or lowered until industry-wide net benefits are maximized. 
Maximization occurs when the incremental change in industry-wide 
compliance costs from adjusting it further would be exactly offset by 
the resulting incremental change in benefits.
    Under a continuous function, the level of CAFE required for each 
manufacturer (and its compliance with that level) is determined in 
exactly the same fashion as under the proposed step function. Each 
manufacturer's required CAFE level is the sales-weighted harmonic 
average of the fuel economy

[[Page 17597]]

targets corresponding to the footprint of each of its light truck 
models. Its compliance with that CAFE level is assessed by comparing 
the sales-weighted harmonic average of each of its model's actual fuel 
economy to this required level. The key difference is that under the 
continuous function, any change in a vehicle's footprint subjects it to 
a slightly different fuel economy target, thus changing a 
manufacturer's required CAFE level slightly. Conversely, under the step 
function, changing a vehicle's footprint would subject it to a new 
target--and thus change a manufacturer's required CAFE level--only if 
that change moved it to a smaller or larger footprint category.
B. Industry-Wide Considerations in Defining the Stringency of the 
Standard
    In setting standards under the proposed Reformed CAFE system, we 
focused on the seven largest manufacturers of light trucks in selecting 
the targets. This differs from the traditional focus on the 
manufacturer with the lowest projected level of CAFE that also has a 
significant share of the market (i.e., the ``least capable'' 
manufacturer). We have traditionally set the Unreformed CAFE standards 
with particular regard to the ``least capable'' manufacturer with a 
significant market share in response to language in the conference 
report on the CAFE statute directing the agency to consider industry-
wide factors, but not necessarily to base the standards on the 
manufacturer with the greatest compliance difficulties. As the NPRM 
indicated, this ``least capable'' manufacturer approach was simply a 
way of implementing the guidance in the conference report in the 
specific context of Unreformed CAFE. While this approach has ensured 
that the standards are technologically feasible and economically 
practicable for all manufacturers with significant market shares, it 
limits the amount of fuel saving possible under Unreformed CAFE.
    As previously explained, by basing a manufacturer's required fuel 
economy level on that manufacturer's individual product mix, the 
Reformed CAFE system provides for a more individualized assessment of 
the capabilities of each of the manufacturers. Thus, Reformed CAFE 
permits the agency to carefully assess the capabilities of the ``least 
capable manufacturer,'' as well as the capabilities of the other 
manufacturers that comprise nearly all of the light truck market. 
Instead of requiring a uniform level of CAFE--which is inherently more 
challenging for manufacturers whose fleets have relatively high 
percentages of larger vehicles to meet than for those whose product 
lines emphasize smaller models--the Reformed system specifies fuel 
economy targets that vary according to vehicle footprint. These targets 
are higher for smaller light trucks and lower for large ones. By 
setting each manufacturer's required fleet-wide CAFE level to reflect 
its size mix, the Reformed system requires each manufacturer to ensure 
the fuel efficiency of its individual models, regardless of their size 
distribution.
    Porsche expressed disagreement with NHTSA's decision to consider 
only the performance and capabilities of the seven largest 
manufacturers, while not considering the other four manufacturers of 
light trucks (Volkswagen, BMW, Porsche, and Subaru). Porsche stated 
that the Reformed CAFE standards do not truly represent industry-wide 
considerations if they do not consider this remaining several percent 
of the light truck market, particularly where many of these 
manufacturers serve niche markets not served by the seven largest 
manufacturers.
    With regard to Porsche's suggestion that the agency consider all 
manufacturers in setting the targets, we previously have addressed the 
degree to which we consider manufacturers with small shares of the 
light truck market. In our 1996 rulemaking setting light truck CAFE 
standard for MY 1998, NHTSA faced a substantially similar argument from 
Mercedes-Benz asserting that there is a need to set the CAFE standards 
at a level achievable by all light truck manufacturers (i.e., even 
those manufacturers with a very small market share). In rejecting that 
suggestion, we cited the language from the Conference Report 
accompanying EPCA that directs us to consider industry-wide 
considerations and to not base the standards on the manufacturer with 
the greatest difficulties. Even under Reformed CAFE, this aspect of 
CAFE standard-setting has not changed since that time.
    The target setting process in this rulemaking focuses on roughly 97 
percent of the light truck market, a figure that reflects industry-wide 
considerations. Inclusion of all manufacturers, even those with a very 
small market share, has the potential to skew the resulting CAFE 
targets so as to decrease the overall stringency of the standards. Such 
an approach would depress the CAFE levels below the maximum feasible 
capability of the rest of the industry and reduce overall fuel savings. 
We recognize that under the Reformed CAFE system, the degree to which 
the standard would be depressed by including the remaining very small 
manufacturers likely would not be more than 0.1 mpg on any given 
target. However, this reduction would result in a reduction in fuel 
savings. Balancing the need of the Nation to conserve energy, we have 
concluded to rely on the largest seven manufacturers as discussed.
c. Improving the Light Truck Fleet
    The first phase in determining the footprint targets was to 
determine separately for each of the seven largest manufacturers the 
overall level of CAFE that would maximize the net benefits for that 
manufacturer's vehicles.
    To find the socially optimal point for each of these seven 
manufacturers (i.e., the point at which the incremental or marginal 
change in costs equals the incremental or marginal change in benefits 
for that manufacturer), we used the Volpe model to compute the total 
costs and total benefits of exceeding the baseline \86\ CAFE by 
progressively larger increments. We began by exceeding the baseline by 
0.1 mpg. We then used the model to calculate the total costs and total 
benefits of exceeding the baseline by 0.2 mpg. The marginal costs and 
benefits were then computed as the difference between the total costs 
and total benefits resulting from exceeding the baseline by 0.1 mpg and 
the total costs and benefits resulting from exceeding the baseline by 
0.2 mpg. We then used the Volpe model to calculate the total costs and 
total benefits of exceeding the baseline by 0.3 mpg and computed the 
difference between the total costs and benefits between 0.2 mpg and 0.3 
mpg to determine the marginal costs and benefits.
---------------------------------------------------------------------------

    \86\ An important distinction needs to be made between the 
baseline and the manufacturer's product plan mpg. As discussed 
earlier, ``baseline'' is defined as the fuel economy that would 
exist absent of the rulemaking (i.e., the model year 2007 standard 
of 22.2 mpg). The 22.2 mpg baseline differs from the mpg level 
reported in a manufacturer's product plan. Some manufacturers report 
fuel economy levels that are below 22.2 mpg. In that case, the cost 
and benefits of going from the product plan mpg to the baseline 
(22.2) mpg are not counted as costs and benefits of the rulemaking, 
as they were already counted in the MY 2005-2007 final rule. Only 
costs and benefits associated with going from baseline mpg to a 
higher standard are counted. It is important to note that since 
technology is applied on a cost effective basis, the most cost 
effective technologies will be used to get a manufacturer from the 
product plan mpg to the baseline mpg.
---------------------------------------------------------------------------

    We continued making similar iterations until marginal costs equaled 
marginal benefits for that manufacturer. Performing this iterative 
process individually for each manufacturer pushed each of the seven 
largest

[[Page 17598]]

manufacturers to a point at which net benefits are maximized for each 
manufacturer's vehicles.
    As a general concept, Toyota expressed support for the agency's use 
of cost-benefit analysis in establishing proposed CAFE standards, 
although it asserted that NHTSA may have underestimated costs and 
overestimated potential benefits in developing its proposal. Toyota 
also suggested that the agency had relied too heavily on its approach 
of using cost-benefit analysis to determine a maximum feasible 
standard, and in doing so had not considered other relevant factors. 
Thus, Toyota recommended that NHTSA carefully review the assumptions in 
its model in order to ensure that the economically efficient fuel 
economy targets it identifies nevertheless fall within the practical 
constraints and limitations of technology deployment. Finally, Toyota 
also urged caution in assessing any potential changes to the CAFE 
targets resulting from increased fuel prices.
    As discussed previously, DaimlerChrysler argued that in order to 
ensure the economic practicability of CAFE standards, NHTSA's procedure 
of establishing standards that maximize net benefits must always be 
tempered by considering the industry's ability to afford the required 
technologies. DaimlerChrysler also argued that the agency's methodology 
for determining ``maximum feasible'' fuel economy levels overestimates 
the potential of technology to improve fuel economy, while 
underestimating its costs. The commenter suggested that setting 
standards based upon ``maximum feasible'' and ``maximum net benefits'' 
approaches will not necessarily yield identical results in all cases.
    As discussed above, the marginal cost-benefit analysis is part of 
the agency's consideration of economic practicability. Our analysis 
also considered the financial condition of the industry in determining 
technology applications. The marginal cost-benefit analysis, taken in 
conjunction with these technology considerations, provided fuel economy 
requirements that were then subject to a sales and job impact analysis. 
The totality of this process, in conjunction with consideration of the 
nation's need to conserve energy, the impacts of other Federal 
standards, and societal impacts such as safety, provides us with a 
determination of ``maximum feasible.''
    The Alliance cautioned that while it is probably permissible for 
NHTSA to use cost-benefit analysis in setting CAFE standards, the 
agency should not rely solely on this tool in determining their 
economic practicability. However, the Alliance provided no ``tool'' to 
determine economic practicability or an individual manufacturer's 
capability. The Alliance argued that the proposed CAFE standards pose 
significant technical challenges and may be beyond manufacturers' 
capabilities, and thus that NHTSA should not finalize standards any 
higher than those proposed in the NPRM, because higher targets would be 
unlikely to comply with the statutory criteria of technological 
feasibility and economic practicability.\87\ The Alliance also noted 
that the fuel economy improvements required by the proposed standard 
would come at a time when vehicles are already significantly more fuel-
efficient than in recent years, thereby making such fuel economy 
improvement much more difficult and costly to achieve. Finally, the 
Alliance also commented that use of cost-benefit analysis makes the 
agency's estimates of the costs, benefits, and applicability of certain 
technologies more important than in setting previous rules, and these 
assumptions should therefore be fully explained and documented.
---------------------------------------------------------------------------

    \87\ According to the Alliance, once finalized, the CAFE rule 
would mark seven consecutive years of light truck fuel economy 
increases. The Alliance argued that combined with previous increases 
for MY 2005-2007, the current proposal would match the highest 
seven-year rate of increase (2.2 percent per year, the average from 
1982-1989) in the history of the light truck CAFE program, and it 
would be more than 1.5 times the historical trend of fuel efficiency 
improvements.
---------------------------------------------------------------------------

    Similarly, NADA commented that the success of NHTSA's CAFE reform 
hinges upon the application of appropriate information and assumptions. 
For example, NADA stated that because the cost-benefit analysis is so 
critical to the establishment of CAFE targets under the agency's 
proposal, there must be an accurate assessment of real costs and real 
benefits. NADA argued that applying cost-benefit analysis to determine 
the level of CAFE standards should be only one step in a rigorous 
examination of their economic practicability.
    Honda requested confirmation that once CAFE standards are set using 
NHTSA's proposed benefit-cost approach, they will not be revised simply 
because updated information affecting the benefit or cost estimates 
becomes available (e.g., new fuel prices estimates), unless 
overwhelming need can be demonstrated. According to Honda, such changes 
would be extremely disruptive to manufacturers' product planning. Thus, 
Honda argued that updated data should be considered only for setting 
CAFE requirements that would apply to model years beyond those covered 
by the current rule.
    Environmental Defense raised specific objections to some of the 
assumptions relied upon in the agency's analysis, but stated that the 
Reformed CAFE standard-setting methodology itself is reasonable. 
Environmental Defense stated that the Reformed CAFE approach provides 
greater transparency than the Stage analysis relied upon in the 
Unreformed CAFE system.
    In response to the manufacturers' reservations about equating 
``maximum feasible'' fuel economy standards with those that produce 
maximum net benefits, the agency is aware of its continuing statutory 
responsibility to establish maximum feasible fuel economy standards at 
levels that simultaneously reflect consideration of technological 
feasibility, economic practicability, the effects of other Federal 
vehicle standards, and the need of the nation to conserve energy. The 
approach for determining the continuous function sets the fuel economy 
targets just below the level where the increased cost of technologies 
that could be adopted by manufacturers to improve fuel economy would 
first outweigh the added benefits that would result from such 
technology.
    These targets translate into required levels of average fuel 
economy that are technologically feasible because manufacturers can 
achieve them using available technologies. Those levels also reflect 
the need of the nation to conserve energy because they reflect the 
economic value of the savings in resources, as well as of the 
reductions in economic and environmental externalities that result from 
producing and using less fuel. We note that our assumptions for each 
technology, its cost, and its effectiveness are in the FRIA (see FRIA 
Table VI-4). (However, the application to each manufacturer is 
confidential and therefore not included in the docketed FRIA.)
    In answer to comments from various commenters that NHTSA's process 
for establishing fuel economy targets overstates the fuel economy 
improvements likely to result from specific technologies and 
underestimates manufacturers' costs for adopting those fuel economy 
technologies, the agency again notes that we have relied on the 
technology cost and effectiveness estimates from the NAS report. The 
estimates of fuel economy technology effectiveness and costs developed 
by NAS represent the most reliable estimates that are available. The 
alternative estimates of technology costs and effectiveness recommended 
by some commenters

[[Page 17599]]

have not been subjected to the same level of expert review and public 
scrutiny as those developed by NAS, and are thus not suitable for use 
by NHTSA in establishing fuel economy standards.
    In response to Honda's request for clarification regarding our 
position on updating the standards when new data become available, new 
data will be relied upon for consideration of standards beyond MY 2011. 
If the agency were to consider increasing the established standards for 
MY 2008-2011, we would need to be mindful of lead time constraints and 
the need for regulatory certainty (i.e., the need for manufacturers to 
be able to rely on today's final rule to adjust their product plans).
d. Defining the Function and the Preliminary Shape of the Curve
    In the second phase, we plotted the results of phase one (i.e., the 
light truck fleets of the seven largest manufacturers, each separately 
``socially optimized''). Then, we calculated a statistical relationship 
through the plotted data points (using production-weighted nonlinear 
least squares regression). This relationship defines a preliminary 
continuous function (a ``curve'') that, upon being adjusted, determines 
the fuel economy targets for light trucks based on vehicle footprint. 
Although adjusted, the shape of the curve remains unchanged throughout 
the equal-increment adjustments in phase three below, because the 
absolute differences (on a gallon-per-mile basis) between the targets 
are unaffected by those adjustments.
    In its report, NAS illustrated a function that set fuel economy 
targets for vehicle based on weight. See Figure 2 below. Under the NAS 
function, fuel consumption increased in a linear manner as vehicle 
weight increased up to 4,000 lbs. At 4,000 lbs, the function leveled-
off. The leveling of the function at 4,000 lbs represented a ``safety 
threshold,'' i.e., the NAS report determined that there was a safety 
benefit in minimizing the incentive to up-weight vehicles beyond 4,000 
lbs. Under the NAS function, increasing a vehicles weight beyond 4,000 
lbs did not subject a vehicle to a less stringent fuel consumption 
value.
[GRAPHIC] [TIFF OMITTED] TR06AP06.002

    The agency considered relying on a function as illustrated by NAS, 
but determined that the NAS function presented several problems. First, 
the flattening of the function would be expected to produce a milder 
form of the ``edge effects'' that are of concern under the step 
function. At the ``safety threshold'' there would be an abrupt change 
in the rate at which size increases are rewarded. This abrupt change 
could distort the production of vehicles located near the threshold and 
encourage manufacturers to potentially downsize some vehicles to the 
threshold point. Second, it is not clear whether and, if so, where, in 
terms of footprint, a true ``safety threshold'' occurs. Without a 
``safety threshold'' the NAS function would be a simple linear 
function, which as discussed below introduces several potential 
problems. Finally, there is a possibility that a function based on the 
NAS illustration could extrapolate to unreasonably high levels for 
small vehicles.
    As discussed below, the agency has decided to use a constrained 
logistic function to set the targets. We have determined that a 
constrained logistic function provides a good fit to the optimized 
light truck fleet data, while not resulting in potentially 
impracticable high targets for very small vehicles, or unreasonably low 
targets for very large vehicles.

[[Page 17600]]

    The agency evaluated a variety of mathematical forms to estimate 
the relationship between vehicle footprint and fuel economy. The agency 
considered a simple linear function, a quadratic function, an 
exponential function, and an unconstrained logistic function. Each of 
these relationships was estimated in gallons per mile (gpm) rather than 
miles per gallon (mpg). As explained in the NPRM, the relationship 
between fuel economy measured in mpg and fuel savings is not linear. An 
increase in one mpg in a vehicle with low fuel economy (e.g., 20 mpg to 
21 mpg) results in higher fuel savings than if the change occurs in a 
vehicle with high fuel economy (e.g., 30 mpg to 31 mpg). Increasing 
fuel economy by equal increments of gallons per mile provides equal 
fuel savings regardless of the fuel economy of a vehicle. Increasing 
the fuel economy of a vehicle from 0.06 gpm to 0.05 gpm saves exactly 
the same amount of fuel as increasing the fuel economy of a vehicle 
from 0.03 gpm to 0.02 gpm.\88\
---------------------------------------------------------------------------

    \88\ Lower fuel consumption represents a more stringent value 
(i.e., a low gpm value equates to a high mpg value)
---------------------------------------------------------------------------

    Given that the agency is concerned with fuel savings, gpm is a more 
appropriate metric for evaluating the functions. Therefore, we plotted 
the ``socially optimized'' fleets in terms of footprint versus gpm. 
Once a shape of a function was determined in terms of ``gallons per 
mile,'' the agency then converted the function to mpg for the purpose 
of evaluating the potential target values. Figures 3A through 6B below 
illustrate each of the functions as sales weighted estimates of the 
relationship between fuel economy of the ``socially optimized'' fleets 
and foot print, which were considered by the agency.
BILLING CODE 4910-59-U
[GRAPHIC] [TIFF OMITTED] TR06AP06.003


[[Page 17601]]


[GRAPHIC] [TIFF OMITTED] TR06AP06.004

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[[Page 17602]]


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[[Page 17603]]


[GRAPHIC] [TIFF OMITTED] TR06AP06.008

[GRAPHIC] [TIFF OMITTED] TR06AP06.009


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[GRAPHIC] [TIFF OMITTED] TR06AP06.010

BILLING CODE 4910-59-C
    After evaluating the functions above, we determined that none of 
the functions as presented would be appropriate for the CAFE program. 
Each of the four forms fit the data relatively well within the 
footprint range observed in the manufacturers' product plans (from 
about 40 square feet to about 85 square feet). However, at slightly 
beyond the endpoints of the observed range, the functional forms tended 
towards excessively high stringency levels at the smaller end of the 
footprint range, excessively low stringency levels at the higher end of 
the footprint end, or both. Excessively high stringency levels at the 
smaller end of the footprint range potentially could result in target 
values beyond the technological capabilities of manufacturers. 
Excessively low stringency levels at the higher end of the footprint 
range standards would reduce fuel savings below that of the socially 
optimized fleet.
    As Figure 3A shows, a simple linear functional form provides a 
reasonably good fit for small vehicles, but results in very low 
stringency for vehicles above 80 square feet would correspond to fuel 
consumption values for very large vehicles greater than the fuel 
consumption for those vehicles under the optimized fleet. Reliance on a 
linear function would result in targets for large light trucks that are 
well below the optimized fuel economy, in terms of mpg, for those 
vehicles. These low target values would reduce fuel savings and provide 
a fuel economy incentive for upsizing. Additionally, depending on the 
distribution of the fleet, a simple linear relationship could also 
produce targets for very small vehicles well above the corresponding 
data points.
    Polynomial relationships between footprint and fuel economy, such 
as a quadratic function, result in fuel consumption values that deviate 
substantially from the data points at either end of the footprint 
range. Further, because of their inherent curvature, polynomial 
functions often result in less stringent mpg targets for the smallest 
models than for slightly larger vehicles, or mpg targets for the 
largest models that are more stringent than those for slightly smaller 
models. As illustrated in Figure 4B, the convex curvature of the 
function results in increases in stringency for vehicles with a 
footprint larger than about 70 square feet. This increase is contrary 
to the data points of the socially optimized fleet.
    Under an exponential relationship, the fuel economy targets tend 
towards very high levels of stringency as footprint declines below 40 
square feet (see Figure 5B). Under the exponential function for 
footprint values smaller than the smallest vehicle in the planned fleet 
are more a characteristic of the function, as opposed to representing 
the technological capabilities of such vehicles. A similar increase in 
targets occurs under a logistic function, although not to the extent as 
with an exponential function (see Figure 6B).
    Under either an unconstrained exponential or an unconstrained 
logistic function, if a manufacturer were to introduce a vehicle with a 
footprint smaller than that considered in the optimized fleet, that 
vehicle would be compared to a fuel economy target potentially beyond 
the level that would be achieved had the agency ``optimized'' that 
vehicle. Such a target likely would be difficult to achieve using 
available technology. If a market demand were to develop for light 
trucks smaller than the smallest light truck currently planned by 
manufacturers, targets based on an exponential relationship or a 
logistic relationship could be technologically infeasible and limit 
consumer choice.
    To address this issue the agency determined that it is necessary to 
constrain the chosen function at the end points of the footprint range. 
However, imposing a constraint on an exponential function prevents the 
curve from closely fitting the actual relationship between vehicle 
footprint and fuel economy across much of the size spectrum. In 
addition, exponential functions constrained to reach a maximum mpg 
value tended to have inconsistent shapes when fitted to light truck 
data for

[[Page 17605]]

different model years.\89\ Therefore, the agency decided to use a 
constrained logistic function to fit the target curve to the data 
points. The constrained logistic function is illustrated below in 
gallons per mile and inverted in miles per gallon:
---------------------------------------------------------------------------

    \89\ That is, the targets they established for models for some 
footprint values declined rather than increased between successive 
model years.
[GRAPHIC] [TIFF OMITTED] TR06AP06.011


[[Page 17606]]


[GRAPHIC] [TIFF OMITTED] TR06AP06.012

    The constrained logistic function provides a relatively good fit to 
the data points without creating excessively high targets for small 
vehicles, excessively low targets for large vehicles, or regions in 
which targets for large vehicles exceed those for small vehicles. The 
constrained logistic function also produces a curve that provides an 
acceptable fit to the light truck data across all four model years.
    Further, by constraining the function at the ends of the footprint 
range, we limit the potential for the curve to be disproportionately 
influenced by a single vehicle model located at either end of the 
range. The vehicle population decreases as the curve moves away from 
the middle of the footprint range. The low vehicle population levels 
provide for a single vehicle model located at either end of the range 
to have a greater influence on its target, than a vehicle with 
comparable production numbers located in the middle of the range. This 
greater influence translates to greater influence on the shape of the 
curve. As demonstrated in the unconstrained logistic function, at a 
footprint value of 40 square feet a single model produced in larger 
numbers than other vehicles at or near this footprint value causes 
associated fuel consumption values to sharply decrease. This translates 
to rapidly increasing targets as footprint decreases below 40 square 
feet. Constraining the function also minimizes the potential for a 
disproportionate influence from a single vehicle model on the curve, 
the agency has constrained the target values at the ends of the range.
    Constraining the upper and lower bounds in this manner has the 
additional benefit of generating a curve that closely tracks the shape 
of the proposed step-function. We have constrained this function so 
that the smallest/largest vehicles face similar stringency that was 
found in the smallest/largest categories in the step function.
    The constrained logistic function selected by the agency is defined 
by four parameters. Two parameters establish the function's upper and 
lower bounds (i.e., asymptotes), respectively. A third parameter 
specifies the footprint at which the function is halfway between the 
upper and lower bounds. The last parameter establishes the rate or 
``steepness'' of the function's transition between the upper (at low 
footprint) and lower (at high footprint) boundaries.
    The agency determined the values of the parameters establishing the 
function's upper and lower bounds by calculating the sales-weighted 
harmonic average values of optimized fuel economy levels for light 
trucks with footprints below 43 square feet and above 65 square feet, 
respectively. Because these ranges respectively include the smallest 
and largest models represented in the current light truck fleet, the 
agency determined that these two segments of the light truck fleet are 
appropriate for establishing the upper and lower fuel economy bounds of 
a continuous function.
    The remaining two parameters (i.e., the ``midpoint'' and 
``curvature'' parameters) were estimated using production-weighted 
nonlinear least-squares regression to achieve the closest fit to data 
on footprint and optimized fuel economy for all light truck models 
expected to be produced during each of model years 2008-2011.\90\ 
Described mathematically, the logistic function is as follows:
---------------------------------------------------------------------------

    \90\ More precisely, these two parameters determine the range 
between the vehicle footprints where the upper and lower limits of 
fuel economy are reached, and the value of footprint for which the 
value of fuel economy is midway between its upper and lower bounds.

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

[[Page 17607]]

[GRAPHIC] [TIFF OMITTED] TR06AP06.013

Where,

T = the fuel economy target (in mpg)
a = the maximum fuel economy target (in mpg)
b = the minimum fuel economy target (in mpg)
c = the footprint value (in square feet) at which the fuel economy 
target is midway between a and b
d = the parameter (in square feet) defining the rate at which the value 
of targets decline from the largest to smallest values
e = 2.718 \91\
---------------------------------------------------------------------------

    \91\ For the purpose of the Reformed CAFE standard, we are 
carrying e out to only three decimal places.
---------------------------------------------------------------------------

x = footprint (in square feet, rounded to the nearest tenth) of the 
vehicle model

The resulting curve is an elongated ``S''-shape, with fuel economy 
targets decreasing as footprint increases.
e. Final Level of the Curve (and Targets)
    The final step in the target setting process is to adjust the level 
of the preliminary curve defined in step two to a level ``optimized'' 
for the entire fleet produced by the seven largest manufacturers. The 
preliminary curve is gradually adjusted, by changing the values of 
parameters (a) and (b) by equal increments of fuel savings \92\ until 
the incremental change in total costs incurred by all manufacturers for 
complying with their respective CAFE requirements (the sales-weighted 
harmonic averages of the mpg targets for their individual models 
specified by the function) from a further adjustment equals (within 
precision limits of the analysis) the incremental change in the 
benefits. Each light truck model's final fuel economy target can be 
determined by entering its footprint (in square feet) into the function 
with these revised parameter values appropriate for its model year, and 
calculating the resulting value of fuel economy in miles per gallon.
---------------------------------------------------------------------------

    \92\ Equal increments of mpg have differing energy values. A 0.1 
mpg increment added to a vehicle with a higher mpg performance will 
have a lower fuel savings value than an equal mpg increment added to 
a vehicle with a lower mpg performance. As such, we adjust the curve 
by equal increments of fuel savings as opposed to mpg.
---------------------------------------------------------------------------

    Once targets are calculated for each vehicle in a manufacturer's 
fleet under the continuous function, the corporate average fuel economy 
level required of the manufacturer is calculated using a harmonic 
average, as under the proposed step function. A manufacturer's actual 
fuel economy is calculated according to the procedure used in the 
current CAFE system, and compared to its required CAFE level in order 
to assess whether it has complied with the standard. Penalties and 
credits are also determined and applied as under the current and 
proposed CAFE systems.
    MYs 2008-2010. In each of the transition years, we did not adjust 
the curve to the optimal level. Instead, we adjusted the curve until 
the total industry costs under the Reformed CAFE program approximately 
equaled the total industry costs under the Unreformed CAFE program. 
Cost equalization has several important advantages, as explained above 
in the discussion of the transition period. Since the Unreformed CAFE 
standards were judged to be economically practicable and since the 
Reformed CAFE standards spread the cost burden across the industry to a 
greater extent, equalizing the costs between the two systems ensures 
that the Reformed CAFE standards are within the realm of economic 
practicability.\93\ Also, cost equalization promotes an orderly and 
effective transition to the Reformed CAFE system by minimizing the cost 
differences between the two choices.
---------------------------------------------------------------------------

    \93\ We equalized aggregate industry costs between Reformed and 
Unreformed CAFE. The costs are not borne by manufacturers in the 
same way and costs for individual manufacturers may differ between 
the two systems.
---------------------------------------------------------------------------

    MY 2011. The Reformed CAFE standard for MY 2011 is set at the 
social optimal level as described above, and is not constrained by the 
costs of an Unreformed standard. As previously stated, all 
manufacturers are required to comply with the Reformed CAFE standard in 
MY 2011.
    The parameter values for MYs 2008-2011 are as follows:

                                Table 4.--Parameter Values for Logistic Function
----------------------------------------------------------------------------------------------------------------
                                                                            Model year
                    Parameter                    ---------------------------------------------------------------
                                                       2008            2009            2010            2011
----------------------------------------------------------------------------------------------------------------
a...............................................           28.56           30.07           29.96           30.42
b...............................................           19.99           20.87           21.20           21.79
c...............................................           49.30           48.00           48.49           47.74
d...............................................            5.58            5.81            5.50            4.65
----------------------------------------------------------------------------------------------------------------

3. Application of the Continuous Function Based Standard
    The Reformed CAFE standard establishes a relationship between 
vehicle footprint and the fuel economy target for light trucks with 
different footprint values. In effect, today's final rule establishes a 
category system like that proposed in the NPRM, in which each footprint 
value is its own category, and has an associated fuel economy target.
    The required level of CAFE for each manufacturer during a model 
year is the production-weighted harmonic average of the fuel economy 
targets for each model in its product line for that model year. While 
individual manufacturers may face different requirements for their 
overall CAFE levels depending on the distribution of footprint values 
for the models making up their respective product lines, each 
manufacturer is subject to identical fuel economy target for light 
truck models with the same footprint value. Moreover, the same

[[Page 17608]]

formula is used to determine each manufacturer's required level of CAFE 
using the fuel economy targets for different footprint values, 
footprint values for its individual models, and the production levels 
of each of its models. Individual manufacturers face different required 
CAFE levels only to the extent that they produce different size mixes 
of vehicle models.
    To determine whether it has achieved its required overall CAFE 
level, each manufacturer's production-weighted harmonic average of the 
actual fuel economy levels for each model in its entire product line is 
compared to this required CAFE level. If the weighted average of its 
models' actual fuel economy levels is at least equal to the 
manufacturer's required level of average fuel economy, then it has 
complied with the Reformed CAFE standard. If its actual fleet-wide 
average fuel economy level is greater than its required CAFE level, the 
manufacturer earns credits equal to that difference that can be used in 
any of the three preceding or following model years.
    More specifically, the manner in which a manufacturer's required 
overall CAFE for a model year under the Reformed system is computed is 
similar to the way in which its actual CAFE for a model year has always 
been calculated. Its required CAFE level is computed on the basis of 
the production and the footprint target as follows:
[GRAPHIC] [TIFF OMITTED] TR06AP06.014

    This formula can be restated as follows:
    [GRAPHIC] [TIFF OMITTED] TR06AP06.015
    
Where:

N is the total number (sum) of light trucks produced by a manufacturer,
Ni is the number (sum) of the ith model light 
truck produced by the manufacturer, and
Ti is fuel economy target of the ith model light 
truck.

    The required level is then compared to the CAFE that the 
manufacturer actually achieves in the model year in question:
[GRAPHIC] [TIFF OMITTED] TR06AP06.016

Where,

N is the total number (sum) of light trucks produced by the 
manufacturer,
Ni is the number (sum) of the ith model light 
trucks produced by the manufacturer,
mpgj is the fuel economy of the ith model light 
truck.

    A manufacturer is in compliance if the actual CAFE meets or exceeds 
the required CAFE.
    The method of assessing compliance under Reformed CAFE can be 
further explained using an illustrative example of a manufacturer that 
produces four models in two footprint categories with fuel economy 
targets assumed for the purposes of the example shown in Table 3:

      Table 5.--Illustrative Example of Method of Assessing Compliance Under a Continuous Function Approach
----------------------------------------------------------------------------------------------------------------
                                                   Fuel economy     Production       Footprint       Footprint
                      Model                            (mpg)          (units)        (sq. ft.)         (mpg)
----------------------------------------------------------------------------------------------------------------
A...............................................            27.0         100,000           43.00            27.5
B...............................................            24.0         100,000           42.00            27.8
C...............................................            22.0         100,000           52.00            23.7
D...............................................            19.0         100,000           54.00            23.2
----------------------------------------------------------------------------------------------------------------

    Under Reformed CAFE, the manufacturer would be required to achieve 
an average fuel economy level of:

[[Page 17609]]

[GRAPHIC] [TIFF OMITTED] TR06AP06.017

    This fuel economy figure would be compared with the manufacturer's 
actual CAFE for its entire fleet (i.e., the production-weighted 
harmonic mean fuel economy level for four models in its fleet):
[GRAPHIC] [TIFF OMITTED] TR06AP06.018

In the illustrative example, the manufacturer's actual CAFE (22.6 mpg) 
is less than the required level (25.4 mpg), indicating that the 
manufacturer is not in compliance.
4. Why This Approach To Reform and Not Another?
a. Continuous Function vs. the Proposed Step-Function (Categories)
    The NPRM proposed a Reformed CAFE system that would establish a 
system of six size categories based on vehicle footprint, and specify a 
target fuel economy level for the vehicles in each category. The 
categories and their respective targets were incorporated into a step 
function (see Figure 1, above). The CAFE level required of each 
manufacturer then would be determined by computing the sales-weighted 
harmonic average of the fuel economy targets for each light truck 
category in which it produces light trucks.
    The NPRM also discussed and sought comment upon the alternative of 
incorporating the fuel economy targets into a continuous function based 
on vehicle footprint, which could have some important advantages over a 
stepwise function. However, we did not propose a specific mathematical 
form for a continuous function.
    As explained above, the agency has elected to adopt a Reformed CAFE 
system that employs a continuous function to set fuel economy targets. 
Use of a continuous function addresses three major concerns raised by 
commenters with regard to the proposed Reformed CAFE structure. 
Reliance on a continuous function (1) eliminates potential problems 
associated with the need to redefine category boundaries in future 
rulemakings; (2) substantially reduces the incentive for manufacturers 
to ``upsize'' vehicles; and (3) substantially reduces the incentive for 
manufacturers to respond to the CAFE requirements through downsizing, a 
compliance option that can reduce a vehicle's safety. The following 
explains these three benefits in detail.
    First, reliance on a continuous function eliminates the footprint 
based categories. By eliminating categories, we eliminate the need to 
redefine categories as the light truck distribution changes.
    In the NPRM, we prescribed a method for determining category 
boundaries. The method was intended to reduce the potential for ``edge 
effects.'' We noted that when the distribution of light trucks was 
graphed such that footprint increased from left to right, vehicles just 
to the left of a boundary faced the greatest incentive for upsizing. 
These vehicles could be moved into a less stringent category with 
relatively minor increases in size.
    In order to minimize this potential, we defined the proposed 
boundaries generally at points on the graph where there was relatively 
low vehicle volume immediately to the left and high vehicle volume 
immediately to the right. Identification of points between low and high 
volume was based on the distribution of vehicles from the product plans 
provided to the agency in response to the 2003 ANPRM. Based on this 
distribution, the agency was able to readily identify appropriate 
boundary locations, as illustrated in Figure 9 below.

[[Page 17610]]

[GRAPHIC] [TIFF OMITTED] TR06AP06.019

    A variety of commenters also recognized the potential for ``edge 
effects.'' The Alliance asserted that the agency's selection of 
boundaries under the step function effectively addressed this potential 
problem, noting that it ``agrees with the agency's assessment that both 
the number and the location of the boundaries for the footprint 
categories would likely minimize any such edge effects.''
    As previously indicated, manufacturers provided updated product 
plans in response to the NPRM and RFC. The new product plans reflected 
a new distribution of vehicles. When the proposed boundaries were 
applied to the updated manufacturer plans, the boundaries did not align 
with low and high volume points, as in the NPRM.

[[Page 17611]]

[GRAPHIC] [TIFF OMITTED] TR06AP06.020

    As illustrated in Figure 10 above, the distribution of the updated 
light truck fleet does not provide clear points of low volume adjacent 
to high volume as was the case with the older fleet that was the basis 
for the NPRM. Because the updated fleet has a more uniform distribution 
of vehicles across the footprint range, there are multiple potential 
boundary assignments that would segment the light truck fleet into six 
categories, and there is less opportunity to find boundaries that would 
minimize ``edge effects'' to the same extent as in the NPRM. Figures 11 
and 12 illustrate potential ways by which the agency might have 
attempted to redefine the boundaries.

[[Page 17612]]

[GRAPHIC] [TIFF OMITTED] TR06AP06.021

[GRAPHIC] [TIFF OMITTED] TR06AP06.022

    However, it was clear that because of the distribution of the light 
truck fleet in the revised product plans, there was not the opportunity 
to provide category divisions that similarly minimize ``edge effects'' 
to the same degree as in the NPRM. Moreover, Toyota was concerned that 
changes to boundaries could significantly alter a

[[Page 17613]]

manufacturer's compliance responsibility, and urged the agency to rely 
on the proposed boundaries for the final rule.
    As recognized by Toyota, the required fuel economy level of 
individual manufacturers is highly influenced by boundary location. 
Table 6 below illustrates the required fuel economy for a sampling of 
manufacturers if boundaries were set according to the figures above.

                     Table 6.--Required Fuel Economy Levels Under Various Boundary Locations
----------------------------------------------------------------------------------------------------------------
                                                                             Required fuel       Required fuel
                                                                            economy (mpg)--     economy (mpg)--
                              Manufacturer                                  boundaries set      boundaries set
                                                                             according to        according to
                                                                               figure 11           figure 12
----------------------------------------------------------------------------------------------------------------
General Motors..........................................................                23.3                23.2
Toyota..................................................................                23.8                23.8
Nissan..................................................................                24.2                23.7
----------------------------------------------------------------------------------------------------------------

    The potential need to redefine category boundaries from one model 
year to the next and one rulemaking to the next would create 
uncertainty for manufacturers. Manufacturers would face not only the 
potential of a vehicle facing a higher target resulting from shifts in 
the function, but would also face the potential of a vehicle being 
compared to a much more stringent target as the result of a boundary 
shift. By utilizing a continuous function, the agency eliminates 
boundaries and thus the potential difficulties associated with defining 
and redefining category boundaries.
    Second, reliance on a continuous function substantially reduces the 
incentive for manufacturers to respond to Reformed CAFE by ``upsizing'' 
vehicles. IIHS said that although the boundaries in the proposed 
categorical system were carefully chosen to minimize the number of 
models that were just below them, the differences between fuel economy 
targets for some adjacent categories were nevertheless large enough to 
make upsizing an important potential concern. For vehicles just below 
boundaries, small increases in footprint could produce a significant 
reduction in fuel economy target. As an example, IIHS stated that based 
on the proposed categories, General Motors could reduce the fuel 
economy target applicable to the 2005 Chevrolet Trailblazer EXT by 1.5 
mpg by increasing that model's track width by 1.5 inches. The Mercatus 
Center echoed this concern, citing calculations showing that 14 of 55 
light truck models could be moved to the next larger footprint category 
with an increase in footprint of less than 2 percent.
    Conversely, under a continuous function, significant reductions in 
fuel economy targets cannot be achieved through small increases in 
footprint. Fuel economy targets decrease gradually as vehicle size 
increases, as compared to the punctuated changes under a step-function. 
Again, using the Chevrolet Trailblazer as an example, IIHS noted that 
in order to gain a 1.5 mpg difference in its fuel economy target, ``the 
Trailblazer's footprint would have to change by about the entire range 
of one of the proposed footprint categories.'' Natural Resources Canada 
stated that although any erosion of fuel savings resulting from 
upsizing is unlikely to be significant under a stepwise function, ``it 
is our opinion that setting fuel economy targets using a continuous 
function, based on footprint, would eliminate any concern in this 
regard.''
    In contrast to IIHS's assertions, Toyota argued that because a 
continuous function relaxes a vehicle's fuel economy target for any 
increase in size, a continuous function provides a greater incentive 
for vehicle ``upsizing.'' Toyota stated that under a continuous 
function, manufacturers have a small incentive to increase the size of 
every vehicle model they produce, instead of a stronger incentive to 
upsize only a few models.
    The agency disagrees with Toyota. While the agency acknowledges 
Toyota's argument that a continuous function reduces a model's fuel 
economy target in response to any increase in its size, this feature 
need not provide an incentive for manufacturers to upsize their 
vehicles if the form of the function reflects the underlying 
engineering relationship between size and fuel economy.
    Under the continuous function, as a vehicle's footprint increases, 
its applicable target decreases. However, the rate at which target 
levels decrease is gradual. Further, an increase in a vehicle's 
footprint is not without cost. Generally, as vehicle size increases, 
its fuel economy performance decreases. The decrease in fuel economy 
performance can result from additional weight added to achieve 
increased size or result from design implications of upsizing the 
vehicle (e.g., an increase drag resistance from increased frontal 
area). As such, increasing footprint can decrease a vehicle's fuel 
economy, further reducing the incentive to upsize.
    Under the step function approach, some vehicles were located near 
the upper boundaries of the categories despite agency efforts to 
minimize the number. Under the step function approach, a small change 
to the footprint of these vehicles would result in a substantial 
decrease in their targets, as much as 1.2 mpg. The continuous function 
approach does not provide an opportunity for substantial decreases in a 
vehicle's target based on slight increases to footprint.
    This point can be illustrated by comparing the proposed boundaries 
and the adopted continuous function. When the agency plotted the 
revised product plans against the proposed boundaries, we found that 
there were approximately 1.25 million vehicles that could move to a 
less stringent category with changes in footprint of less than one 
square foot. These minor changes would reduce applicable target values 
by 1.0-3.3 mpg. Under a continuous function, footprint increases of 
similar magnitude would reduce applicable targets by no more than 0.2 
mpg.
    Third, reliance on a continuous function substantially reduces an 
incentive present in the proposed step-function standard for 
manufacturers to ``downsize'' vehicles. IIHS raised concern that under 
the proposed step function system, manufacturers might reduce the sizes 
of models within the limits of the footprint range for a category to 
make it easier to comply with their required fuel economy levels. The 
IIHS commented that there ``is room within NHTSA's proposed system of 
footprint categories to retain the same fuel economy target but reduce 
size * * *'' and that ``the safety of the resulting vehicle would be 
compromised.'' General Motors also acknowledged this possibility, 
stating that the category structure of the Reformed CAFE system:


[[Page 17614]]


    [S]till may incentivize manufacturers to use reductions in track 
width and/or wheelbase (to create a smaller and/or lighter vehicle) 
to meet CAFE targets within a category or overall. While changes in 
vehicle dimensions may not be the first choice for manufacturers, 
they remain an option-one that can adversely affect safety.

    In contrast, IIHS stated that any downsizing under a continuous 
function would subject a vehicle to a more stringent target. As such, 
IIHS stated that a continuous function would better minimize the 
potential for manufacturers to respond to the CAFE program through 
unsafe downsizing.
    With respect to minimizing the incentive to downsize, the agency 
agrees with IIHS. We concur with IIHS's concern over the potential to 
downsize within a step function category, particularly within the 
smallest size categories, where reducing vehicles' size or weight 
likely would have the largest impact on occupant safety.
    Commenters raised a variety of other procedural and administrative 
concerns that the agency should take into account in choosing between 
stepwise and continuous functions. General Motors and Nissan expressed 
concern that setting fuel economy targets using a continuous function 
could present an even greater challenge to public understanding of the 
Reformed CAFE program than relying on a category system to set 
vehicles' fuel economy targets. Neither commenter explained why they 
believed a stepwise function would be more readily understood. Honda 
commented that it would be easier for manufacturers of high fuel 
economy vehicles to demonstrate the ``superiority of their products'' 
to potential buyers under a stepwise function than under a continuous 
function.
    We do not believe that a standard based on a continuous function is 
harder to understand than one based on a step function. The main 
difference is that instead of identifying an appropriate category to 
determine a vehicle's target, a target under a continuous function 
standard is located along a curve. Calculating a manufacturer's 
required fuel economy is done in a similar manner under both systems 
and calculating a manufacturer's compliance is performed in exactly the 
same manner.
    While manufacturers may not be able to advertise ``best in CAFE 
category'' under a continuous function, the Reformed CAFE does not 
prevent such comparisons from being made under non-CAFE 
classifications. Manufacturers currently promote ``best in class'' 
claims based on industry and marketing classifications. For example, 
Honda advertises that its Ridgeline is the ``only 4-door pickup to 
achieve the highest government crash test rating (5 stars) for both 
frontal and side-impact tests.''\94\ Under the current CAFE program, 
light trucks are all within a single fleet, yet manufacturers still 
advertise ``best in class.'' Presumably, such claims could continue to 
be made under Reformed CAFE.
---------------------------------------------------------------------------

    \94\ http://automobiles.honda.com/models/model_overview.asp?ModelName=Ridgeline (last visited January 15, 2006).
---------------------------------------------------------------------------

    Nissan asserted that compliance calculations would be ``unduly 
cumbersome'' under a continuous function. Nissan also stated that the 
agency's administration and enforcement process would be more 
burdensome under a continuous function than under a stepwise function 
because NHTSA would need to review complex compliance calculations 
submitted by each manufacturer.
    In the NPRM, we proposed requiring manufacturers to submit a 
vehicle's footprint along with the CAFE data currently collected. 
Manufacturers and the agency would rely on this data to determine 
required fuel economy levels and compliance. An additional calculation 
would be required to determine a vehicle's target, as opposed to 
determining the appropriate category and corresponding target. However, 
we do not believe that the additional calculation--one easily performed 
using a programmable hand calculator or spreadsheet program--will be 
overly cumbersome.
    Ford indicated that the use of a harmonic average to calculate a 
manufacturer's compliance obligation, combined with the use of 
categories, would provide manufacturers the greater flexibility to make 
improvements in an appropriate manner as opposed to use of a harmonic 
average with a continuous function.
    The standard adopted in this document retains the flexibility 
provided by use of a harmonic average to determine a manufacturer's 
compliance requirement and a manufacturer's actual fuel economy level. 
Additional flexibility is provided by the fact that fuel economy 
targets are more specific to a vehicle. As opposed to being compared to 
a target representative of the capabilities of vehicles within a range 
of footprint values, the final rule compares a vehicle to the potential 
fuel economy achievable by vehicles of equal size. A manufacturer still 
has the ability to compensate for a vehicle that performs below its set 
fuel economy target by exceeding the target for one or more of its 
other models.
    Toyota argued that because the NPRM did not propose a specific 
continuous function for review, ``additional notice and comment would 
be necessary should NHTSA wish to pursue a continuous line function in 
place of size-based targets, since it is simply not possible for 
manufacturers or the public to determine the implications of such a 
system in the context of new standards for model years 2008 through 
2011.'' In contrast, Nissan asserted that switching to a continuous 
function would ``result in little to no difference in fuel economy 
compliance levels,'' suggesting that the NPRM's discussion of a 
continuous function was sufficiently detailed to allow a manufacturer 
to assess the costs and other challenges of complying with a Reformed 
CAFE standard that uses a continuous function.
    Although the agency is not adopting the category system as 
proposed, the targets under today's final rule are consistent with the 
category targets proposed in the NPRM. Figure 13 below shows the 
resulting relationship between vehicle footprint and target fuel 
economy level for 2011 described by the logistic function with 
parameter values statistically calibrated for that model year and 
subsequently optimized. The figure also compares its curved shape to 
that stair step shape of the fuel economy targets established in the 
previously proposed category system for that model year.

[[Page 17615]]

[GRAPHIC] [TIFF OMITTED] TR06AP06.023

    RMI favored a step-function, because its ``size neutrality'' 
provides a better foundation for replacing fuel economy standards with 
a ``feebate'' system. In context of fuel economy, ``feebate'' refers to 
a transportation initiative in which consumers of low-fuel economy 
vehicles would pay into a fund from which payments would be made to 
purchasers of high-fuel economy vehicles. In response to RMI's comment, 
we note that EPCA does not provide for a feebate system, but instead 
requires the agency to establish average fuel economy standards. 
However, as discussed above, the continuous function adopted today 
provides greater ``size neutrality'' than a step function (i.e., a 
continuous function reduces incentives to downsize or upsize a 
vehicle).
    Although the continuous function standard adopted in today's final 
rule eliminates the abrupt changes in fuel economy targets present in a 
step-function standard, it is important to recognize that the function 
does not ``smooth'' the targets as requested by some commenters. 
Toyota, Porsche, BMW, and the Alliance questioned why the stringency in 
Category 3 increased at a higher rate than the stringency levels of 
other categories. Toyota stated that vehicles in this size category 
tend to be fairly fuel-efficient unibody SUVs and minivans. Toyota also 
noted that the proposed Category 3 target experienced a 5.4 percent 
increase between 2008 and 2009, while the target for Category 6 
actually went down from 2009 to 2010. Toyota suggested that the agency 
consider ``smoothing'' the target levels for the interim model years by 
linearly increasing the target levels between 2008 and 2011. Similarly, 
Honda questioned the increases in stringency proposed for the smaller 
footprint vehicles. Honda stated that, at least in theory, the agency's 
methodology (i.e., adding technology to each vehicle until the marginal 
cost exceeds the marginal benefits) should result in more stringent 
standards for larger vehicles, since the higher baseline fuel 
consumption would justify the addition of more technology. Honda 
observed that under the proposed step function light trucks in the 
smallest footprint category were projected to achieve an increase in 
fuel economy of 22 percent, while the increase for light trucks in the 
largest footprint category was only 16 percent. Honda questioned 
whether technologies have been applied uniformly and fairly to all 
vehicles.
    As explained above, the stringency of the targets is based on the 
opportunity to apply fuel savings technology to vehicles within the 
light truck fleet. Differences in increases in stringency between 
vehicles of different sizes reflect differences in the potential 
improvements for those vehicles, and the costs and benefits of those 
improvements. While larger vehicles typically have low fuel economy 
performance, that does not mean that such vehicles are not equipped 
with fuel saving technologies. Conversely, the higher fuel economy 
performance of smaller vehicles is not necessarily reflective of fuel 
savings technologies, but may be more indicative of the vehicles small 
size. The reformed CAFE system recognizes variations in the baseline 
fuel economy levels between vehicles, in the costs of improving fuel 
economy, and in the resulting fuel savings and related benefits. 
Manufacturers' efforts to improve fuel economy are reflected in the 
degree of projected improvement across the range of footprint values. 
Increases in stringency above a manufacturer's baseline are 
consequences of the agency's improving the overall fuel efficiency of 
the light truck fleet to a maximum feasible level.\95\
---------------------------------------------------------------------------

    \95\ Additionally with regard to Honda's comment, it is also 
important to distinguish between improvements in fuel economy (which 
is measured in miles per gallon) and reductions in fuel consumption 
(which is measured in gallons per mile). Because of differences 
between their initial fuel economy levels, the improvements in fuel 
economy that would be required by the proposed targets for the 
smallest and largest categories of light trucks cited by Honda (22 
and 16 percent, respectively) actually correspond to reductions in 
fuel consumption of 18% and 14% percent, respectively.

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

[[Page 17616]]

b. Continuous Function and Targets vs. Classes and Standards
    As explained in the NPRM, we considered an approach under which we 
would establish separate classes based on footprint and establish a 
standard for each class. However, there were two primary shortcomings 
that led us to evaluate other approaches for our Reformed CAFE. Nothing 
provided by the commenters caused us to re-evaluate our decision not to 
establish a multi-class system based on footprint.
    First, transfers of credits earned in a footprint class in a model 
year to a different footprint class in a different model year would 
have required a complicated process of adjustments to ensure that fuel 
savings are maintained.\96\ This is because credits (denominated in 
mpg) earned under the multiple classes and standards approach would 
have differing energy value. Credits earned for exceeding the higher 
fuel economy standard for the smaller footprint vehicles would have 
less energy value than exceeding the lower fuel economy standard for 
the larger footprint vehicles by an equal increment. In fact, if 
credits were generated in a class with relatively high CAFE standards 
and transferred to another class with relatively low CAFE standards, 
total fuel use by all vehicles in the two classes might increase. That 
result would undermine the entire reform effort by producing lessened 
energy security.
---------------------------------------------------------------------------

    \96\ The 2003 ANPRM on reforming CAFE noted that the agency had 
previously concluded that the credits earned in one class could not 
be transferred to another class, but re-examined the legislative 
history of the CAFE statute and called that interpretation into 
question.
---------------------------------------------------------------------------

    One can calculate the appropriate adjustments for such a credit 
transfer system to ensure no loss of fuel savings. This would ensure 
equivalent energy savings. However, instituting a complicated new 
process of credit adjustments would detract from the benefits of 
reforming the CAFE program by making it more difficult to plan for and 
determine compliance. Further, taking this step would not cure another 
problem associated with credits. Credits earned by exceeding a standard 
in a model year may be used in any of the three model years preceding 
that model year and, to the extent not so used, in any of the three 
model years following that model year (49 U.S.C. 32903(a)). They may 
not, however, be used within the model year in which they were earned 
(Id.).
    Second, establishing separate standards for each class would 
needlessly restrict manufacturer flexibility in complying with the CAFE 
program. A requirement for manufacturers to comply with separate 
standards, combined with the inability either to apply credits within 
the same model year or to average performance across the classes during 
a model year, could increase costs without saving fuel. This would 
happen by forcing the use of technologies that might not be cost-
effective. Further, Congressional dialogue when considering the 
enactment of the EPCA and amendments to it has repeatedly expressed the 
view that manufacturers should have flexibility in complying with a 
CAFE program so that they can ensure fuel savings, while still 
responding to other external factors.
    Reliance on a continuous function avoids these shortcomings just as 
the proposed step function would have avoided these shortcomings. 
Instead of establishing distinct standards for multiple classes, our 
proposal establishes targets across the range of footprint values and 
applies them through a harmonically weighted formula to derive 
regulatory obligations. Credits are earned and applied under today's 
final rule in the same way as they are earned and applied under 
Unreformed CAFE and in a manner fully consistent with the statute. 
Thus, no complicated new provisions for credits are needed. Further, 
the use of targets instead of standards allows us to retain the 
benefits of a harmonically weighted fleet average for compliance. This 
ensures that manufacturers must provide the requisite fuel economy in 
their light truck fleet, while giving the manufacturers the ability to 
average performance across their entire fleet and thus the flexibility 
to provide that level of fuel economy in the most appropriate manner.
c. Consideration of Additional Attributes
    In the NPRM, the agency sought comment on whether Reformed CAFE 
should be based on vehicle size (footprint) alone, or whether other 
attributes, such as towing capability and/or cargo-hauling capability, 
should be considered. The comments received in response to our request 
were either strongly supportive or strongly opposed to including 
additional attributes. Commenters supporting consideration of 
additional attributes (General Motors, Nissan, DaimlerChrysler, Ford, 
Alliance, Sierra Research, NADA, and SUVOA) stated that such 
consideration is necessary to account for the varying degrees of 
utility among vehicles with similar footprint values. Commenters 
opposed to including additional attributes (NRDC, Environmental 
Defense, ACEEE, NESCAUM, and Rocky Mountain Institute) stressed the 
potential of using these attributes to manipulate vehicles into 
categories with less stringent targets.
    The most frequently mentioned attribute was towing capability. 
However, Nissan stated that NHTSA should incorporate a mechanism 
providing fuel economy credits for all optional safety and utility 
features. The Alliance suggested 4WD/AWD capability in addition to 
towing.
    Among the commenters supporting a modification for towing ability, 
the criteria for that classification differed. General Motors defined 
``heavy-tow capable'' vehicles as a vehicle with a maximum towing 
capacity that is equal to or greater than 8,000 pounds. The Alliance 
suggested that the definition should be based on towing capacity equal 
to or greater than a set percentage of the vehicle's curb weight. That 
association argued that extra towing capacity means different things 
for different size vehicles.
    Among those supporting consideration of additional attributes, the 
means suggested for providing credit for those attributes also 
differed. Nissan presented a method for calculating credits based on 
weight differences between a vehicle's base model and versions with 
optional safety and utility enhancing equipment, such that each 
additional 3 pounds of weight would provide a 0.01 mpg credit. Some 
commenters suggested a set percentage reduction; 5 percent with respect 
to towing capacity or 10 percent for 4WD/AWD. DaimlerChrysler suggested 
a provision which essentially created a second category for any MY 2005 
product that is at least 25 percent below the 2008 MY target for its 
size class, rather than considering specific attributes. Under 
DaimlerChrysler's provision, the fuel economy target for such a vehicle 
would be set at its 2005 level plus 5 percent and would then increase 
1.5 percent per year.
    NRDC, Environmental Defense, ACEEE, NESCAUM, and Rocky Mountain 
Institute opposed consideration of additional attributes in determining 
a vehicle's target fuel economy. These commenters, along with Honda and 
Toyota, were concerned with the potential for

[[Page 17617]]

manufacturers to ``game'' such considerations. These commenters argued 
that manufacturers might find it more cost-effective to include 
whatever attribute was relied upon for adjustment, even if not 
requested or required by customers, rather than redesigning the vehicle 
for increase fuel efficiency.
    Toyota raised specific concern with the attribute of tow rating, 
stating that there is not an objective method for quantifying this 
metric. Toyota also opposed adjustments for attributes, arguing that 
the targets already reflect the presence of such designs in the 
vehicles. Toyota stated that if these vehicles were permitted 
adjustments, the agency would essentially be ``double counting'' the 
effect of the attribute considered. Toyota further stated that 
depending on the attribute relied upon for adjustment, some 
manufacturers might be provided a competitive advantage based on their 
current fleet mix.
    After reviewing these comments, NHTSA has decided not to consider 
any additional attributes for MYs 2008-2011. First, NHTSA notes that 
even some manufacturers noted the potential for abuse of a system that 
provided credits or lower targets for vehicles with certain attributes. 
Second, NHTSA believes the ``list of eligible features'' suggested by 
Nissan would be very confusing for both manufacturers and the agency.
    With regard to the suggestion that the agency consider 4WD/AWD 
capability, the agency notes that it discontinued the option of a 
separate standard for 2WD vs. 4WD light trucks beginning with the 
standard for the 1992 model year.\97\ The agency noted that separate 
standards were originally intended to provide an alternative means of 
compliance for manufacturers that manufactured primarily 4WD vehicles, 
and that these intended beneficiaries had disappeared. The agency noted 
that most manufacturers were choosing to comply with the combined 
standard. The agency also expressed concerns that separate standards 
could decrease fuel economy by encouraging the production of less fuel-
efficient 4WD vehicles. Since there are no specialized manufacturers 
that need relief to comply with the standard, NHTSA is not reversing 
this decision.
---------------------------------------------------------------------------

    \97\ 55 FR 12487, April 4, 1990.
---------------------------------------------------------------------------

    With regard to towing capacity, in addition to the above concerns 
the agency notes that manufacturers suggested different approaches on 
how to define vehicles which would qualify for consideration. The 
agency is aware that the SAE is working on a uniform metric to rate 
towing capacity, and this may provide at least some of the information 
NHTSA would need to reconsider this issue with regard to towing 
capacity in the future.
d. Backstop and ``Fuel Saving'' Mechanisms
    The agency is not establishing a backstop or fuel economy 
``ratcheting'' mechanism under the Reformed CAFE system. As explained 
above, incorporating a backstop or fuel economy ratcheting system would 
be contrary to the intent of EPCA. The intent of the CAFE program is 
not to preclude future mix shifts and design changes in response to 
consumer demand. A backstop would likely have this influence. As 
discussed, a backstop or a ratcheting mechanism would limit the ability 
of a manufacturer to respond to market shifts arising from changes 
consumer demand. Such a system would be in opposition to congressional 
intent to establish a regulatory system that does not unduly limit 
consumer choice.
    Additionally, supplementing the Reformed CAFE standards with a 
backstop would negate the value of establishing the attribute-based 
standards for some manufacturers and perpetuate the shortcomings of 
Unreformed CAFE. A backstop would essentially be a required fuel 
economy level akin to the Unreformed CAFE standard that would apply to 
a manufacturer if the required fuel economy for that manufacturer as 
determined under the Reformed CAFE system was below some determined 
threshold. For example, if consumer demand shifted to larger light 
trucks such that a manufacturer's required fuel economy level under the 
Reformed CAFE system was below the backstop fuel economy level, that 
manufacturer would be required to comply with the backstop. By 
requiring such a manufacturer to comply with the backstop, there would 
be a risk that the backstop would not be economically practicable given 
the change in the market, as occurred under the Unreformed CAFE 
standards in the mid-1980s. With regard to a ``ratcheting'' mechanism, 
an ``automatic'' increase in the stringency of targets or requirements 
could potentially subject manufacturers to required levels of average 
fuel economy level that are not technologically feasible.
    Furthermore, the structure of the Reformed CAFE system addresses 
concerns commenters cited as the rationale for establishing a backstop, 
i.e., concerns with manufacturers' upsizing vehicles and their fleets 
for the sole purpose of reducing the stringency of their light truck 
CAFE requirement.
    First, the structure of the Reformed CAFE system minimizes the 
incentive for manufacturers to upsize vehicles, more so under the 
continuous function approach. Second, manufacturers are limited in 
their ability to increase the size of their vehicles beyond that extent 
demanded by consumers. Finally, making vehicles larger for CAFE 
compliance purposes is not cost-free. Market forces or fuel price 
increases will restrain consumer demand for large light trucks with low 
fuel economy. These reasons lead us to the conclusion, more so given 
the structure of the adopted reform, not to establish a backstop. These 
points apply equally to determination not to adopt a fuel economy 
``ratcheting'' mechanism as recommended by several commenters.
    With regard to the first point, reliance on a continuous function 
minimizes the incentive for manufacturers to increase vehicle size 
solely for the purpose of subjecting that vehicle to a less stringent 
target. As explained in the discussion of continuous function versus 
step function above, we explained that increases in vehicle size will 
more likely be accompanied by a decrease in fuel economy performance 
that offsets the reduction in target stringency. This is a result of 
targets decreasing gradually as vehicle size increases across the 
footprint continuum. This offset reduces the incentive for 
manufacturers to increase vehicle size solely in response to the CAFE 
program. The decrease in a vehicle's fuel economy performance from 
increasing its footprint will offset, to a degree, the advantage of the 
lower target.
    With regard to the second point, manufacturers are limited in what 
changes they can make based on what will be accepted by the market. 
Changes in footprint result in perceptible changes in performance and 
design (e.g., a longer and/or wider vehicle). As noted above, the 
track-width component of footprint, as defined in today's final rule, 
directly affects vehicle handling and stability. The connection between 
footprint and vehicle performance limits the ability of manufacturers 
to increase footprint in a manner not perceptible to the consumer. As 
stated by IIHS, under a continuous based function, customers would be 
more likely to notice any design changes that achieved a substantial 
CAFE benefit, as opposed to small changes that would move a vehicle 
into a less stringent category under the step-function approach.
    Finally, making vehicles larger for CAFE compliance purposes is not 
cost-

[[Page 17618]]

free. All else being equal, larger vehicles are more costly to build 
and operate. Market forces or fuel price increases will restrain 
consumer demand for large light trucks with low fuel economy, unless 
the need for utility justifies the expense to the manufacturers of 
producing and to the consumers of operating large trucks.
    The agency did a preliminary evaluation of the cost associated with 
increasing a vehicle's footprint. We relied on the databases provided 
by manufacturers in which the manufacturers included a vehicle's 
manufacturer's suggested retail price (MSRP). We identified 22 
nameplate vehicles that had data indicating more than one footprint 
value, either from a manufacturer offering different configurations of 
a nameplate or as a result of changes between model years.
    We then separated out the 22 nameplates into 44 pairs and compared 
MSRP. Some of the price differences within the pairs appeared to 
represent differences in levels of options as well as footprint. The 
costs per square foot for these changes were in excess of $1000. These 
data point pairs were excluded.
    The remaining pairs were evaluated. The average cost per square 
foot increase of the remaining 25 pairs was $119; the median cost was 
$46. Deleting the 5 percent highest and lowest costs resulted in a mean 
cost per square foot increase of $85. We note that this is a 
preliminary evaluation and that these costs represent those associated 
with increases in footprint that occur as part of a planned model 
redesign. We expect that the costs associated outside a planned 
redesign would be substantially higher.
    We believe that the costs associated with increasing a vehicle's 
wheelbase would be even greater than those associated with an increase 
in track width. Based on a review of confidential information provided 
by a manufacturer, we estimate that the cost of redesigning a vehicle 
mid-product cycle such that the vehicle has a longer wheelbase would be 
at least equal to 50 percent of the costs associated with introducing 
the original vehicle design. Given this high estimate, it would be 
unlikely that a manufacturer would extend a vehicle's wheelbase solely 
in response to the CAFE program. The agency intends to further explore 
the costs associated with changes in footprint.
    Comments from the environmental organizations raised a number of 
concerns, which they stated necessitated a back stop or ratcheting 
mechanism. These concerns can be categorized into three areas: (1) 
Increases in fleet size based on historic trends and potential market 
shift, (2) increases in a vehicle's footprint to take advantage of a 
less stringent category, and (3) upweighting of a vehicle to remove it 
form the light truck CAFE program.
    With regard to the environmental organizations' first concern, we 
explained above that the light truck CAFE program is not intended to 
constrain consumer choice. Any historic upsizing of manufacturers' 
fleets occurred under Unreformed CAFE in response to market demands, 
and market demands will continue to influence the size of the light 
truck fleet. Moreover, the agency established the MYs 2008-2011 
standards after evaluating the product plans provided by manufacturers. 
Planned shifts in fleet mix have been taken into consideration in 
establishing the final rule. Future standards will also rely, in part, 
on product plans provided by manufacturers. As such, projected trends 
in fleet mix and fleet size will continue to be a consideration in 
establishing future CAFE standards.
    With regard to the second concern, both NRDC and Union of Concerned 
Scientists stated that a number of vehicles would need only changes 
ranging from one-tenth of an inch to 1.5 inches in wheelbase and track 
width to become subject to a less stringent category. The Union of 
Concerned Scientists stated that an increase in vehicle size of 1-10 
percent would be equivalent to a 0.05 to 1.18 mpg decrease in the fleet 
wide average fuel economy, respectively. This concern was also echoed 
by IIHS.
    Again, as explained above, the agency is adopting a standard based 
on a continuous function as opposed to the step function. Under the 
continuous function small changes in vehicle footprint are not rewarded 
with large decreases in target values. Target values decrease 
gradually, as opposed the larger decreases that occur as a vehicle 
moves between categories under the proposed system. As such, the 
incentive for upsizing has been further minimized by adopting a 
continuous function approach.
    Environmental groups' third major concern was that of uprating, 
i.e., manufacturers increasing the GVWR of vehicles beyond the 8,500 
lbs GVWR boundary for the light truck CAFE program. As explained in 
greater detail below, the agency is extending the definition of light 
truck to MDPVs. By including MDPVs, we are capturing essentially all 
SUVs with a GVWR less than 10,000 lbs.\98\
---------------------------------------------------------------------------

    \98\ With MDPVs included in the definition of light truck, only 
approximately 50,000 vehicles could be removed from the light truck 
CAFE program with an uprating of 1,000 lbs or less.
---------------------------------------------------------------------------

    Aside from our concerns with the legality of a backstop, the agency 
has concluded that the potential for fuel loss from manufacturers 
increasing the footprint values of vehicles or through shifting their 
fleet mix has been substantially reduced by the structure of the final 
rule. By gradually decreasing the value of targets as footprint 
increase, minor increases to footprint do not result in significant 
decreases in applicable target values. Further, increases to footprint 
come at a cost in terms of fuel economy performance, vehicle handling, 
and consumer acceptance.
5. Benefits of reform
a. Increased Energy Savings
    The Reformed CAFE system increases the energy savings of the CAFE 
program over the longer term because fuel saving technologies will be 
required to be applied to light trucks throughout the entire industry, 
not just by a limited number of manufacturers. The energy-saving 
potential of Unreformed CAFE is limited because it requires only a few 
full-line manufacturers to make improvements. In effect, the 
capabilities of these full-line manufacturers, whose offerings include 
larger and heavier light trucks, constrain the stringency of the 
uniform, industry-wide standard. The Unreformed CAFE standard is 
generally set below the capabilities of limited-line manufacturers, who 
sell predominantly lighter and smaller light trucks. Under Reformed 
CAFE, which accounts for fuel economy potential of the fleets of 
individual manufacturers, virtually all light-truck manufacturers will 
be required to improve the fuel economy of their vehicles. Thus, 
Reformed CAFE continues to require full-line manufacturers to improve 
the overall fuel economy of their fleets, while also requiring limited-
line manufacturers to enhance the fuel economy of the vehicles they 
sell.
    Our estimates indicate that the Reformed CAFE system will result in 
greater fuel savings than the Unreformed CAFE system during the 
transition period, even though the industry-wide compliance costs were 
equalized for those model years:

[[Page 17619]]



          Table 7.--Estimated Fuel Savings From Reformed and Unreformed CAFE Systems for MYs 2008-2010
                                            [in billions of gallons]
----------------------------------------------------------------------------------------------------------------
                                                                      MY 2008         MY 2009         MY 2010
----------------------------------------------------------------------------------------------------------------
Reformed CAFE system............................................             0.7             1.9             2.2
Unreformed CAFE system..........................................             0.6             1.8             2.0
----------------------------------------------------------------------------------------------------------------

    The improvement in fuel savings made possible by the switch to the 
Reformed CAFE system will be even greater beginning MY 2011. By 
requiring improvements across the entire industry, the Reformed CAFE 
system produces greater fuel savings at levels that remain economically 
practicable. For comparison, the agency performed a cursory Stage 
analysis for MY 2011. On the basis of that cursory analysis, the agency 
determined that, under the Unreformed CAFE system, the fleet wide 
(including MDPVs) fuel economy standard would be 23.3 mpg. We note that 
the Stage Analysis for MY 2011 results in a lower Unreformed standard 
for that year than the Unreformed standard for MY 2010. This is due to 
the inclusion of MDPVs in MY 2011. MDPVs, which have low fuel 
economies, are produced primarily by General Motors. Under the 
Unreformed CAFE system, General Motors would be the least capable 
manufacturer. Because of this, and because including the MDPVs lowers 
the CAFE level projected for General Motors, the inclusion of MDPVs 
would depress the Unreformed CAFE standard. Table 8 below illustrates 
the difference in fuel savings between the Unreformed CAFE system and 
the fully implemented Reformed CAFE system in MY 2011.

 Table 8.--Comparison of the Estimated Fuel Savings From Reformed in MY
         2011 and an Unreformed Standard of 23.3 mpg in MY 2011
                        [in billions of gallons]
------------------------------------------------------------------------
                                                                 MY 2011
------------------------------------------------------------------------
Reformed CAFE system..........................................       2.8
Unreformed CAFE system........................................       2.1
------------------------------------------------------------------------

As illustrated above, the Reformed CAFE system saves an additional 700 
million gallons of fuel over the Unreformed CAFE system over the 
lifetime of the vehicles in the MY 2011 fleet. Further, we estimate 
that the fuel savings under a 23.3 mpg Unreformed standard in MY 2011 
would have come at a cost of approximately $ 1.9 billion. While the 
cost of the Reformed fuel savings in MY 2011 is approximately $2.5 
billion, this cost is distributed across a greater number of 
manufacturers. Additional discussion of the Reformed CAFE costs is 
provided below.
b. Reduced Incentive To Respond to the CAFE Program in Ways Harmful to 
Safety
    In the NPRM, we noted the key trends in the light vehicle 
population and in the crashes that produce serious and fatal injuries 
to highlight the safety impacts of reforming CAFE. Specifically, we 
identified rollovers and crash compatibility. Both are related to 
reforming CAFE.
    Pickups and SUVs have a higher center of gravity than passenger 
cars and thus are more susceptible to rolling over, if all other 
variables are identical. Their rate of involvement in fatal rollovers 
is higher than that for passenger cars--the rate of fatal rollovers for 
pickups and SUVs is twice that for passenger cars. Rollovers are a 
particularly dangerous type of crash. Overall, rollover affects about 
three percent of light vehicles involved in crashes, but accounts for 
33 percent of light vehicle occupant fatalities. Single vehicle 
rollover crashes account for nearly 8,500 fatalities annually. Rollover 
crashes involving more than one vehicle account for another 1,900 
fatalities, bringing the total annual rollover fatality count to more 
than 10,000.
    Crash compatibility is the other prominent issue. Light trucks are 
involved in about half of all fatal two-vehicle crashes involving 
passenger cars. In the crashes between light trucks and passenger cars, 
over 80 percent of the fatally injured people are occupants of the 
passenger cars.
    In regard to reducing regulatory incentives for design changes 
adversely affecting safety, commenters generally supported the proposed 
reliance on footprint, recognizing the safety concerns that led the 
agency to base the Reformed CAFE system on a size metric. Both General 
Motors and Nissan stated that weight provides the best correlation to 
fuel economy, but given the safety concerns about downsizing and the 
concerns about creating a potential for upsizing, these commenters 
support the use of footprint. RVIA stated that vehicle weight does have 
a direct impact on overall fuel economy, but the proposed reliance on 
footprint is reasonable.
    The Alliance also supported the size-safety correlation and stated 
that use of footprint and the structure of Reformed CAFE would reduce 
the incentive to produce small vehicles in order to offset larger light 
trucks. However, the Alliance stated that the agency did not 
acknowledge improvements made by manufacturers in the static stability 
factor and industry's commitment to address the compatibility issue.
    The Rocky Mountain Institute supported the use of footprint, 
stating that the proposal would create an incentive for decoupling size 
from weight by adopting lighter-but-stronger materials and would 
encourage manufacturers to make vehicles that are ``big, hence 
protective and comfortable, without also making them heavy, hence 
hostile and inefficient.'' The Aluminum Association stated that use of 
footprint would provide opportunities to increase safety while saving 
fuel by substituting aluminum for steel.
    The agency continues to believe that the manner in which fuel 
economy is regulated can have substantial effects on vehicle design and 
the composition of the light vehicle fleet. Reforming CAFE is important 
for vehicle safety because the current structure of the CAFE system 
provides an incentive to manufacturers to reduce the weight and size of 
vehicles, and to increase the production of vehicle types (particularly 
pickup trucks and SUVs) that are more susceptible to rollover crashes 
and are less compatible with other light vehicles. For these reasons, 
reforming CAFE is a critical part of the agency's effort to address the 
vehicle rollover and compatibility problems.
    The final rule based on footprint substantially reduces the 
incentive to introduce smaller vehicles or to reduce vehicle size to 
offset the lower fuel economy of larger vehicles. Adding the continuous 
function concept to footprint eliminates the opportunity that existed 
under the proposal to downweight by reducing vehicle size to the lower 
edge of a category (which would have increased vehicle fuel economy 
without subjecting the vehicle to a higher target). It does this by

[[Page 17620]]

eliminating the categories that covered a range of footprint sizes. 
Thus, under the final rule, each change in footprint results in a 
different target.
i. Reduces Incentive To Reduce Vehicle Size and To Offer Smaller 
Vehicles
    Without CAFE reform, significant increases in Unreformed light 
truck CAFE standards, especially if accompanied by high fuel prices, 
would likely induce a wave of shifting production mix toward smaller 
light trucks and reducing the size and/or weight of light trucks. Such 
a shift occurred in the 1970's and early 1980's when fuel price 
increases and competitive pressures induced vehicle manufacturers to 
shift their production mix toward their smaller and lighter vehicles to 
offset the lower fuel economy of larger and heavier vehicles and to 
redesign their vehicles by reducing their size and/or weight.\99\ The 
need for manufacturers to make rapid and substantial increases in 
passenger car and light truck CAFE in response to the CAFE standards in 
late 1970's and early 1980's provided an added incentive for them to 
take those actions.
---------------------------------------------------------------------------

    \99\ Shifting production mix down toward smaller vehicles 
involves decreasing the production volumes of vehicles that are 
heavier or larger and thus have relatively low fuel economy and 
increasing the production volumes of lighter or smaller vehicles.
---------------------------------------------------------------------------

    The shift in production mix and reduction in vehicle size/weight 
that occurred in the 1970's and early 1980's contributed to many 
additional deaths and injuries.\100\ While the adoption of additional 
safety performance requirements for those vehicles has saved lives, 
even more lives would have been saved if the shifting of production mix 
toward smaller vehicles and the reduction in size and/or weight had not 
occurred.
---------------------------------------------------------------------------

    \100\ NAS Report, p. 3.
---------------------------------------------------------------------------

    By relying on vehicle size to determine required fuel economy 
levels, the agency will minimize the incentive for manufacturers to 
comply through downsizing vehicles or by increasing the production of 
smaller vehicles solely to offset the sales of larger vehicles. These 
compliance strategies reduce safety by reducing the crashworthiness of 
individual vehicles, and compound the problem of fleet compatibility.
    Reforming CAFE such that required fuel levels are determined 
through the use of footprint-based fuel economy targets discourages 
reductions in vehicle size. As a vehicle decreases in size, the fuel 
economy target against which that vehicle is compared increases.
    Several commenters raised concern that the structure as proposed 
(i.e., a category-based system) would still reward downsizing. IIHS 
stated that a manufacturer could rely on limited reduction in size as a 
method to reduce weight, without moving a vehicle into a different 
category.
    The agency recognizes the potential for limited downsizing being 
rewarded in a category based system. However, this potential reward is 
substantially reduced and possibly eliminated under the continuous 
function adopted today. Under the continuous function, any reduction in 
size will result in a vehicle becoming subject to higher target. Where 
a step-function would permit limited reduction in footprint within a 
category, under a continuous function any reduction in footprint will 
subject a vehicle to a more stringent target.
    IIHS further stated that even if a manufacturer maintained a 
vehicle's size, the manufacturer still could reduce a vehicle's weight 
in order to improve the vehicle's fuel economy. IIHS cautioned that 
such weight reduction would likely reduce a vehicle's crashworthiness 
because decreased size and weight have separate effects on a vehicle's 
ability to protect its occupants. IIHS, citing the NAS report and 
Kahane study, stated that although the potential safety cost is greater 
when both decrease, a decrease in mass alone will, on average, reduce 
the crashworthiness of the light truck fleet.
    The potential for downweighting through limited reductions in 
footprint is minimized under the Reformed CAFE structure adopted in 
this document. Reliance on a continuous function further discourages 
footprint reduction because as a vehicle model's footprint is reduced, 
the vehicle is subject to a higher target. Reformed CAFE, as adopted 
today, links the level of the average fuel economy targets to the size 
of footprint so that there is an incentive to reduce weight only to the 
extent one can do so while also preserving size. Thus, we have 
minimized the incentive for a compliance strategy that could increase 
rollover propensity and cause further divergence in the size of the 
light truck fleet.
    By basing Reformed CAFE on a measure of vehicle size (footprint) 
instead of weight, the agency is aware that the CAFE program will 
continue to permit and to some extent reward weight reduction as a 
compliance strategy. The safety ramifications of downweighting--
especially downweighting that is not achieved through downsizing--will 
need to be examined on a case-by-case basis in future rulemakings. 
Historically, the size and weight of light-duty vehicles have been so 
highly correlated that it has not been technically feasible to fully 
disentangle their independent effects on safety.\101\ The agency 
remains concerned about compliance strategies that might have adverse 
safety consequences.
---------------------------------------------------------------------------

    \101\ Kahane, C.J., Response to Docket Comments on NHTSA 
Technical Report, Vehicle Weight, Fatality Risk and Crash 
Compatibility of Model Year 1991-99 Passenger Cars and Light Trucks, 
Docket No. NHTSA-2003-16318-16, 2004 discusses the historic 
correlation and difficulty of disaggregating weight and ``size.'' 
Except for a strong correlation of track width with rollover risk, 
it shows weak and inconsistent relationships between fatality risk 
and two specific ``size'' measures, track width and wheelbase, when 
these are included with weight in the analyses. See also Kahane, 
C.J., Vehicle Weight, Fatality Risk and Crash Compatibility of Model 
Year 1991-99 Passenger Cars and Light Trucks, NHTSA Technical Report 
No. DOT HS 809 662, Washington, 2003, pp. 2-6. Evans, L. and Frick, 
M.C., Car Size or Car Mass--Which Has Greater Influence on Fatality 
Risk? American Journal of Public Health 82:1009-1112, 1992, 
discusses the intense historical correlation of mass and wheelbase 
and finds that relative mass, not relative wheelbase is the 
principal determinant of relative fatality risk in two-car 
collisions. See also, Evans, L. ``Causal Influence of Car Mass and 
Size on Driver Fatality Risk,'' American Journal of Public Health, 
91:1076-81, 2001.
---------------------------------------------------------------------------

    As explained in more detail below in Section VIII, Technology 
issues, in determining the fuel saving potential of a manufacturer's 
fleet, the agency employed weight reduction as a compliance strategy 
only in limited instances. The agency only considered weight reduction 
for vehicles with a curb weight greater than 5,000 lbs. This limitation 
was based on the Kahane study, which indicated that weight reduction of 
the heaviest vehicles would not negatively impact safety. If 
downweighting were concentrated among the heaviest of the light trucks, 
any extra risk to the occupants of those vehicles might be more than 
offset by lessened risk in multi-vehicle crashes to occupants of 
smaller light trucks and cars. IIHS agreed with the agency that 
downweighting of the heaviest vehicles would likely not harm safety.
    Additionally, it is possible that some of the lightweight materials 
used in a downweighting strategy may have the strength and flexibility 
to retain or even improve the crashworthiness of vehicles and the 
safety of occupants. General Motors expressed some concern with the 
practicality of using lightweight materials, stating that it does not 
intentionally reduce mass by replacing it with advanced materials. 
However, General Motors did state that it seeks to use advanced 
materials and technologies in new generation vehicles. As stated above, 
the agency used limited weight reduction in our modeling;

[[Page 17621]]

however, we cannot dictate which technologies a manufacturer must 
employ in order to comply with the standards. The stringency of today's 
standards should not make it necessary for any manufacturers to rely on 
unsafe or unproven compliance strategies.
    Reformed CAFE also reduces the incentive for manufacturers to 
comply through increasing the number of smaller vehicles, with higher 
fuel economies, to offset larger vehicles, with lower fuel economies. 
The way in which Reformed CAFE dilutes the effect of this action as 
compliance strategy can be seen by looking at a Reformed CAFE standard. 
The fuel economy targets, as determined by the continuous function, are 
constants. Regardless of what compliance strategy is chosen by a 
manufacturer, nothing that the manufacturer does will change those 
values.
    The distribution of vehicle models along the continuous function 
and the production volume of each model, however, are variables under 
the control of the manufacturers. Further, they are variables not only 
in the formula for calculating a manufacturer's actual level of CAFE 
for a model year, but also in the formula for calculating a 
manufacturer's required level of CAFE for that model year.
    Thus, by changing the distribution of its production across the 
footprint based-function, a manufacturer will change not only its 
actual level of CAFE, but also its required level of CAFE. For example, 
all other things being equal, if a manufacturer were to increase the 
production of one of its higher fuel economy models and decrease the 
production of one of its lower fuel economy models, both its actual 
level of CAFE and its required level of CAFE would increase.
    Likewise, again all other things being equal, if a manufacturer 
were to redesign a model so as to decrease its footprint (thereby 
presumably also decreasing its weight), the model will become subject 
to a higher target. Again, as a result, both the manufacturer's actual 
CAFE and required CAFE would increase. Thus, we have substantially 
reduced the incentive for a compliance strategy that could cause 
further divergence in the size of the light truck fleet and increase 
rollover propensity.
    The reduced effectiveness of those actions as compliance strategies 
under Reformed CAFE increase the likelihood that manufacturers will 
choose two other actions as the primary means of closing the gap 
between those two levels: (1) Reducing vehicle weight while keeping 
footprint constant, and (2) adding fuel-saving technologies. Both of 
those actions would increase a manufacturer's actual CAFE without 
changing its required CAFE. Nevertheless, since a change in a vehicle's 
footprint will result in a change in both actual and required CAFE, 
manufacturers will have more flexibility to respond to consumer demand 
for vehicles with different footprint values without harming their 
ability to comply with CAFE standards or adversely affecting safety.
ii. Reduces the Difference Between Car and Light Truck CAFE Standards
    In discussing the proposed step-function CAFE standard, we stated 
that the Reformed CAFE system would reduce the disparity between car 
and light truck standards--the so called ``SUV loophole''--which in 
turn would promote increased safety because the disparity has created 
an incentive (beyond that provided by the market by itself) to design 
vehicles to be classified as light trucks instead of cars.\102\ The 
continuous function standard adopted today will operate in the same 
manner. The fuel economy targets along the continuous function for the 
smaller footprint categories of light trucks would, by MY 2011, be at 
or near (and for the smallest light trucks above) the level of the 
current 27.5 mpg CAFE standard for cars.
---------------------------------------------------------------------------

    \102\ NAS Report (p. 88) noted that that gap created an 
incentive to design vehicles as light trucks instead of cars.
---------------------------------------------------------------------------

    One way to design vehicles so that they are classified as light 
trucks instead of passenger cars is to design them so that they have 
higher ground clearance and higher approach angles.\103\ Designing 
vehicles so that they have higher ground clearance results in their 
also having a higher center of gravity. Generally speaking, light 
trucks have a higher center of gravity than cars, and thus are more 
likely than cars to rollover. Moreover, in order to create a higher 
approach angle, it is necessary to raise or minimize the front 
structure below the front bumper, which increases the likelihood that a 
light truck will override a car's body in a front or rear end crash. It 
also increases the likelihood that when a light truck crashes into the 
side of a car, its front end will pass over the car's door sill and 
intrude farther into the car's occupant compartment. In addition to not 
being structurally aligned with cars, light trucks are generally 
heavier than passenger cars, which add to their compatibility problems 
with cars.
---------------------------------------------------------------------------

    \103\ The term ``approach angle'' is defined by NHTSA in 49 CFR 
523.2 as meaning ``the smallest angle, in a plane side view of an 
automobile, formed by the level surface on which the automobile is 
standing and a line tangent to the front tire static loaded radius 
arc and touching the underside of the automobile forward of the 
front tire.''
---------------------------------------------------------------------------

    Both NRDC and the Union of Concerned Scientists questioned the 
effectiveness of the proposed Reformed CAFE system in limiting the 
incentive to produce light trucks as opposed to passenger cars. The 
Union of Concerned Scientists stated that not all passenger car-like 
light trucks would be in the first two of the proposed categories. The 
Union of Concerned Scientists listed the Ford Freestyle and the Dodge 
Magnum as examples of passenger car-like light trucks that have 
footprint values larger than proposed categories one and two, and thus 
would be subject to fuel economy targets lower that the passenger car 
standard. NRDC cited a forecast from The Planning Edge forecast which 
suggested that 27 new models of small and crossover vehicles would be 
added to the light truck fleet between MY 2005 and MY 2010, some of 
which would not be in the first category of the proposed CAFE 
structure. NRDC stated that the Reformed CAFE structure would still 
provide an incentive for automakers to classify vehicles as light 
trucks.
    As stated above, the Reformed CAFE system will compare smaller 
light trucks to fuel economy levels more comparable to the passenger 
car standard. A vehicle such as the Ford Escape, with a footprint of 
43.5 square feet, will be compared to a fuel economy target of 27.3 mpg 
in MY 2011. This significantly minimizes the incentive to manufacturer 
a vehicle as a light truck as opposed to a passenger car, solely for 
CAFE purposes.
c. More Equitable Regulatory Framework
    The Reformed CAFE system adopted today provides a more equitable 
regulatory framework for full-line vehicle manufacturers and creates a 
level playing field for all manufacturers.
    The Unreformed CAFE system cannot match the Reformed CAFE system in 
terms of providing an equitable regulatory framework for different 
vehicle manufacturers. Under Unreformed CAFE, all vehicle manufacturers 
are required to comply with the same fleet-wide average CAFE 
requirement, regardless of their product mix. For full-line 
manufacturers, this creates an especially burdensome task. We note that 
these manufacturers often offer vehicles that have high fuel economy 
performance relative to others in the same size class, yet because they 
sell many vehicles in the larger end of the light truck market, their 
overall CAFE is low relative to those

[[Page 17622]]

manufacturers that concentrate in offering smaller light trucks. As a 
result, Unreformed CAFE is binding for such full-line manufacturers, 
but not for limited-line manufacturers who sell predominantly smaller 
light trucks. The full-line vehicle manufacturers have expressed a 
legitimate competitive concern that the part-line vehicle manufacturers 
are entering the larger end of the light-truck market with an 
accumulation of CAFE credits. While this concern has merit, it is also 
the case that some part-line manufacturers (e.g., Toyota and Honda) 
have been industry innovators in certain technological aspects of fuel-
economy improvement.
    As with the proposed step-function, the Reformed CAFE program 
adopted today requires manufacturers to comply with a fuel economy 
level that is representative of that manufacturer's actual production 
mix. Under both functions, vehicles are compared to fuel economy 
targets more representative of a vehicle's fuel saving capabilities 
than comparison to a single flat standard. In fact, a required fuel 
economy level under the continuous function is more representative of a 
manufacturer's capabilities, because a target is established for each 
specific vehicle footprint, as opposed to the proposed step function 
for which a target would have been established for a range of footprint 
values.
d. More Responsive to Market Changes
    Reformed CAFE is more market-oriented because it respects economic 
conditions and consumer choice. Reformed CAFE does not force vehicle 
manufacturers to adjust fleet mix toward smaller vehicles unless that 
is what consumers are demanding. As the industry's sales volume and 
product mix changes in response to economic conditions (e.g., gasoline 
prices and household income) and consumer preferences (e.g., desire for 
seating capacity or hauling capability), the expectations of 
manufacturers under Reformed CAFE will, at least partially, adjust 
automatically to these changes. Accordingly, Reformed CAFE may reduce 
the need for the agency to revisit previously established standards in 
light of changed market conditions, a difficult process that undermines 
regulatory certainty for the industry. In the mid-1980's, for example, 
the agency relaxed several Unreformed CAFE standards because fuel 
prices fell more than expected when those standards were established 
and, as a result, consumer demand for small vehicles with high fuel 
economy did not materialize as expected. By moving to a market-oriented 
system, the agency may also be able to pursue more multi-year 
rulemakings that span larger time frames than the agency has attempted 
in the past.

E. Comparison of Estimated Costs To Estimated Benefits

1. Costs
    In order to comply with the Reformed CAFE standards, we estimate 
the average incremental cost per vehicle to be $66 for MY 2008, $201 
for MY 2009, $213 for MY 2010, and $271 for MY 2011. Under the Reformed 
CAFE system, a greater number of manufacturers will be required to 
improve their fleets and make additional expenditures than under the 
Unreformed CAFE system. The level of additional expenditure that would 
be necessary beyond already planned investment varies for each 
individual manufacturer. These individual expenditures are discussed in 
more detail in Chapter VII of the FRIA. As stated above, these costs 
are distributed across a greater share of the industry.
    The total incremental costs (the costs necessary to bring industry 
from 22.2 mpg, the level required by the standard for MY 2007, to the 
final rule levels) are estimated to be $553 million for MY 2008, $1,724 
million for MY 2009, $1,903 million for MY 2010, and $2,531 million for 
MY 2011. A comparison between the Reformed and Unreformed CAFE system 
costs is shown in Table 9. By policy design, the mpg levels under 
Reformed CAFE were set so that the industry-wide costs of Reformed CAFE 
are roughly equal to the industry-wide costs of Unreformed CAFE for MY 
2008-2010.

              Table 9.--Estimated Cost From Reformed and Unreformed CAFE Systems for MYs 2008-2010
                                       [in millions of year 2003 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                      MY 2008         MY 2009         MY 2010
----------------------------------------------------------------------------------------------------------------
Reformed CAFE system............................................             553           1,724           1,903
Unreformed CAFE system..........................................             536           1,621           1,752
----------------------------------------------------------------------------------------------------------------

2. Benefits
    The benefits analysis applied to the final standards under the 
Unreformed CAFE system was also applied to the standards under the 
final Reformed CAFE system. Benefit estimates include both the benefits 
from fuel savings and other economic benefits from reduced petroleum 
use. A more detailed discussion of the application of this analysis to 
the required fuel economy levels under the Reformed CAFE system can be 
located in Chapter VIII of the FRIA.
    Adding benefits from fuel savings to other economic benefits from 
reduced petroleum use as a result of the Reformed CAFE standards 
produced an estimated incremental benefit to society. The total value 
of these benefits is estimated to be $782 million for MY 2008, $2,015 
million for MY 2009, $2,336 million for MY 2010, and $2,992 million for 
MY 2011, based on fuel prices ranging from $1.96 to $2.39 per gallon. 
These estimates are provided as present values determined by applying a 
7 percent discount rate to the future impacts. We translated impacts 
other than fuel savings into dollar values, where possible, and then 
factored them into our total benefit estimates. The benefits analysis 
for Reformed CAFE is based on the same assumptions as the benefits 
analysis for Unreformed CAFE.
    Based on the forecasted light truck sales from AEO 2005 and an 
assumed baseline fuel economy (i.e., the industry wide fuel economy 
level if the MY 2007 standard were to remain in effect), we estimated 
the fuel savings from the Reformed CAFE program. This analysis resulted 
in estimated lifetime fuel savings of 746 million, 1,940 million, 2,230 
million, and 2,834 million gallons under the Reformed CAFE standards 
for MY 2008, 2009, 2010, and 2011 respectively.
    NHTSA estimates that the direct fuel-savings to consumers account 
for the majority of the total benefits, and by themselves exceed the 
estimated costs of adopting more fuel-efficient technologies. In sum, 
the total incremental costs by model year compared to the incremental 
societal benefits by model year are as follows:

[[Page 17623]]



             Table 10.--Comparison of Incremental Costs and Benefits for the Reformed CAFE Standards
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                      MY 2008         MY 2009         MY 2010         MY 2011
----------------------------------------------------------------------------------------------------------------
Total Incremental Costs*........................            $553          $1,724          $1,903          $2,531
Total Incremental Benefits*.....................             782           2,015           2,336          2,992
----------------------------------------------------------------------------------------------------------------
* Relative to the 22.2 mpg standard for MY 2007

These estimates are provided as present values determined by applying a 
7 percent discount rate to the future impacts.
    In light of these figures, we have concluded that the standards 
established under the Reformed CAFE system serve the overall interests 
of the American people and are consistent with the balancing that 
Congress has directed us to do when establishing CAFE standards. For 
all the reasons stated above, we believe the Reformed CAFE standards 
represent fuel economy levels that are economically practicable and, 
independently, that are a cost beneficial advancement for American 
society. A more detailed explanation of our analysis is provided in 
Chapter IX of the FRIA.
3. Uncertainty
    As with the Unreformed CAFE standards, the agency recognizes that 
the data and assumptions relied upon in our analysis have inherent 
limitations that do not permit precise estimates of benefits and costs. 
NHTSA performed a probabilistic uncertainty analysis on the Reformed 
CAFE standards to examine the degree of uncertainty in its costs and 
benefits estimates. Factors examined included technology costs, 
technology effectiveness in improving fuel economy, fuel prices, the 
value of oil import externalities, and the rebound effect. This 
analysis employed Monte Carlo simulation techniques to examine the 
range of possible variation in these factors. As a result of this 
analysis, the agency thinks it very likely that the benefits of the 
Reformed CAFE standards will exceed their costs for all four model 
years. A detailed discussion of the uncertainty analysis is provided in 
Chapter X of the FRIA.

F. MY 2008-2011 Reformed CAFE standards

    The manner in which a manufacturer's required overall CAFE for a 
model year under the Reformed system is computed is similar to the way 
in which its actual CAFE for a model year has always been calculated. 
Its required CAFE level is computed on the basis of the production and 
the footprint target as follows.
[GRAPHIC] [TIFF OMITTED] TR06AP06.024

Where:

N is the total number (sum) of light trucks produced by a manufacturer,
Ni is the number (sum) of the ith model light truck produced 
by the manufacturer, and
Ti is fuel economy target of the ith model light truck, 
which is determined according to the following formula, rounded to the 
nearest hundredth: where,

[GRAPHIC] [TIFF OMITTED] TR06AP06.025

a = the maximum fuel economy target (in mpg)
b = the minimum fuel economy target (in mpg)
c = the footprint value (in square feet) at which the fuel economy 
target is midway between a and b
d = the parameter (in square feet) defining the rate at which the value 
of targets decline from the largest to smallest values
e = 2.718
x = footprint (in square feet, rounded to the nearest tenth) of the 
vehicle model

                                Table 11.--Calibrated Parameter Values for Target
----------------------------------------------------------------------------------------------------------------
                                                                            Model year
                    Parameter                    ---------------------------------------------------------------
                                                       2008            2009            2010            2011
----------------------------------------------------------------------------------------------------------------
a...............................................           28.56           30.07           29.96           30.42
b...............................................           19.99           20.87           21.20           21.79

[[Page 17624]]

 
c...............................................           49.30           48.00           48.49           47.74
d...............................................            5.58            5.81            5.50            4.65
----------------------------------------------------------------------------------------------------------------

    The following is a representative sample of footprint values for MY 
2005 light trucks and their associated targets for MY 2011:

  Table 12.--Representative Vehicles and Their Applicable Fuel Economy
                           Targets for MY 2011
------------------------------------------------------------------------
                                             Footprint
        Representative vehicle(s)          (square feet)   Target (mpg)
------------------------------------------------------------------------
Ford F-150 Super Cab....................            75.8           21.81
GM Silverado Extended Cab...............            65.3           21.93
Lincoln Navigator.......................            55.4           22.84
Honda Odyssey...........................            54.7           22.98
Hummer H3...............................            50.7           24.16
GM Equinox..............................            48.2           25.19
Saturn Vue..............................            45.2           26.56
Ford Escape.............................            43.5           27.32
------------------------------------------------------------------------

    Based on the product plans provided by the manufacturers, we 
project that manufacturers will be required to comply with fuel economy 
levels in MYs 2008-2011 under the Reformed CAFE system as follows:

                        Table 13.--Projected Required Fuel Economy Levels by Manufacturer
----------------------------------------------------------------------------------------------------------------
                  Manufacturer                     MY 2008 (mpg)   MY 2009 (mpg)   MY 2010 (mpg)   MY 2011 (mpg)
----------------------------------------------------------------------------------------------------------------
General Motors..................................            21.9            22.6            22.9            23.2
Ford............................................            22.7            23.2            23.8            23.9
DaimlerChrysler.................................            23.2            23.7            24.1            24.3
Nissan..........................................            22.3            23.3            23.7            23.9
Mitsubishi......................................            25.1            25.8            26.3            27.0
Subaru..........................................            25.4            26.4            26.3            26.8
Toyota..........................................            22.6            23.0            23.2            23.8
Hyundai.........................................            23.9            25.0            25.0            25.4
BMW.............................................            24.5            25.1            25.5            25.8
Porsche.........................................            23.0            23.7            24.0            24.2
VW..............................................            23.1            23.7            24.1            24.2
Isuzu...........................................            22.2            22.9            23.2            23.4
Honda...........................................            23.3            24.0            24.4            24.6
Suzuki..........................................            25.5            26.3            26.6            27.1
----------------------------------------------------------------------------------------------------------------

    The projected required industry wide fleet fuel economy levels for 
MY 2008-2010 are 22.7 mpg, 23.4 mpg, and 23.7 mpg, respectively. These 
levels are more stringent than those in the NPRM. The projected 
required fleet wide required fuel economy levels in the NPRM for MYs 
2008-2010 were 22.6 mpg, 23.1 mpg, and 23.4 mpg, respectively. The 
increase in stringency is a result of higher compliance costs 
associated with the Unreformed CAFE standards. Even though the 
Unreformed CAFE standards are the same as those proposed in the NPRM, 
the associated compliance costs have increased because the updated 
product plans reflect the fact that manufacturers have already planned 
to apply several of the lower cost fuel improvement technologies. As a 
result, the Stage analysis applies technologies with higher costs in 
order to achieve the same fuel economy level under the proposed 
Unreformed CAFE system. Because the Reformed CAFE system is constrained 
by costs of the Unreformed CAFE system in the transition period, the 
Volpe model has more to ``spend'' (and spend more efficiently than 
under an Unreformed standard) when applying technologies in the 
Reformed CAFE system. The result is Reformed CAFE standards with higher 
stringency than in the NPRM.
    We estimate that the industry wide fleet fuel economy average in MY 
2011 will be 24.0 mpg. Based on the product plans submitted in response 
to the ANPRM, we estimated that manufacturers intended to achieve an 
industry wide fuel economy level of approximately 22.0 mpg. In the NPRM 
the proposed Reformed standard for MY 2011 would have been 23.9 mpg, 
with MDPVs remaining unregulated. As a result of today's final rule, we 
project a required industry wide fuel economy of 24.0 in MY 2011, with 
MDPVs included in the light truck fleet.
    While the reformed standards adopted today are more stringent than 
those proposed, and we are regulating a larger fleet in MY 2011, we 
have determined that the Reformed CAFE system and associated target 
levels for MYs 2008-2011 will result in required fuel economy levels 
that are both

[[Page 17625]]

technologically feasible and economically practicable for 
manufacturers.

VII. Technology issues

A. Reliance on the NAS Report

    The agency affirms our reliance on the cost and fuel saving 
estimates provided in the NAS report for the technologies relied upon 
in our analysis. The NAS cost and effectiveness numbers are the best 
available estimates at this time. They were determined by a panel of 
experts formed by the National Academy of Sciences. The report has been 
reviewed by individuals chosen for their diverse perspectives and 
technical expertise, in accordance with procedures approved by the 
Report Review Committee of the National Research Council. The purpose 
of the independent review was to provide candid and critical comments 
that assisted the authors and the NAS in making the published report as 
sound as possible and to ensure that the report met institutional 
standards for objectivity, evidence and responsiveness to the study 
charge. The agency has reviewed other studies of technologies available 
to improve fuel economy and have concluded that the estimates of fuel 
economy technology effectiveness and costs developed by the NAS are the 
most reliable available. Alternative estimates recommended by some 
commenters have not been subject to the same level of expert and public 
review, and thus are not suitable for use by NHTSA in establishing fuel 
economy standards.

B. Technologies Included in the Manufacturers' Product Plans

    The Alliance, DaimlerChrysler, Ford, General Motors, Nissan, 
Toyota, and Sierra Research argued that the agency's analyses 
incorrectly projected the use of certain technologies that were either 
already featured on vehicles or were included in the manufacturer's 
product plans. Because the benefits of these technologies are already 
incorporated into the manufacturer's baseline capabilities, any further 
projected fuel economy improvements were incorrectly attributed. The 
commenters urged the agency to revise our analyses to account for 
technologies that were already on vehicles or in the product plans 
submitted to the agency.
    In performing the Stage Analysis and the Reformed CAFE analysis to 
determine the final CAFE standards, the agency relied on manufacturers' 
comments and confidential product plan information to adjust our 
calculations. Accordingly, the technologies that were already featured 
on certain vehicles or already incorporated into the manufacturers' 
baseline product plans were removed from the Stage Analysis. We note 
that the detailed description of the adjustments made to the Stage 
Analysis contains confidential information and is discussed in general 
terms in the FRIA. However, this final rule provides a description of 
the steps taken in order to address comments and discrepancies between 
the product plan information available to NHTSA in preparing the August 
2005 NPRM and this final rule.

C. Lead Time

    In developing the proposal, the agency relied on lead time 
assumptions for the introduction of technologies based on technology 
availability and its fuel saving benefits. The Alliance, Sierra 
Research, and most vehicle manufacturers argued that our application 
rates and timing did not adequately consider technology readiness and 
the typical automotive product lifecycle in proposing the Unreformed 
CAFE standards. Honda and Toyota cited the NAS report, which stated 
that ``the widespread penetration of even existing technologies will 
probably require 4 to 8 years.'' \104\ Honda and Toyota supported the 
NAS findings with regard to lead time assumptions.
---------------------------------------------------------------------------

    \104\ Honda comment p. 6, and Toyota comment p. 3, quoting the 
NAS report.
---------------------------------------------------------------------------

    Underscoring the importance of lead time, Toyota asked NHTSA to 
propose CAFE standards for model years beyond 2011 as soon as possible 
in order to afford the manufacturers an opportunity for timely product 
development and planning. Toyota argued that in Japan and Europe, fuel 
economy targets for the 2008 to 2010 model years have been in place 
since 1999 and 2000 respectively.
    Manufacturers offered the following specific arguments in favor of 
reduced phase-in rates and extending lead time.
    Product cycles and finite engineering resources. The commenters 
argued that technologies cannot be incorporated in every vehicle at the 
same time due to capital costs, differing vehicle and powertrain 
planning cycles, and engineering resource constraints, both at the 
manufacturer level as well as at the supplier level. As DaimlerChrysler 
explained, resource constraints dictate that a new technology is first 
integrated into a single product and later deployed fleet-wide. 
Similarly, Ford argued that there are not enough resources available to 
develop and implement multiple technologies simultaneously across the 
entire product lineup within a short period of time. Toyota stressed 
that the lead time is not how long it takes to develop a given 
technology, but how long it takes to incorporate this technology into 
different vehicle configurations. The manufacturers stated that product 
cycles are typically staggered so that not all light trucks undergo 
changes in the same timeframe. These commenters argued that in order to 
realistically reflect the manufacturers' capabilities, the Stage 
Analysis should stagger technology application and avoid projecting 
fleet-wide application of any one technology within a single model 
year.
    With respect to the actual duration of product cycles, different 
manufacturers argued that for light trucks, they last from at least 5 
to more that 8 years. Further, they argued that the product and 
technology plans for each model are usually finalized several years 
prior to their introduction. Manufacturers stated that after design 
decisions affecting the powertrain are ``frozen,'' it is nearly 
impossible to implement any major changes to address fuel economy.
    Incorporating ``off-the-shelf'' technologies. The Alliance and 
vehicle manufacturers argued that even readily available ``off-the-
shelf'' technology cannot be simply bolted onto an existing vehicle 
because integrating any technology into the vehicle is a complex task 
requiring advance preparations, not just with respect to vehicle 
integration, but also with respect to the automated assembly lines. 
They also argued that the manufacturers need time to ensure that the 
new technology is optimized not just for vehicle integration and 
assembly, but also for serviceability and customer satisfaction in-use. 
The manufacturers also argued that NHTSA should not assume that 
manufacturers can readily adopt ``off-the-shelf'' technologies from one 
vehicle application to another.
    Customer acceptance. The Alliance and vehicle manufacturers argued 
that incorporation of specific technologies is also dependent upon 
customer acceptance. For example, DaimlerChrysler argued that a 
premature fleet-wide application of new technology could result in 
widespread customer rejection, which can be avoided if a given 
technology is slowly phased in and allowed to mature. Many commenters 
also argued that simultaneous fleet-wide incorporation of new 
technology raises product quality and durability concerns that could 
affect customer acceptance. For example, Honda argued that new 
technologies need to be ``piloted'' on a limited number of vehicles, to 
ensure

[[Page 17626]]

adequate quality before being spread to a wider number of sales.
    The agency recognizes that vehicle manufacturers must have 
sufficient lead time to incorporate changes and new features into their 
vehicles. In making its lead time determinations, the agency considered 
the fact that vehicle manufacturers follow design cycles when 
introducing or significantly modifying a product. For the final rule, 
the agency based our lead time assumptions more closely on the findings 
of the NAS report, typically relying on the mid-point of the NAS range 
for full market penetration, i.e., 6 years or approximately a 17 
percent phase-in rate. As illustrated in Appendix B of this document, 
and as discussed further below, the agency made numerous adjustments to 
timing when applying technologies in order to address lead time 
concerns.

D. Technology Effectiveness and Practical Limitations

    The Alliance, General Motors, DaimlerChrysler, Ford, Toyota, and 
Sierra Research argued that the agency overstated potential fuel 
economy benefits of certain technologies in its analyses. The 
manufacturers argued that benefits assigned to a given technology are 
not the same for every vehicle. Instead, these commenters asserted, 
actual fuel economy benefits depend on vehicle characteristics. 
Additionally, the Alliance, Toyota, DaimlerChrysler, Ford, and General 
Motors argued that the agency's analyses incorporate a number of 
technologies that have not yet been fully developed or have 
implementation issues that limit their wide-spread availability. 
Manufacturers provided the following examples of instances in which 
they believe the agency overestimated fuel saving potentials or applied 
technologies in an overly aggressive manner:
     Aerodynamic Drag Reduction--Manufacturers stated that some 
aerodynamic changes could impact vehicle compatibility and result in 
styling constraints that could affect consumer demand;
     Improved Rolling Resistance--These commenters stated that 
recently improved Federal tire safety standards are so stringent they 
limit the availability of low rolling resistance tires. Further, these 
commenters stated that consumers demand all-season tires that perform 
well in winter weather conditions but sacrifice rolling resistance.
     Variable Valve Lift and Timing--Manufacturers stated that 
benefits of this technology must be offset by friction due to the 
increased number of sliding components required for a 2-step lift 
system, and by increased oil pump losses due to the need for more oil 
pump capacity. Further, these commenters stated that application of 
this technology to a multi-valve base engine will not result in 
sufficient incremental performance improvement to allow downsizing the 
engine;
     Hybrids and Diesels--Manufacturers asserted that the fuel 
economy benefit of hybrids varies depending on the type of hybrid, the 
application, and the driving cycle. With respect to diesels, 
manufacturers stated that widespread customer acceptance is still to be 
determined due to higher costs, past experience with older diesel 
technology, and challenges faced by manufacturers regarding Tier 2 and 
LEV II emissions compliance.

The manufacturers also argued that some estimates did not account for 
synergy or ``system effects.'' That is, when multiple technologies that 
address the same opportunity for improvement (e.g., pumping losses) are 
combined, their effectiveness is diminished because they address the 
same type of loss. Thus, the manufacturers argued that the lack of a 
full examination of ``system effects'' has resulted in a set of 
projected fuel economy improvements that overestimate the technologies' 
combined capabilities. With respect to hybrid engines, several 
manufacturers argued that the fuel economy benefit of hybrid vehicles 
varies depending on the type of hybrid, the application, and the 
driving cycle.
    In contrast, environmental organizations generally stated that the 
agency underestimated the availability of fuel saving technologies. 
These commenters generally held that existing technologies could be 
applied to manufacturers' fleets and result in fuel economy 
performances in excess of 26 mpg. The Union of Concerned Scientists 
stated that the agency underestimated the availability of hybrids, and 
noted that Toyota has stated that it plans for hybrids to account for 
25 percent of its sales by early next decade. The Union of Concerned 
Scientists also cited Ford's goal of having the capacity to produce 
250,000 hybrids by 2010. The comment provided by Sierra Club, U.S. 
PIRG, and NET described a study in which ``existing fuel saving and 
safety technology'' applied to a Ford Explorer would result in a 71 
percent improvement in fuel economy.\105\
---------------------------------------------------------------------------

    \105\ Friedman et al., Building a Better SUV: A Blueprint for 
Saving Lives, Money and Gasoline. Union of Concerned Scientists and 
the Center for Auto Safety. September 2003.
---------------------------------------------------------------------------

    We note that the hybrid numbers cited by the Union of Concerned 
Scientists refer to Ford's goal for introducing hybrids in both its 
light truck fleet and its passenger car fleet. With respect to the 
study cited by Sierra Club et al., the technology applications applied 
to the Ford Explorer have not all been proven to be feasible through 
application in a production vehicle.
    With respect to ``systems effects,'' NHTSA's analysis used fuel 
economy benefit values that account for the diminished effectiveness 
that one technology may have when used in concert with other similar 
technologies. For instance, a number of technologies reduce an engine's 
pumping losses. For these technologies, NAS offers two fuel economy 
benefit values--a higher value for a ``baseline'' engine, with no such 
technologies applied, and a lower value for a ``reference'' engine with 
pumping loss partially reduced. The difference between the 
``reference'' and ``baseline'' values is an estimate of the synergistic 
effect that results from applying similar technologies to the same 
vehicle. Whenever an additional technology is selected for a vehicle 
that already has one or more similar technologies, NHTSA always chooses 
the lower value to account for these synergies.

E. Technology Incompatibility

    The Alliance, DaimlerChrysler, Ford, General Motors, Nissan, and 
Toyota argued that certain technologies projected in the agency 
analyses are incompatible with their vehicle or engine architecture. 
While their specific comments regarding NHTSA's technology projections 
are confidential, we are able to provide some generic examples.
    Manufacturers argued that not all engines are readily compatible 
with cylinder deactivation. For some, incorporation of this technology 
would require substantial investment and engineering resources. 
Similarly, manufacturers argued that switching from a single overhead 
cam design to a dual overhead cam design would, in some instances, 
require a complete engine redesign. Manufacturers also argued that 
because of greater torque, CVTs are not compatible with heavier 
vehicles equipped with large V8 engines. Instead, they work best on 
lighter light trucks based on passenger car platforms. Similarly, 
manufacturers argued that electrical power steering is compatible with 
only smaller light trucks, unless the heavier vehicles were also 
switched to 42-volt electrical systems. At least one manufacturer 
asserted that low friction oil might be incompatible with some engine 
designs

[[Page 17627]]

and expressed concerns about the availability of low friction oil in 
some markets. Finally, the manufacturers argued that because of the 
consumer demand and expectations for off-road capabilities, all-season 
traction, and greater stopping performance, low rolling resistance 
tires are incompatible with some light truck models.
    In applying technology in the Stage Analysis and the Reformed CAFE 
analysis to determine the final standards, the agency carefully 
considered the manufacturers' comments and confidential product plan 
information to adjust our calculations. In some instances, the 
manufacturers' comments reflected strategies already employed in the 
agency's analysis. For example, the NPRM analysis did not apply CVTs to 
larger light trucks equipped with V8 engines. Further, the technologies 
that turned out to be incompatible with certain vehicles were removed 
from the Stage Analysis. When it was practicable to do so, the agency 
substituted different technology applications that were compatible with 
those vehicles. As explained above, the detailed description of the 
adjustments made to the Stage Analysis contains confidential 
information and is not publicly available. However, Appendix A of this 
document and the FRIA provide a description of the steps taken in order 
to address the issue of incompatible technologies (see FRIA p. VI-10).

F. Weight Reduction

    In the analyses for the NPRM, we included the possibility of 
limited vehicle weight reduction for vehicles over 5,000 lbs. curb 
weight where we determined that weight reduction would not reduce 
overall safety and would be a cost effective choice.\106\ Use of the 
5,000 lbs cut-off point was based on analysis in the Kahane study. The 
Kahane study found that the net safety effect of removing 100 pounds 
from a light truck is zero for light trucks with a curb weight greater 
than 3,900 lbs.\107\ However, given the significant statistical 
uncertainty around that figure, we assumed a confidence bound of 
approximately 1,000 lbs. and used 5,000 lbs. as the threshold for 
considering weight reduction.\108\
---------------------------------------------------------------------------

    \106\ The amount of projected weight reduction was two percent 
for light trucks with a curb weight between 5,000 and 6,000 lbs and 
up to four percent for light trucks with a curb weight over 6,000 
lbs.
    \107\ Kahane, Charles J., PhD, Vehicle Weight, Fatality Risk and 
Crash Compatibility of Model Year 1991-99 Passenger Cars and Light 
Trucks, October 2003. DOT HS 809 662. Page 161. Docket No. NHTSA-
2003-16318 (http://www.nhtsa.dot.gov/cars/rules/regrev/evaluate/pdf/809662.pdf)
    \108\ See the discussion of ``Effect of Weight and Performance 
Reductions on Light Truck Fuel Economy'' in Chapter V of the PRIA.
---------------------------------------------------------------------------

    Several commenters supported our assumption that manufacturers 
could respond to the CAFE standards with limited weight reductions that 
would not reduce safety. Conversely, several commenters stated that any 
weight reduction will lead to a reduction in safety. These comments are 
discussed below.
    Before discussing the comments, we would like to clarify that our 
analysis does not mandate weight reduction, or any specific technology 
application for that matter. We performed the analysis for the NPRM and 
the final rule on the assumption that manufacturers would find it cost-
effective to cut some weight out of light trucks that have a curb 
weight greater than 5,000 lbs. Our analysis relied exclusively on other 
fuel-saving technologies for lighter light trucks to demonstrate that 
manufacturers can comply with the required fuel economy levels 
established today without the need for unsafe compliance measures.
    Honda cited several reports, which it asserted demonstrated that 
limited weight reductions would not reduce safety and could possibly 
decrease overall fatalities. Honda stated that the 2003 study by DRI 
found that reducing weight without reducing size slightly decreased 
fatalities, and that this was confirmed in a 2004 study by DRI that 
assessed new data and methodology changes in the 2003 Kahane Safety 
Study. Honda asserted that the DRI results tend to confirm ``that curb 
weight reduction would be expected to decrease the overall number of 
fatalities.''
    DRI submitted an additional study, Supplemental Results on the 
Independent Effects of Curb Weight, Wheelbase, and Track Width on 
Fatality Risk in 1985-1998 Model Year Passenger Cars and 1985-1997 
Model Year LTVs, Van Auken, R.M. and J. W. Zellner, May 20, 2005. This 
DRI study concluded that reductions in footprint are harmful to safety, 
whereas reductions in mass while holding footprint constant would 
benefit safety. The DRI study disagreed with NHTSA's finding that mass 
had greater influence than track width or wheelbase on the fatality 
risk of passenger cars in non-rollover crashes.
    The Union of Concerned Scientists stated that recent studies 
indicate that increases in weight have very little impact. However, the 
Union of Concerned Scientists did not cite any specific study. Further, 
Environmental Defense stated that the Kahane study on which the agency 
relied for determining the weight reduction limitations was flawed. 
Environmental Defense stated that the Kahane study \109\ does not 
adequately distinguish between the effects of size and weight on motor 
vehicle accident mortality, despite the large body of evidence 
suggesting that other factors besides vehicle weight, such as vehicle 
size and design, have critical implications for vehicle safety.
---------------------------------------------------------------------------

    \109\ See footnote 90.
---------------------------------------------------------------------------

    While NHTSA agrees that limited weight reduction to heavier 
vehicles will not reduce safety, we continue to disagree with DRI's 
overall conclusion, cited by Honda, that weight reductions while 
holding footprint constant would significantly benefit safety in 
lighter vehicles. NHTSA's analyses of the relationships between 
fatality risk, mass, track width and wheelbase in 4-door 1991-1999 
passenger cars (Docket No. 2003-16318-16) found a strong relationship 
between track width and the rollover fatality rate, but only a modest 
(although significant) relationship between track width and fatality 
rate in non-rollover crashes. Even controlling for track width and 
wheelbase--e.g., by holding footprint constant--weight reduction in the 
lighter cars is strongly, significantly associated with higher non-
rollover fatality rates in the NHTSA analysis. By contrast, the DRI 
study of May 20, 2005 analyzed 4-door cars and found a strong 
relationship between track width and fatality risk, and non-significant 
associations of mass and wheelbase with fatality risk (Docket No. 2005-
22223-78, p. 31). In other words, when DRI analyzed the same group of 
vehicles as NHTSA, they did not get the same results. This difference 
indicates that DRI's analytical method and/or database are not the same 
as NHTSA's.
    The agency continues to stand by our analytical method and database 
and we continue to believe that weight reduction in lighter vehicles 
would reduce safety. We also continue to believe that weight reductions 
in the heavier light trucks, while holding footprint constant, will not 
likely result in net reduction in safety.
    IIHS expressed similar concern with weight reduction as the agency, 
stating that the safety cost of reduced mass would be most apparent if 
the weight reductions were to occur among the smallest and lightest 
vehicles. Referencing the 2003 Kahane report, IIHS indicated that 
decreases in mass among vehicles weighing more than

[[Page 17628]]

5,000 pounds could result in a net safety benefit. However, IIHS 
continued to caution that reducing mass reduces, on average, a 
vehicle's ability to protect its occupants, noting that the effects of 
mass on vehicle crashworthiness have been observed and documented 
(Kahane, 1997; Partyka, 1996; O'Neill et al., 1974).
    General Motors and the Alliance were more explicit in their 
concerns over the safety impact associated with weight reduction. The 
Alliance stated that the fundamental laws of physics dictate that 
smaller and/or lighter vehicles are less safe than larger/heavier 
counterparts with equivalent safety designs and equipment.
    General Motors agreed that improvements in material strength, 
flexibility, and vehicle design have helped improve overall vehicle and 
highway safety. But, General Motors added, for a given vehicle, 
reducing mass generally reduces net safety. Further, General Motors 
stated that it does not intentionally reduce mass by replacing it with 
advanced materials, presuming that such action alone will result in 
improved protection for the occupants in a lighter vehicle: vehicles 
with larger mass will provide better protection to occupants involved 
in a crash than a vehicle of the same design with less mass, given 
equivalent crashes.
    General Motors also questioned the agency's reliance on a 5,000 
lbs. minimum vehicle weight for considering weight reduction, which was 
based on the finding of the 2003 Kahane report that reducing curb 
weight negatively impacts safety only at curb weights under 3,900 
pounds. General Motors stated that the agency's conclusion is 
inconsistent with the sensitivity analysis performed by William E. 
Wecker Associates, Inc. and submitted to the ANPRM docket. General 
Motors stated that the inflection point on the Wecker report's graph 
for General Motors light trucks in both the periods of MYs 1991-1995 
and MYs 1996-1999 is higher than 5,000 pounds.
    Additionally, General Motors stated that the NPRM did not 
acknowledge or rationally respond to the main point of the Wecker 
report, which was that Dr. Kahane's ``analysis alone does not support 
the proposition that a crossover weight at or near 5,085 pounds is a 
robust, accurate description of the field performance of the [light 
truck] fleet[.]''
    We believe that General Motors is confusing the 5,085 lbs. 
crossover weight (where the safety effect of mass reduction in a 
vehicle weighing exactly 5,085 lbs., is zero) with the breakeven point 
described in the NPRM, which is the point where the total effect of 
reducing all vehicles heavier than the breakeven weight by an equal 
amount is zero. NHTSA estimated that the breakeven point as described 
in the NPRM is 3,900 lbs., if footprint is held constant.
    If the 3,900 lbs. estimate were perfectly accurate, we would be 
confident that weight reductions in vehicles down to 3,900 pounds would 
not result in net harm to safety. However, we agree with commenters 
that there is considerable uncertainty about the crossover weight and 
also the breakeven point. Therefore, in our analysis, we limited weight 
reduction to vehicles with a curb weight greater than 5,000 pounds. We 
believe that the 5,000 lbs. limit is sufficient so that we can be 
confident that such weight reductions will not have net harm on safety.
    SUVOA encouraged NHTSA to emphasize the importance of making sure 
that CAFE requirements do not encourage vehicle downsizing ``or any 
other action that might have an adverse effect on safety.'' SUVOA cited 
several reports in support of its assertion that downsizing harms 
safety.\110\. As explained above, the agency has applied weight 
reduction only to those vehicles for which we are confident that such 
reduction will not negatively impact safety.
---------------------------------------------------------------------------

    \110\ SUVOA provided the following cites in support of its 
assertion:
     2001, the National Academy of Sciences affirmed that 
earlier downsizing of vehicles following the imposition of CAFE 
regulations resulted in an additional 1,300 to 2,600 deaths and an 
additional 20,000 serious injuries per year.
     A Harvard School of Public Health-Brookings Institution 
study in the 1990s found that vehicle downsizing due to federal fuel 
economy mandates increased occupant deaths by 14 to 27 percent.
     An in-depth analysis by USA Today in 1999, using NHTSA 
and automobile insurance industry data, found that since 1975, 7,700 
additional deaths occurred for every mile per gallon gained. By 
1999, vehicle downsizing had killed more than 46,000 Americans. 
Factoring in the ensuing six years through 2005, the total 
conservatively eclipses 55,000 deaths.
---------------------------------------------------------------------------

    The Competitive Enterprise Institute stated that the agency's own 
rulemaking demonstrates the safety of weight, specifically the FMVSS 
No. 216, Roof crush, rulemaking. The Competitive Enterprise Institute 
noted that in that rulemaking, NHTSA determined that the proposed 
requirement of more protective roofs would ``add both cost and weight'' 
to the vehicles. This commenter also stated that NHTSA found that the 
stronger the roof crush standard, the more added weight it would 
entail. The Competitive Enterprise Institute also cited the IIHS, March 
19, 2005 Status Report on fatality risks in different vehicles, which 
the commenter stated concluded that in each vehicle group, ``the 
heavier vehicles, like bigger ones, generally had lower death rates.''
    The weight safety analysis performed by the agency for this 
rulemaking accounted for not only the occupant safety (crashworthiness) 
of the vehicle, but also the rollover propensity of the vehicle, and 
the safety of the occupants of other vehicles it strikes. While in some 
instances, the crashworthiness of a vehicle can be improved through 
design changes that add weight to a vehicle, design changes can also 
reduce a vehicle's weight without reducing crashworthiness, and may in 
some instances improve the safety of a vehicle (e.g., reduce rollover 
propensity).
    Environmental Defense commented that by limiting the use of weight 
reduction to heavier vehicles, the agency disregarded the likelihood 
that manufacturers would rely on weight reduction in smaller, lighter 
vehicles. Environmental Defense suggested that the improved baselines 
should reflect this weight reduction strategy.
    Environmental Defense asserted that weight reduction is among the 
most common and cost-effective options available to manufacturers for 
improving vehicle fuel economy across the light truck fleet. However, 
Environmental Defense referenced estimates presented in DeCicco (2005) 
that suggest that the cost per pound of weight reduced through use of 
high-strength steel and advanced engineering techniques has been as low 
as, or lower than, 31 cents per pound reduced.
    Moreover, Environmental Defense stated, the exclusion of mass 
reduction in NHTSA's analysis bears no relation to what will actually 
happen in the marketplace when standards are implemented. Environmental 
Defense argued that absent safety regulations prohibiting the use of 
mass reductions, manufacturers are likely to choose this compliance 
alternative in vehicles of all weights as a cost effective way to 
comply with CAFE. Environmental Defense stated that NHTSA should 
include mass reduction among its compliance alternatives for all light 
trucks.
    As stated above, the agency does not dictate which fuel savings 
technologies must be applied to vehicles. Mass reduction is a 
compliance alternative for all light trucks. However, one of the 
considerations in setting fuel economy standards is to set standards 
that will not lead to a reduction in the safety of the light truck 
fleet. The standards established by the agency are those capable of 
being achieved by the manufacturers without the need to

[[Page 17629]]

reduce safety. If the agency were to consider weight reduction as a 
compliance option for all light trucks, we are concerned that the 
resulting increased stringency would force unsafe downweighting.

VIII. Economic Assumptions

    A number of commenters raised global issues related to the agency's 
proposed CAFE standards, questioning everything from how costs and 
benefits were calculated to whether the standard is necessary or 
beneficial at all. Aside from raising issues with specific economic 
assumptions relied upon by the agency, commenters also more broadly 
questioned the rationale of the light truck CAFE program in general.
    The Competitive Enterprise Institute (CEI) argued that NHTSA's 
proposed CAFE standards are unnecessary and that they could potentially 
increase the nation's dependence on foreign oil. CEI argued that 
particularly since the 2005 hurricane season dramatically drove up fuel 
prices at the pump, vehicle sales of large SUVs and other relatively 
inefficient vehicles have plummeted. According to CEI, market forces 
have acted to improve the overall fuel economy of new vehicles without 
the need for regulatory intervention. (General Motors made a similar 
argument, as to how fuel economy standards are less efficient than 
market forces in terms of achieving economically optimal levels of fuel 
economy.)
    Although the effect of market forces on fuel economy levels is a 
matter of debate, NHTSA does not have the option of leaving fuel 
economy to the markets. The agency is required by Congress to set light 
truck fuel economy standards for every model year at the maximum 
feasible level considering the need of the nation to conserve fuel, 
technological feasibility and economic practicability.

A. Costs of Technology

    The Alliance, Sierra Research and most vehicle manufacturers argued 
that NHTSA has underestimated the costs of certain technologies. 
Specific comments are set forth below.
    First, General Motors stated that the costs relied upon by the 
agency were derived from technologies designed for application to 
passenger cars, but which are being applied to light-duty trucks 
without consideration of the necessary adjustments for integrating such 
technologies while maintaining the truck's utility and function. For 
example, for heavier light trucks, installation of electric power 
steering would also require a switch to a 42-volt electrical system, 
and probably increased battery maintenance costs. General Motors argued 
that the additional costs associated with integrating technologies 
available on light vehicles into heavier vehicles was one of the 
primary reasons for the discrepancy between their internal costs 
estimates and NHTSA's costs estimates in the PRIA. General Motors 
further argued that both NAS and the estimates of Energy and 
Environmental Analysis (a consulting firm), inadequately document 
sources for the costs they include.
    The Alliance, Ford, Honda, Nissan and DaimlerChrysler reiterated 
that technologies are not simply bolted onto the vehicle. Instead, 
extensive modifications are often required. These modifications involve 
a substantial investment. For example, the cost estimates of a given 
piece of engine technology do not include the costs of redesigning the 
engine, testing prototypes, mapping the engine, developing new vehicle 
calibrations, and integrating the technology with the vehicle. For this 
reason, Sierra Research and at least one vehicle manufacturer disagreed 
with the NAS cost multiplier of 1.4 and argued that it should be 
substantially greater.
    For this rulemaking, the agency has decided to use the cost and 
effectiveness numbers that appear in the NAS report. The NAS committee 
reviewed many sources of information including presentations at public 
meetings, and available studies and reports. It also met with 
automotive suppliers and industry consultants including Sierra 
Research. The committee then used its expertise and engineering 
judgment aided by the information described above to derive its own 
estimates of costs and effectiveness. After the prepublication copy was 
released in July 2001, the committee reexamined its analysis. 
Representatives from the industry and other stakeholders were invited 
to critique the findings. Several minor errors were discovered and 
corrected before publication of the final report.
    The NAS cost and effectiveness numbers are presented as ranges that 
reflect estimates for passenger cars, pickup trucks, and SUVs/minivans. 
However, under the NAS report, the availability of these technologies 
differs for various segments of the vehicle fleet. The NAS report 
breaks down the availability of technology for two classes of pickups 
(small and large) and four classes of SUVs/minivans (small SUV, midsize 
SUV, large SUV, and minivan). Each class has a unique set of 
technologies available to it. While some individual technologies can be 
applied to any type of vehicle, the sets of technologies available to 
passenger cars are not the same as the sets of technologies available 
to light trucks. Thus, the costs assigned to passenger cars are not 
being used for light trucks because the technologies differ and each 
set of technologies has a unique cost estimate. Further, the cost 
estimates in the NAS report include consideration of costs for light 
trucks (NAS, p. 40).
    Second, commenters argued that the agency did not consider 
``stranded'' costs (General Motors, Sierra Research). For example, the 
stringency of the Unreformed CAFE standard may force a manufacturer to 
begin purchasing 6-speed transmissions from an external supplier 
immediately. Consequently, in-house manufacturing efforts for which 
considerable resources may have already been spent would be abandoned 
without any return on that investment. Sierra Research also argued that 
NHTSA has not properly accounted for costs associated with the 
premature retirement of existing technology before its costs have been 
fully amortized. Thus, commenters argued that NHTSA incorrectly assumed 
costs of technologies introduced during normal product cycle turnover 
even when the technologies were actually attributed to vehicles mid-
cycle.
    Stranded costs are essentially one time write-offs that would be 
difficult to identify and even more difficult to quantify, especially 
in light of their offsetting tax savings implications. Write-offs of 
stranded costs are likely to occur occasionally during the routine 
course of business as manufacturers periodically find it necessary to 
curtail production plans in response to unplanned regulatory or market 
impacts. These write-offs will thus influence the long run cost of 
doing business. Although manufacturers typically attempt to price 
vehicles to maximize their profits, the impact of stranded costs on 
vehicle prices will be constrained by market conditions, and measuring 
their impact would be problematic.
    As explained above in the technology discussion, the agency has 
constrained its fuel economy model to give deference to manufacturers' 
production plans. In determining manufacturer capabilities, significant 
design changes are initiated in conjunction with redesigns and vehicle 
introductions stipulated in production plans provided to NHTSA by 
vehicle manufacturers. The potential for stranded costs is thus 
minimized. Overall, NHTSA does not believe that the revised phase-in 
schedule of technologies assumed in its

[[Page 17630]]

model would force manufacturers to incur significant stranded costs.

B. Fuel Prices

    Many commenters stated that the fuel price estimates used in the 
agency's analysis and modeling were too low and should be revised to 
reflect the best current projections of market prices (SUVOA, NADA, 
Mercatus Center, Union of Concerned Scientists, and California State 
Energy Commission). Environmental organizations, citing the record 
prices for fuel at the pump, went further, arguing that more stringent 
standards are justified (Environmental Defense, NRDC, ACEEE).
    In contrast, vehicle manufacturers requested that the agency not 
rely solely on higher fuel price forecasts to automatically increase 
the stringency of the CAFE standards (the Alliance, General Motors, 
Mitsubishi). Such commenters urged the agency to not allow CAFE 
standards to rise precipitously based upon a spike in oil commodity 
prices, thereby disregarding technology costs and other limitations. 
Specific comments related to fuel prices follow below.
    Environmental Defense argued that NHTSA's fuel prices estimates in 
its CAFE proposal, based upon AEO2005, are too low. While Environmental 
Defense acknowledged NHTSA's stated intention to revise its fuel prices 
estimates in light of AEO2006 projections, it argued that even this 
forecast may be too low, particularly in light of private oil prices 
estimates of $42 to $100 per barrel over the analysis period. 
Accordingly, Environmental Defense urged NHTSA to utilize the best 
available fuel price forecasts in revising the level of the standards 
in the final rule.
    NRDC made a similar argument regarding the proposal's fuel prices 
estimates, which it perceives to be too low. To remedy this problem, 
NRDC recommended that the agency use fuel price forecasts consistent 
with the world oil price forecasts reported in EIA's ``High B Oil Price 
Scenario'' or the International Energy Agency's World Energy Outlook 
2005 ``Deferred Investment Scenario,'' forecasts which NRDC suggested 
are more consistent with recent world oil prices and current petroleum 
futures market prices.
    As another suggestion for revising the NPRM's fuel prices 
estimates, the California State Energy Commission stated that future 
fuel prices are likely to be at least as high as the ``Base Case'' 
scenario adopted in the 2005 Integrated Energy Policy Report for 
California, which forecasts retail fuel prices (including Federal and 
California State taxes). The Commission recommended using this 
forecast, which it argued is more consistent with current fuel prices. 
According to the commenter, recent EIA forecasts (at least since 1996) 
have significantly underestimated actual future fuel prices.
    The Alliance stated that while higher gasoline price forecasts may 
appear to justify further increases in fuel economy levels, ``NHTSA 
must proceed carefully and consider all of the ramifications of moving 
to higher levels than those proposed.'' Along the same lines, General 
Motors commented that increased fuel prices could lead to significantly 
higher CAFE standards under NHTSA's model; according to General Motors, 
a recent study by Resources for the Future (RFF) found that increasing 
the price per barrel of oil by $20 would lead to a CAFE target as much 
as 4 mpg higher.
    In its comments, General Motors also compared the American light 
truck fleet with the European light truck fleet, stating that Europeans 
pay approximately $5 per gallon for gasoline, yet their vehicles do not 
use technologies beyond those present in the U.S. fleet. An appendix to 
General Motors' comments further analyzed the differences in fuel 
economy between American and European vehicles, suggesting that the 
fuel economy of vehicles on both side of the Atlantic is roughly 
comparable, once other relevant factors are taken into account (e.g., 
vehicle weight, transmission type, engine power, engine type, and 
premium gas usage). General Motors asked the agency to explain this 
apparent discrepancy between real world experience in Europe and 
NHTSA's analysis.
    General Motors also stated that NHTSA's analysis did use the proper 
value for the tax on gasoline, which the American Petroleum Institute 
(API) currently reports to be $0.46 per gallon.
    Mitsubishi stated that fuel prices are currently in a state of flux 
and recommended using AEO2006 in the final rule. However, Mitsubishi 
cautioned that raising the fuel economy target levels, based upon 
higher fuel prices, might not be economically practicable and could 
force manufacturers to completely reanalyze their business strategies.
    The Mercatus Center commented that as part of the final rule, the 
agency should increase its fuel price forecasts and take steps to 
adequately address likely future volatility on fuel prices. 
Specifically, the Mercatus Center recommended adjusting the baseline 
sale mix and fuel economy levels from manufacturer product plans for 
future model years to reflect shifts in sales patterns toward more 
fuel-efficient models resulting from current high fuel prices and buyer 
concerns about continued fuel price volatility. It also urged NHTSA to 
include a separate estimate of the economic value of reduced fuel price 
volatility expected to result from lower fuel use.
    Several commenters also noted that the State gasoline taxes in some 
states were changing as of January 1, 2006 and that the agency should 
update their gasoline tax estimates accordingly.
    The agency will continue to rely on the most recent fuel price 
projections from the EIA from the Department of Energy. We consider the 
EIA projections to be the most reliable long-range projections. No one 
can predict the impact of hurricanes and other external factors that 
could affect the price of gasoline at particular points in time or in 
the short term. However, what we need are long range projections for 
2008 to 2011, when this CAFE standard takes effect. In addition, the 
EIA's AEO2006 Early Release is the most recent projection available, 
and considers the most recent events.
    Further, while commenters recommended that the agency rely on 
higher fuel prices, no commenter provided an alternative forecast that 
the agency believes to be more reliable than those published by EIA as 
part of its Annual Energy Outlook (AEO). NRDC did recommend that the 
agency rely on fuel price forecasts consistent with the world oil price 
forecasts reported in EIA's AEO 2005 ``High B Oil Price Scenario'' or 
the International Energy Agency's World Energy Outlook 2005. The 
``Reference Case Scenario'' presented in AEO 2006, which is relied upon 
by the agency in the final rule, is on average almost 14 cents per 
gallon higher than the scenario suggested by NRDC.
    The latest fuel price projections are taken from the EIA's Annual 
Energy Outlook 2006 (AEO2006 Early Release) reference case, which is 
the most recent projection available, translated into 2003 economics to 
match other cost estimates in the analysis, and are extended until 2047 
to match the 36 year lifetime for light trucks produced for MY 2011. 
The estimated gasoline price per gallon in 2003 economics varies over 
the time period, starting at $2.16 in 2008, reducing to $1.96 in 2014, 
and then increasing to $2.39 by 2047.
    The agency will consider additional fuel price projections (higher 
and lower than the reference case) from EIA in its uncertainty 
analysis; however, there is

[[Page 17631]]

no way to adequately predict or analyze the volatility of fuel prices.
    Since gasoline taxes are a transfer payment and not a societal 
cost, the value of gasoline taxes is subtracted from the estimated 
gasoline price to estimate the value of gasoline to society. The agency 
has updated its estimates of gasoline taxes, using the January 1, 2006, 
update in State gasoline taxes. In 2003 economics, Federal taxes are 
$0.176 and State and local taxes average $0.262 for a total of $0.438.
    As will be discussed in this document, the agency has carefully 
considered the broad ramifications of the final rule and alternative 
stringency levels, and has not increased the fuel economy levels solely 
on the basis of a projection of higher gasoline prices.
    The agency does not see the value of trying to explain the 
difference in fuel prices and technology between Europe and the United 
States, as requested by General Motors. As General Motors points out in 
its comments, there are a variety of factors which differentiate the 
U.S. and Europe. These jurisdictions have different legal/regulatory 
frameworks, and their driving publics have different expectations, all 
of which vehicle manufacturers endeavor to accommodate. Thus, the fuel 
economy situations in Europe and the U.S. are not directly comparable 
and any such effort would entail an extensive analysis, which is likely 
to generate inconclusive results and which is well beyond the scope of 
this rulemaking.

C. Consumer Valuation of Fuel Economy and Payback Period

    Commenters differed in terms of their recommended approach for 
properly assessing consumer valuation of fuel economy and the payback 
period for fuel-saving technologies. As discussed below, some 
commenters favored focusing on the preferences of individual consumers 
using a short-term perspective, while others recommended focusing on 
the societal benefits to all consumers over the long term.
    General Motors requested that the agency compare consumer 
preference for fuel economy versus vehicle utility, in order to 
determine consumer valuation of improved fuel economy. General Motors 
also asked NHTSA to consider how many vehicle sales would be deferred 
due to CAFE-related price increases. According to General Motors, 
history has shown that consumers value fuel economy increases of up to 
1.2 percent per year, so any higher standard forces consumers to accept 
a lower level of performance utility than they would otherwise choose. 
However, General Motors did state that consumers are well informed and 
extremely rational, arguing that car buyers are less concerned with 
fuel economy improvements when gasoline cost $1.50 per gallon, as 
compared to marginal improvements when gasoline costs $2.50 per gallon.
    According to the NADA, recent new light truck sales data suggest 
that, despite higher fuel prices, consumers continue to rank fuel 
economy below other purchase considerations, such as capacity, 
convenience, utility, performance, and durability. Thus, NADA suggested 
that NHTSA's fuel economy standards should not be permitted to result 
in undue constraints on light truck product availability or in 
significant price increases, which could in turn result in reduced 
sales, profits, and workforces, and the retention of older vehicles 
with poorer fuel efficiency.
    The California State Energy Commission commented that stringency 
levels of fuel economy targets should be established by considering the 
value of fuel savings from vehicle owners' perspective over the first 
few years of each model year's lifetime, rather than from a society-
wide perspective. For example, the California State Energy Commission 
argued that consumers appear to attach some value to owning hybrid 
vehicles beyond the fuel savings they produce, sometimes paying large 
price premiums (up to $3,500 compared to equivalent gasoline-powered 
models) and waiting extended periods of time for such vehicles to 
become available. The commenter stated that the size of the hybrid 
vehicle market is expected to grow significantly by MY 2010. According 
to the California State Energy Commission, such consumer valuation 
considerations should be taken into account as part of the CAFE 
standards.
    Conversely, Environmental Defense argued that technology 
application should be based on societal costs, not private costs, and 
that the agency needs to consider benefits over the lifetime of the 
vehicle, as opposed to the consumer time horizon of 4.5 years.
    The CAFE program's most immediate impacts are on individual 
consumers, but regulating fuel economy also has a broader societal 
effect that must be considered. The agency believes that CAFE standards 
should reflect the true economic value of resources that are saved when 
less fuel is produced and consumed, higher vehicle prices, and, to the 
extent possible, any externalities that impact the broader society. 
Consumer's perceptions of these values may differ from their actual 
impacts, but they will nonetheless experience the full value of actual 
fuel savings just as they will pay the full increased cost when the 
vehicle is purchased. Moreover, owners will realize these savings 
throughout the entire on-road life of each vehicle. While initial 
purchasers will only experience fuel savings for the limited time they 
typically own a new vehicle (4.5 years), subsequent (used vehicle) 
purchasers will continue to experience savings throughout the vehicle's 
useful life. The agency does restrict its analysis of sales impacts to 
the initial 4.5 year period under the assumption that initial buyer's 
purchase behavior will be influenced only by their perception of 
benefits they will receive while owning the vehicle, as opposed to 
benefits flowing to subsequent owners. However, the agency believes 
that the lifetime value of impacts from CAFE improvements should be 
fully reflected in its analysis of societal impacts.

D. Opportunity Costs

    The Alliance commented that, in proposing its fuel economy 
standards, NHTSA did not consider the opportunity costs to consumers 
who may be forced to forego incremental improvements in vehicle 
performance, safety, capacity, comfort, and aesthetics (citing a 2003 
study by the Congressional Budget Office (CBO) titled, ``The Economic 
Costs of Fuel Economy Standards Versus a Gasoline Tax,'' Chapter 2, 
pages 1-5). The Alliance also cited a recent study which found that a 
CAFE increase of 3 mpg results in a hidden tax of $0.78 per gallon of 
fuel conserved.\111\ General Motors added that to the extent the CAFE 
standards force trade-offs between fuel economy and other vehicle 
attributes that consumers value, consumer welfare will be reduced and 
``lost opportunity costs'' will be imposed on vehicle manufacturers.
---------------------------------------------------------------------------

    \111\ The Alliance cited this study as: Andrew N. Kleit, 
``Impacts of Long-Range Increases in Fuel Economy (CAFE) Standard,'' 
Economic Inquiry (April 2004), pages 279-294.
---------------------------------------------------------------------------

    Further, General Motors argued that NHTSA's engineering and 
economic analyses are incomplete because they do not account for the 
potential economic harm to automobile companies (which are already 
facing difficult financial challenges) and their employees, and the 
analyses do not include producer and consumer welfare losses. General 
Motors stated the Congressional Budget Office estimated a consumer 
welfare loss of $230 per vehicle.
    In response, the agency notes that the CBO report cited by General 
Motors and the Alliance is based on estimates of consumer's preferences 
over a period

[[Page 17632]]

from roughly 1980 through 2001. The CBO report states that ``Consumers' 
preferences over the past 15 or 20 years have led automakers to 
increase vehicles' size and horsepower, while holding gasoline mileage 
more or less constant.'' The CBO report also acknowledges that if 
consumers' tastes change significantly, the report's conclusions would 
be affected. The period examined by CBO corresponds to the period when 
automakers created and successfully marketed SUVs as an alternative to 
passenger cars for routine driving. For most of this period, gasoline 
prices were stable and low by historical standards. Near the end of the 
period, prices began to rise, but since that time they have reached 
levels that are more than double the typical price during the period. 
In response, consumers have shown a dramatic shift in their purchase 
preferences. Sales of small passenger cars and fuel-efficient hybrids 
have increased, while sales of large SUVs have dropped. Circumstances 
have, thus, already overtaken the assumptions regarding consumer 
preferences used in the CBO analysis. Moreover, the CBO analysis is 
based on a CAFE regulation that achieves an assumed 10 percent 
reduction in gasoline consumption, a greater reduction than that which 
would be accomplished by this regulation. Thus, the agency does not 
believe that the $230 loss in consumer welfare estimated in the CBO 
report is an appropriate measure of the impact of CAFE reform.
    NHTSA acknowledges that there are potential shifts in consumer 
welfare which are not reflected in its model (e.g., if a manufacturer 
reduced horsepower as a strategy to improve fuel economy, some 
consumers would value that horsepower loss more than the fuel economy 
gain). However, it believes that measuring these impacts is 
problematic, especially in light of the recent dramatic shift in 
gasoline prices and geopolitical events surrounding the world oil 
supply. Moreover, the agency is using its model, not as an absolute 
standard, but rather as an initial measure to consider in setting 
standards. The agency is cognizant of the financial difficulty facing 
automobile manufacturers and is striving to minimize costs by 
scheduling improvements in such a way that they would coincide with 
normal design cycles. Further, the agency believes that incrementally 
improving fuel economy across the vehicle fleet will not deprive 
consumers of their choice of vehicles. A wide variety of vehicle types 
will continue to be available, and consumers' selection of vehicles 
should still reflect their judgments of the relative value of fuel 
economy versus horsepower at the margin.

E. Rebound Effect

    The ``rebound effect'' refers to the tendency for vehicle owners to 
increase the number of miles they drive a vehicle in response to an 
increase in its fuel economy, such as would result from more stringent 
CAFE standards. The rebound effect occurs because an increase in fuel 
economy reduces vehicle owners' fuel cost per mile driven, which is the 
typically largest component of the cost of operating a vehicle. Because 
even with improved fuel economy this additional driving uses some fuel, 
the rebound effect somewhat reduces the fuel savings (and related 
benefits) that result when fuel economy increases. The rebound effect 
is usually expressed as the percentage by which vehicle use increases 
when the cost of driving decreases due to an increase in fuel economy 
and/or a decrease in the price of fuel.
    Commenters expressed a variety of views regarding the agency's 
estimate of the rebound effect that would be anticipated in response to 
the new CAFE standards. While some reviewers suggested that the 
estimate of the rebound effect the agency used is too low (Alliance, 
General Motors), others suggested that it is too high (Environmental 
Defense, NRDC, ACEEE, Union of Concerned Scientists, California State 
Energy Commission). Specific comments related to the rebound effect are 
set forth below.
    In general, manufacturers and their associations deemed the 20-
percent rebound rate relied upon by the agency to be conservative. For 
example, the Alliance argued that a 20-percent rebound effect is overly 
conservative, based upon recent studies. Specifically, the Alliance 
stated that a recent study of variation in U.S. light-duty vehicle use 
among different states over the period from 1966 to 2001 by Small and 
Van Dender estimated a long-term rebound effect of 24 percent over the 
entire period covered by the study.\112\ This estimate implies that a 
10-percent increase in fuel economy, which translates into a 10-percent 
decrease in fuel cost-per-mile driven, would ultimately stimulate a 
2.4-percent increase in average annual miles driven using vehicles 
whose fuel economy is improved. According to the Alliance, an 
independent analysis by the Small and Van Dender data found that 
despite those authors' claim that the rebound effect had declined 
during the period they studied, the rebound effect remained at 24.6 
percent at the end of this period.\113\ The Alliance opined that the 
rebound effect is probably on the order of 35 percent, although it did 
not supply any data to substantiate this estimate.
---------------------------------------------------------------------------

    \112\ Kenneth A. Small and Kurt Van Dender, ``The Effect of 
Improved Fuel Economy on Vehicle Miles Traveled: Estimating the 
Rebound Effect Using U.S. State Data, 1996-2001, Paper EPE-014, 
University of California Energy Institute, 2005; item 1702 
in NHTSA Docket 22223. An earlier version of the study is item 15 in 
the same docket.
    \113\ Robert Crawford, ``Review and Assessment of VMT Rebound 
Effect in California,'' RW Crawford Energy Systems, Sept. 2004.
---------------------------------------------------------------------------

    According to General Motors, previous studies of changes in 
household motor vehicle and appliance use in response to improvements 
in their energy efficiency (which is measured by fuel economy in the 
case of vehicles) have shown that the rebound effect lowers energy 
savings by 20-50 percent. General Motors agreed with the agency that 
the increased driving resulting from the rebound effect also imposes 
various external costs, including increased collisions and traffic 
congestion. General Motors stated that it commissioned four studies of 
the rebound effect, each of which concluded that the rebound effect 
would be approximately 25 percent. However, it did not provide copies 
of the referenced studies. As General Motors did not provide these 
studies, the agency was unable to evaluate them. Nevertheless, General 
Motors stated that 20 percent is adequate for calculations related to 
rebound effect. No other vehicle manufacturers commented on this issue.
    The National Automobile Dealers' Association commented that fuel 
savings should clearly be adjusted to reflect the rebound effect, but 
did not recommend a specific value of the rebound effect.
    In contrast to the above commenters, Environmental Defense argued 
that the agency has overestimated the rebound effect because it relies 
upon earlier studies in the literature that tended to miss significant 
effects of variables such as income growth, and that did not have 
sufficiently large datasets to capture long-term changes in vehicle 
use. Citing the same 2004 study by Small and Van Dender referred to in 
the Alliance comments,\114\ which combined data for each of the 50 
states over a 36-year period, Environmental Defense noted the authors' 
finding that the rebound effect had declined to 12.1 percent when 
measured over the period from 1997-2001, primarily as a consequence

[[Page 17633]]

of the higher income levels that prevailed during those years than over 
the entire period covered by the study. Environmental Defense argued 
further that if income growth continues during the period analyzed 
under the CAFE proposal, Small and Van Dender's analysis indicates that 
the rebound effect would continue to decline. The analyses 
Environmental Defense presented in its comments used an estimate of 5 
percent for rebound effect, and it also urged NHTSA to adopt a 
similarly low estimate of the rebound effect, which Environmental 
Defense argued is in keeping with the most recent research in this 
area.
---------------------------------------------------------------------------

    \114\ See footnote 95.
---------------------------------------------------------------------------

    Other commenters also urged NHTSA to adopt a lower rate for the 
rebound effect, and they generally referred to the study by Small and 
Van Dender to support their positions. For example, NRDC suggested 
using a 6-percent rate for the rebound effect over the lifetime of MY 
2008-2011 vehicles, which it argued would correctly recognize the 
effect of anticipated future income growth. ACEEE urged the agency to 
use a 10-percent rate, a change which it suggested would increase the 
monetized social benefits of Reformed CAF[Eacute] for MY 2011 vehicles 
by about $1.3 billion, or approximately 30 percent.
    Again, relying on results from the Small and Van Dender study, the 
Union of Concerned Scientists recommended that NHTSA reduce the rebound 
effect rate to not more than 10 percent. The commenter stated that 
NHTSA offered no justification for choosing the upper end of its 
discussed range (10-20 percent), arguing that results for the last 
years of the period analyzed in the study supported a long-run rebound 
effect of 6.8 percent or lower. Accordingly, the Union of Concerned 
Scientists stated that NHTSA should adopt 10 percent as a reasonable 
and conservative estimate of the rebound effect, and asserted that 
doing so would increase the ``social optimum'' fuel economy targets for 
2011 by 1.4-1.9 mpg.
    The California State Energy Commission called for a rebound effect 
of 12 percent, which it believes is reflective of the long-term rebound 
effect of 12.1 percent for California estimated by Small and Van 
Dender.\115\
---------------------------------------------------------------------------

    \115\ Kenneth A. Small and Kurt Van Dender, ``The Effect of 
Improved Fuel Economy on Vehicle Miles Traveled: Estimating the 
Rebound Effect Using U.S. State Data, 1996-2001, Paper EPE-014, 
University of California Energy Institute, 2005, Docket 22223-1702, 
Table 5, p. 19.
---------------------------------------------------------------------------

    NHTSA notes that all commenters who recommended a lower value for 
the rebound effect than the 20 percent estimate used in the NPRM 
analysis relied exclusively upon the recent study by Small and Van 
Dender as evidence supporting a smaller rebound effect. While the 
agency regards the Small and Van Dender study as an important 
contribution to the extensive literature on the magnitude of the 
rebound effect, it does not regard the very low values for the rebound 
effect reported in that study as persuasive for several reasons.
    Unlike the studies relied upon by the agency in developing its 
estimate of the rebound effect, the Small and Van Dender analysis 
remains an unpublished working paper that has not been subjected to 
formal peer review, so the agency does not yet consider the estimates 
it provides to have the same credibility as the published and widely-
cited estimates it relied upon.\116\ The agency's interpretation of 
previously published estimates is that they support a range of 10-30 
percent for the rebound effect in vehicle use. The agency elected to 
use the midpoint of that range in its analysis for the NPRM. If a peer-
reviewed version of the Small and Van Dender study is subsequently 
published, the agency will consider it in developing its own estimate 
of the rebound effect for use in subsequent CAFE rulemakings.
---------------------------------------------------------------------------

    \116\ These include, among others, David L. Greene, ``Vehicle 
Use and Fuel Economy: How Big is the Rebound Effect?'' The Energy 
Journal, 13:1 (1992), 117-143; David L. Greene, James R. Kahn, and 
Robert C. Gibson, ``Fuel Economy Rebound Effect for Household 
Vehicles,'' The Energy Journal, 20:3 (1999), 1-21; Jonathan Haughton 
and Soumodip Sarkar, ``Gasoline Tax as a Corrective Tax: Estimates 
for the United States,'' The Energy Journal, 17:2, pp. 103-126; S.L. 
Puller and L.A. Greening, ``Household Adjustment to Gasoline Price 
Changes: An Analysis Using Nine Years of U.S. Survey Data,'' Energy 
Economics, 21:1, pp. 37-52; Jones, Clifton T., ``Another Look at 
U.S. Passenger Vehicle Use and the `Rebound' Effect from Improved 
Fuel Efficiency, The Energy Journal, 14:4 (1993), 99-110; and 
Goldberg, Pinelopi Koujianou, ``The Effects of the Corporate Average 
Fuel Efficiency Standards in the U.S.,'' The Journal of Industrial 
Economics, 46:1 (1998), 1-33.
---------------------------------------------------------------------------

    After reviewing the various comments on the NPRM, the agency has 
elected to continue using a value of 20 percent for the rebound effect 
in its analysis of potential fuel savings from stricter CAFE standards 
for MY 2008-2011 light trucks. The agency will continue to monitor 
newly published research on the rebound effect (as well as on other 
critical parameters affecting fuel savings from CAFE regulation), and 
it will revise the estimates of the rebound effect it employs in future 
analyses of fuel savings if it concludes that new evidence points 
persuasively toward a different value.

F. Discount Rate

    Discounting future fuel savings and other benefits is intended to 
measure the reduction in the value to society of these benefits when 
they are deferred until some future date rather than received 
immediately. The discount rate expresses the percent decline in the 
value of these benefits--as viewed from today's perspective--for each 
year they are deferred into the future. The agency used a discount rate 
of 7 percent per year to discount the value of future fuel savings and 
other benefits when it analyzed the CAFE standards proposed in the 
NPRM.
    The Alliance, General Motors, the Mercatus Center, and Criterion 
Economics all argued that in assessing benefits and costs associated 
with the CAFE standards, the agency should rely on a discount rate 
greater than 7 percent. The Alliance stated that the Congressional 
Budget Office discounts consumers' fuel savings at a rate of 12 percent 
per year and that other recent studies of CAFE standards have also used 
that rate. According to the Alliance, that rate is slightly higher than 
the average interest rate that consumers reported paying to finance 
used car purchases in the most recent Consumer Expenditure Survey.\117\ 
The Alliance argued further that consumers can be expected to discount 
the value of future fuel savings at a rate at least as high as their 
cost for financing the purchase of a vehicle whose higher price was 
justified by its higher fuel economy.
---------------------------------------------------------------------------

    \117\ The Consumer Expenditure Survey (CE) program consists of 
two surveys collected for the Bureau of Labor Statistics by the 
Census Bureau--the quarterly Interview survey and the Diary survey--
that provide information on the buying habits of American consumers, 
including data on their expenditures, income, and consumer unit 
(families and single consumers) characteristics. http://www.bls.gov/cex/home.htm.
---------------------------------------------------------------------------

    The Alliance based its assertion for use of 12 percent because, as 
it stated, this value was used in the NAS report and approximates the 
used car loan rate published in the Consumer Expenditure Survey. 
However, we note that the NAS report did not use a single discount 
rate. Instead, the NAS used both 12 percent and 0 percent discount 
rates due to the assumption that the proper discount rate was 
``subjective.'' Therefore, NAS did not advocate a discount rate. As 
explained below, the vehicle loan rate faced by consumers is an 
appropriate measure of the discount rate.
    General Motors suggested a discount rate of 9 percent, based on its 
assertions that new vehicles are financed at 8 percent and used 
vehicles at 10 percent. Essentially, General Motors is recommending 
that the agency rely on the interest for a car loan as the discount 
rate. General Motors also argued that fuel economy is not the only 
thing

[[Page 17634]]

which consumers value and that the agency should take efforts to 
separate private benefits from public externalities. While we are 
uncertain as to what General Motors is recommending, we assume that its 
comment suggests that a higher discount rate, based on car loan rates, 
is appropriate for discounting private benefits (those to buyers), 
while a lower rate is appropriate for social benefits (such as 
reductions in externalities). Criterion Economics also recommended use 
of a 9 percent discount rate in its comments, which it suggested is a 
conservative rate between the average real rates for new and used cars 
that adequately accounts for volatility in future energy prices.
    As discussed further below, we agree in that loan rates for new and 
used cars should be considered when determining the appropriate 
discount rate. However, loan estimates made by both General Motors and 
Criterion Economics are considerably higher than data provided by the 
Federal Reserve Board, which estimates new loan rates (as of October 
2005) of 6 percent for new cars and 9 percent for used cars.\118\
---------------------------------------------------------------------------

    \118\ Federal Reserve Board, Statistical Release G.19: Consumer 
Credit, http://www.federalreserve.gov/releases/g19/ gov/releases/g19/.
---------------------------------------------------------------------------

    The Mercatus Center stated that the 7 percent discount rate 
selected by the agency is too low, and as a result, it results in the 
setting of standards that are inequitable, particularly to low-income 
households. According to published academic research referenced by the 
Mercatus Center, most households have discount rates higher than 7 
percent, with low-income households having particularly high discount 
rates. Therefore, the Mercatus Center urged NHTSA to rely on discount 
rates of 12 percent for all households and as high as 20 percent for 
low-income households in evaluating proposed standards. However, the 
studies cited by Mercatus Center to justify these discount rates 
examine the implied discount rate for future energy savings that result 
when households purchase more energy-efficient appliances such as 
furnaces and air conditioners. These studies were generally conducted 
in the late 1970's and early 1980's and may not be representative of 
the discount rates for motor vehicles of the economic conditions 20-25 
years later.
    Environmental Defense, NRDC, and the Union of Concerned Scientists 
provided comments endorsing use of a lower discount rate. These 
organizations expressed their belief that a 7-percent discount rate is 
too high, proposing instead a rate of 3 percent. Environmental Defense 
and NRDC stated that OMB Circular A-4, Regulatory analysis (2003), 
recommends a discount rate of 3 percent when the regulation directly 
affects private consumption. These commenters asserted that the 
proposed CAFE regulation primarily and directly affects private 
consumption (i.e., by affecting the sales price of new vehicles and 
reducing the per-mile cost of driving). NRDC also argued that OMB 
Circular A-4 further indicates that lower rates may be appropriate for 
rules that produce benefits over multiple generations. Thus, these 
commenters recommended that a discount rate reflecting the social rate 
of time preference (i.e., a 3 percent real rate) should be used.
    In response to Environmental Defense, the Union of Concerned 
Scientists, and NRDC, the guidelines in OMB circular A-4, New 
Guidelines for the Conduct of Regulatory Analysis, state that the 
agency should analyze the costs and benefits of a regulation at 3 
percent and 7 percent discount rates, as suggested by guidance issued 
by the federal OMB.\119\ The 3 percent and 7 percent rates reflect two 
potential evaluations of impacts: Foregone private consumption and 
foregone capital investment, respectively. In accordance with these 
guidelines, the agency analyzes the impacts of costs and benefits using 
both discount rates. However, this guidance does not state what 
discount rate should be used to determine the standards.
---------------------------------------------------------------------------

    \119\ White House Office of Management and Budget, Circular A-4, 
September 17, 2003, p. 34, http://www.whitehouse.gov/omb/inforeg/circular_a4.pdf.
---------------------------------------------------------------------------

    There are several reasons for the agency's choice of 7 percent as 
the appropriate discount rate to determine the standards. First, OMB 
Circular A-4 indicates that this rate reflects the economy-wide 
opportunity cost of capital. The agency believes that a substantial 
portion of the cost of this regulation may come at the expense of other 
investments the auto manufacturers might otherwise make. Several large 
manufacturers are resource-constrained with respect to their 
engineering and product-development capabilities. As a result, other 
uses of these resources will be foregone while they are required to be 
applied to technologies that improve fuel economy.
    Second, 7 percent is also an appropriate rate to the extent that 
the costs of the regulation come at the expense of consumption as 
opposed to investment. As explained below, the agency believes a car 
loan rate is an appropriate discount rate because it reflects the 
opportunity cost faced by consumers when buying vehicles with greater 
fuel economy and a higher purchase price. The agency assumed that a 
majority of both new and used vehicles is financed and since the vast 
majority of the benefits of higher fuel economy standards accrue to 
vehicle purchasers in the form of fuel savings, the appropriate 
discount rate is the car loan interest rate paid by consumers.\120\
---------------------------------------------------------------------------

    \120\ Empirical evidence also demonstrates that used car 
purchasers do pay for greater fuel economy (Kahn, Quarterly Journal 
of Economics, 1986).
---------------------------------------------------------------------------

    According to the Federal Reserve, the interest rate on new car 
loans made through commercial banks has closely tracked the rate on 10-
year treasury notes, but exceeded it by about 3 percent.\121\ The 
official Administration forecast is that real interest rates on 10-year 
treasury notes will average about 3 percent through 2016, implying that 
6 percent is a reasonable forecast for the real interest rate on new 
car loans.\122\ During the last five years, the interest rate on used 
car loans made through automobile financing companies has closely 
tracked the rate on new car loans made through commercial banks, but 
exceeded it by about 3 percent.\123\ Consideration is given to the loan 
rate of used cars because some of the fuel savings resulting from 
improved fuel economy accrue to used car buyers. Given the 6 percent 
estimate for new car loans, a reasonable forecast for used car loans is 
9 percent. Since the benefits of fuel economy accrue to both new and 
used car owners, a discount rate between 6 percent and 9 percent is 
appropriate. Assuming that new car buyers discount fuel savings at 6 
percent for 5 years (the average duration of a new car loan) \124\ and 
that used car buyers discount fuel savings at 9 percent for 5 years 
(the average duration of a used car loan),\125\ the single constant 
discount rate that yields equivalent present value fuel savings is very 
close to 7 percent.
---------------------------------------------------------------------------

    \121\ See, http://www.federalreserve.gov/releases/g20/hist/fc_hist_tc.txt.
    \122\ See, http://www.federalreserve.gov/releases/h15/data/Monthly/H15_TCMNOM_Y10.txt.
    \123\ See, http://www.federalreserve.gov/releases/g20/hist/fc_hist_tc.txt.
    \124\ Id.
    \125\ Id.
---------------------------------------------------------------------------

    Further, reliance on the consumer borrowing rate is consistent with 
that of the Department of Energy (DOE) program for energy efficient 
appliances. For more than a decade, the Department of Energy has used 
consumer borrowing interest rates or ``finance cost'' to discount the 
value of future energy

[[Page 17635]]

savings in establishing minimum energy efficiency standards for 
household appliances. This includes (1) the financial cost of any debt 
incurred to purchase appliances, principally interest charges on debt, 
or (2) the opportunity cost of any equity used to purchase appliances, 
principally interest earnings on household equity. For example, for 
appliances purchased in conjunction with a new home, DOE uses real 
mortgage interest rates to discount future energy savings.\126\ This 
approach is analogous to NHTSA's use of real auto loan rates to 
discount future gasoline savings in establishing CAFE standards.
---------------------------------------------------------------------------

    \126\ See, Residential Furnaces and Boilers ANOPR Technical 
Support Document, Chapter 8, at http://www.eere.energy.gov/buildings/appliance_standards/residential/furnaces_boilers_1113_r.html.
---------------------------------------------------------------------------

    The Union of Concerned Scientists also commented that NHTSA's 
methodology for calculating the discounted present value of certain 
external costs and benefits appears to be inconsistent. Specifically, 
the commenter stated that the benefits of petroleum market effects 
(monopsony \127\ and disruption cost reductions) and reduced emissions 
of particulate matter (PM) and sulphur oxides (SOX) and the 
external costs of increased congestion, noise, and crashes, appear to 
be discounted differently from the fuel cost savings, driving time, and 
refueling time savings. The Union of Concerned Scientists urged NHTSA 
to utilize the same methodology for calculating the discounted present 
value of all such CAFE-related elements.
---------------------------------------------------------------------------

    \127\ Demand costs for imported oil (often termed market power 
or ``monopsony'' costs) arise because the world oil price appears to 
be partly determined through the exercise of market power by the 
OPEC cartel, and because the U.S. is a sufficiently large purchaser 
of foreign oil supplies that its purchases can affect the world 
price. The combination of OPEC market power and U.S. ``monopsony'' 
power means that increasing domestic petroleum demand that is met 
through higher oil imports can cause the world price of oil to rise, 
and conversely that declining U.S. imports can reduce the world 
price of oil.
---------------------------------------------------------------------------

    In response to the Union of Concerned Scientists comment that the 
agency appears to have discounted different categories of benefits 
inconsistently, the agency notes that the three different categories 
identified in its comment each bear a different relationship to total 
fuel savings. As the commenter notes, fuel cost savings, the value of 
increased driving range (identified incorrectly as ``driving time'' in 
the PRIA), and the value of refueling time savings are directly related 
to lifetime vehicle use, and the agency's estimates of the values of 
these benefits reflect this relationship. However, benefits resulting 
from lower emissions of the pollutants PM and SOX (which 
occur during petroleum refining) also depend partly on the fraction of 
fuel savings that is reflected in reduced domestic fuel refining 
(rather than reduced imports of refined gasoline), and in turn on the 
fractions of domestic refining that utilize domestically-produced and 
imported crude petroleum.\128\ Similarly, the external costs of 
congestion, accidents, and noise resulting from added vehicle use 
depend on the magnitude of the rebound effect as well as on lifetime 
fuel savings. Thus these three categories of benefits would be expected 
to bear different relationships to total fuel savings, as confirmed by 
the Union of Concerned Scientists' comments.
---------------------------------------------------------------------------

    \128\ In the NPRM, benefits from reduced petroleum market 
externalities were also incorrectly assumed to depend on the 
fraction of fuel savings that is reflected in lower imports of crude 
petroleum and refined gasoline (rather than on total U.S. petroleum 
consumption). In response to comments by the Union of Concerned 
Scientists and other reviewers, this error has been corrected in the 
Final Regulatory Impact Analysis accompanying this Rule.
---------------------------------------------------------------------------

G. Import Externalities (Monopsony, Oil Disruption Effects, Costs of 
Maintaining U.S. Presence and Strategic Petroleum Reserve)

    General Motors commented extensively on the issue of externalities 
associated with the agency's CAFE proposal. As a general observation, 
General Motors stated that the CAFE proposal would result in a net 
externality cost on consumer welfare, because the externality costs 
(e.g., congestion, noise, highway fatalities/injuries) exceed the 
externality benefits (e.g., reduction in oil import dependence, 
reduction in pollution). General Motors stated that the agency's 
proposal did not identify any specific market failures that would 
justify its fuel economy regulation. The commenter asked the agency to 
present empirical estimates of reduced economic and environmental 
externalities resulting from the proposed CAFE standards, along with 
supporting analyses demonstrating how these benefits were estimated.
    In its comments, General Motors also challenged certain specific 
figures related to externalities incorporated by the agency as part of 
the CAFE proposal. For example, General Motors expressed disagreement 
with the proposal's externality estimate of $0.106 per gallon, as well 
as the estimate of costs related to pollution. The commenter stated 
that the National Research Council estimates the total cost of economic 
and environmental externalities from fuel production and use to be 
$0.26 per gallon, and if this estimate is correct, consumers are 
already paying fuel taxes (which it estimated at $0.46 per gallon) that 
exceed the cost of these externalities. General Motors also asked the 
agency to address the research finding by Dr. Kleit purporting to show 
negative net benefits (i.e., it will have net costs) for the MY 2005-
2007 CAFE standards.\129\
---------------------------------------------------------------------------

    \129\ Dr. Kleit's analysis simply assumes that manufacturers 
have already made all applications of fuel economy technology to 
their models for which the value of the resulting fuel savings 
exceeds the cost of installing the technology. Andrew N. Kleit, 
``Short- and Long-Range Impacts of Increases in the Corporate 
Average Fuel Economy (CAFE) Standard,'' February 7, 2002, Docket 
11419-168159.
    Under this assumption, any increase in the stringency of CAFE 
will always produce negative net benefits (i.e., net costs), because 
the technology applications necessary to comply with the more 
stringent standard will each have costs that exceed the value of 
fuel savings they produce.
---------------------------------------------------------------------------

    In addition, General Motors argued that higher steady-state oil 
prices reduce any demand costs or monopsony power, and energy demand 
from China and other emerging economies will only strengthen this 
trend. The company disagreed with the monopsony estimate of $0.061 per 
gallon relied upon by the agency. General Motors further argued that 
the agency relied upon the monopsony value reported in a 1997 study by 
Lieby et al., but stated that this study assumes no cartel of producers 
such as OPEC. According to General Motors, in light of the potential 
for OPEC to respond to U.S. efforts to decrease demand, the monopsony 
value of $0.061 is too high. General Motors stated that like Resources 
for the Future, it believes that using U.S. monopsony power has 
marginal benefits at best, and that at worst, attempting to use it 
could actually provoke retaliatory pricing or supply responses by OPEC 
that would harm the U.S. economy.
    General Motors also challenged the oil disruption cost of $0.045 
per gallon included in the proposal. According to General Motors, the 
agency has not addressed Congressional Research Service and the Bohi 
and Toman studies which reported that the only reason for oil 
disruption is an increase in price (i.e., an oil price ``shock''), so 
because the CAFE standards do not affect the price of gasoline, there 
should be no disruption effect.
    General Motors expressed skepticism regarding the externality costs 
related to pollution contained in the CAFE proposal. According to 
General Motors, because U.S. refineries operate at 95 percent of 
capacity and routinely

[[Page 17636]]

purchase pollution permits (credits) from others, any reduction in 
demand for fuel would likely result in these refineries simply 
purchasing fewer permits, rather than reducing emissions or capacity. 
General Motors stated that the only pollution cost externality 
resulting from the CAFE standards is likely to be increased tailpipe 
emissions from the rebound effect.
    Criterion Economics commented that NHTSA's CAFE proposal ``argued 
the wrong case,'' in that externalities alone should be the determinant 
of socially optimal CAFE levels (i.e., allowing the marketplace to 
determine privately optimized CAFE targets). According to Criterion 
Economics, mandatory increases in fuel economy above market-determined 
levels would generate marginal private costs that exceed marginal 
private benefits. In support of its position that only externalities 
should be considered in setting CAFE standards, Criterion Economics 
provided a figure illustrating the interaction of marginal social 
benefits, marginal social costs, marginal private benefits, and 
marginal private costs to argue that the market automatically 
determines the optimal level for private benefits. Criterion Economics 
recommended that the agency revise the CAFE standards to reflect 
socially optimal levels based on externality costs and benefits.
    In contrast, NRDC and Environmental Defense argued that monopsony 
costs are underestimated in the proposal. Environmental Defense stated 
that monopsony costs should range from $0.083 (under the EIA reference 
scenario) to $0.198 per gallon (under a $65 per barrel oil price 
scenario). Environmental Defense also commented that there is an 
arithmetic error in NHTSA's application of disruption and adjustment 
costs (which are otherwise conceptually correct), and it argued that in 
setting final CAFE standards, the agency should address non-quantified 
externalities such as strategic petroleum reserve and national security 
costs, at least qualitatively if not quantitatively.
    The California State Energy Commission argued that the agency's 
estimate of $0.106 for oil import externalities is too low and should 
be increased to $0.33 per gallon of gasoline. The California State 
Energy Commission broke down this estimate as follows: $0.12 per gallon 
for oil import externalities; $0.01 to reflect costs of gasoline spill 
remediation; $0.02 to reflect damage from criteria pollutant emissions 
resulting from fuel delivery volumes, and $0.18 to reflect damage costs 
of greenhouse gas emissions. The Commission based its recommendation 
upon values reported in a 2003 report titled ``Benefits of Reducing 
Demand for Gasoline and Diesel.''
    The agency believes that assessing the economic case for increasing 
the stringency of the light truck CAFE standard requires a 
comprehensive analysis of the resulting benefits and costs to the U.S. 
economy, rather than simply comparing the external costs associated 
with petroleum use and fuel production to current fuel taxes. The 
benefits of more stringent CAFE standards include the market value of 
the savings in resources from producing less fuel, together with the 
resulting reductions in the costs of economic externalities associated 
with petroleum consumption, and of environmental externalities caused 
by fuel production. The costs imposed on the U.S. economy by more 
stringent CAFE regulation include those costs for manufacturing more 
fuel-efficient vehicles, as well as the increased external costs of 
congestion, accidents, and noise from added driving caused by the 
rebound effect.
    Vehicle buyers value improved fuel economy using retail fuel prices 
and miles per gallon, but may consider fuel savings only over the time 
they expect to own a vehicle, while the value to the U.S. economy of 
saving fuel is measured by its pre-tax price, and includes fuel savings 
over the entire lifetime of vehicles. Thus it cannot simply be assumed 
that the interaction of manufacturers' costs and vehicle buyers' 
demands in the private marketplace will determine optimal fuel economy 
levels, and that these levels should only be adjusted by Federal 
regulation if the external costs of fuel production and use exceed 
current fuel taxes.
    The analysis reported in the FRIA estimates the value of each 
category of benefits and costs separately, and it compares the total 
benefits resulting from each alternative CAFE level to its total costs 
in order to assess its desirability. This more complete accounting of 
benefits and costs to the U.S. economy from reducing fuel use is 
necessary to assess the case for CAFE regulation generally, and for 
increasing the stringency of the current light truck CAFE standard in 
particular.
    In response to comments on the specific values of certain 
externalities employed in the NPRM analysis, the agency agrees that 
higher world oil prices increase the monopsony or demand costs imposed 
by U.S. petroleum purchases, while greater sensitivity of the supply of 
oil imported by the U.S. to variation in its price (a higher elasticity 
of petroleum supply) reduces the monopsony costs associated with 
variation in U.S. oil demand.\130\ Thus, the value of the monopsony 
effect used in the FRIA analysis reflects the Energy Information 
Administration's recent Annual Energy Outlook 2006 forecast of future 
world oil prices, which is significantly higher than previously 
projected by EIA (see FRIA p. VIII-31). The FRIA continues to use the 
midpoint of the range of values for the elasticity of oil imports 
suggested in the study by Leiby et al. to estimate the monopsony cost 
of increased U.S. petroleum use (see FRIA p. VIII-33).
---------------------------------------------------------------------------

    \130\ For the exact relationship among monopsony costs, oil 
prices, and the elasticity of supply of imported oil, see Leiby et 
al., p. 26 Docket No. NHTSA-2005-22223-27.
---------------------------------------------------------------------------

    However, the agency also notes that only a fraction of the 
monopsony cost of increased U.S. oil consumption is imposed on domestic 
purchasers of petroleum and refined products, since part of the burden 
of higher world oil prices is borne by foreign purchasers. As a result, 
that same fraction of any reduction in monopsony costs resulting from 
lower U.S. oil purchases is exactly offset by revenue losses to 
domestic petroleum producers, so it does not represent a net savings to 
the U.S. economy. Thus, in order to include only the fraction that 
represents a net savings to U.S. purchasers, the savings in monopsony 
costs from reduced fuel use must be adjusted by the percent of U.S. 
petroleum consumption that is imported. This results in a monopsony 
value of $0.044 per gallon.
    In contrast, the entire reduction in total U.S. petroleum demand 
that results from more stringent CAFE standards reduces potential costs 
to the U.S. economy from rapid increases in world oil prices, because 
(as the studies cited by reviewers of the NPRM point out) these costs 
depend on total U.S. petroleum consumption rather than on the fraction 
that is imported. The agency agrees that petroleum buyers' use of 
hedging strategies and private oil inventories can reduce these costs, 
but the significant costs of adopting these strategies will also be 
reduced as declines in U.S. petroleum demand moderate the potential 
effect of rapid fluctuations in world oil prices. Thus the analysis 
presented in the FRIA continues to employ the agency's previous 
estimate ($0.045 per gallon) of the reduction in the price shock 
component of U.S. oil consumption externalities that is likely to 
result from more stringent CAFE regulation (see FRIA VIII-34).
    Finally, the agency believes that while costs for U.S. military 
security in oil-

[[Page 17637]]

producing regions and for maintaining the Strategic Petroleum Reserve 
will vary in response to long-term changes in U.S. oil imports, these 
costs are unlikely to decline significantly in response to the modest 
reduction in the level of U.S. oil imports that would result from the 
proposed CAFE standard for MY 2008-2011 light trucks. The U.S. military 
presence in world regions that represent vital sources of oil imports 
also serves a range of security and foreign policy objectives that is 
considerably broader than simply protecting oil supplies. As a 
consequence, no savings in government outlays for maintaining the 
Strategic Petroleum Reserve or a U.S. military presence are included 
among the benefits of the light truck CAFE standard adopted for MY 
2008-2011.
    Combined, the externalities cost per gallon added to the pre-tax 
price per gallon in the FRIA is $0.088.\131\ This compares to the PRIA 
estimate of $0.106 per gallon.
---------------------------------------------------------------------------

    \131\ The $0.088 value represents the value for reducing U.S. 
demand on the world market plus the value for reducing the threat of 
supply disruptions. See Table X-3 in the FRIA.
---------------------------------------------------------------------------

H. Uncertainty Analysis

    The California State Energy Commission stated NHTSA's proposal does 
not adequately deal with the primary source of uncertainty in setting 
standards--the extent to which the application of additional technology 
could be justified by higher future fuel prices. This commenter stated 
that the agency's uncertainty analysis should first examine the 
sensitivity of optimum standards to variation in retail fuel prices 
only, and then analyze effect of alternative stringency levels on 
social benefits.
    In response, we note that the purpose of the uncertainty analysis 
is to examine uncertainty surrounding the impact of the proposed and 
final rules. OMB Circular A-4 requires formal probabilistic uncertainty 
analysis of complex rules where there are large, multiple uncertainties 
whose analysis raises technical challenges or where effects cascade and 
where the impacts of the rule exceed $1 billion. CAFE meets these 
criteria on all counts. However, the commenter appears to be concerned 
primarily with uncertainty surrounding the CAFE standard selection 
process, rather than that surrounding the impacts of the selected 
standards. The agency believes that its selection of CAFE levels should 
be based on its best estimates of all input variables used to estimate 
optimized social benefits. An examination of the uncertainty of 
outcomes in this process would produce information of academic interest 
but would not alter the agency's reliance on the most probable outcome 
for setting standards. It is also not clear that uncertainty 
surrounding the price of gasoline is greater than that surrounding 
other variables used in the NHTSA model. In fact, the range of 
uncertainty for both the effectiveness and cost of technologies 
includes more potential variation than the three fuel price scenarios 
examined in the uncertainty analysis. Since each of these factors 
influences the calculation of optimized social benefits, the agency 
does not believe it would be useful to isolate only the uncertainty in 
fuel prices.

I. The 15 Percent Gap

    The agency assumes that there is a 15 percent difference between 
the EPA fuel economy rating and the actual fuel economy achieved by 
vehicles on the road. For example, if the overall EPA fuel economy 
rating of a light truck is 20 mpg, the actual on-road fuel economy 
achieved by the average driver of that vehicle is expected to be 17 mpg 
(20*.85). NRDC and the Union of Concerned Scientists commented that the 
15-percent reduction the agency applied to reported fuel economies to 
adjust for in-use fuel economy performance is too low, and both 
commenters recommended using an on-road gap of 20 percent. The Union of 
Concerned Scientists stated that the EPA is in the process of revising 
its estimates of real-world fuel economy in response to widespread 
consumer dissatisfaction with the reliability of its present 
adjustment. In support of its recommendation to use a 20-percent 
reduction, NRDC cited the range of 20 to 23 percent relied upon by 
EIA's National Energy Modeling System (NEMS) over the expected 
lifetimes of MY 2008-2011 vehicles (See AEO2005 Table 47). General 
Motors stated that it agrees with a 15 percent on-road fuel economy 
gap.
    On February 1, 2006, the Environmental Protection Agency proposed 
test changes to their fuel economy testing to bring them closer to on-
road fuel economy (71 FR 5426). In its proposal, EPA estimated that the 
actual highway driving fuel economy estimate would be 5 to 15 percent 
lower than the EPA fuel economy rating and that the actual city driving 
fuel economy estimate would be 10 to 20 percent lower than the EPA fuel 
economy rating for most vehicles. However, the EPA has not issued a 
final rule on this issue. NHTSA will continue to rely on an overall 
fuel economy adjustment factor of 15 percent, consistent with current 
EPA regulations. In future rulemakings the agency will consider new 
regulations as issued by the EPA.

J. Pollution and Greenhouse Gas Valuation

    In its comments, General Motors maintained that increases in 
emissions of criteria pollutant resulting from the rebound effect are 
not likely to be offset by reduced refinery emissions, as assumed in 
the agency's analysis. As noted earlier, General Motors argued that 
domestic refineries are subject to strict emission caps, and they must 
buy permits (credits) in order to support current production. It 
concluded that a small reduction in overall ``demand for fuel would 
allow domestic refineries to simply buy fewer pollution permits without 
changing the emissions at the refineries.''
    General Motors also asserted that domestic refineries produce at 
over 95 percent of capacity, and that all increases in demand for 
refined products must be met by imports. Therefore, General Motors 
concluded that a reduction in demand for fuel would not reduce domestic 
refinery output and corresponding pollutants, but instead would cause a 
reduction in imports of refined products such as gasoline.
    In response to General Motors' comments, the agency notes that 
there are currently two cap-and-trade programs governing emissions of 
criteria pollutants by large stationary sources. The Acid Rain Program 
seeks to limit NOX and SO2 emissions, but applies 
only to electric generating facilities and thus will not affect 
refinery emissions.\132\ The NOX Budget Trading Program is 
also primarily intended to reduce electric utility emissions, but does 
include some other large industrial sources such as refineries. 
However, as of 2003, refineries participating in the program accounted 
for less than 5% of total NOX emissions by U.S. 
refineries.\133\ In addition, some refineries could be included among 
the sources of NOX emissions that will be controlled under 
the recently-adopted Clean Air Interstate Rule, which is scheduled to 
take effect beginning in 2009.\134\ However, refinery NOX

[[Page 17638]]

emissions could only be affected in states that specifically elect to 
include sources other than electric generating facilities in their 
plans to comply with the rule. The EPA has indicated that it expects 
states to achieve the emissions reductions required by the Clean Air 
Interstate Rule primarily from the electric power industry.\135\ Thus 
the agency continues to believe that any reduction in domestic gasoline 
refining resulting from the adopted CAFE standard will be reflected in 
reduced refinery emissions of criteria pollutants.
---------------------------------------------------------------------------

    \132\ See http://www.epa.gov/airmarkets/arp/index.html.
    \133\ Estimated from EPA, NOX Budget Trading Program 
(SIP Call) 2003 Progress Report, Appendix A, http://www.epa.gov/airmarkets/cmprpt/nox03/NBP2003AppendixA.xls, and National Air 
Quality and Emissions Trends Report 2003, Table A-4, http://www.epa.gov/air/airtrends/aqtrnd03/pdfs/a4.pdf.
    \134\ The Clean Air Interstate Rule also requires reductions in 
SO2 emissions and establishes an emissions trading 
program to achieve them, but only electric generating facilities are 
included in the rule's SO2 emissions trading program; see 
EPA, Clean Air Interstate Rule: Basic Information, http://www.epa.gov/cair/basic.html#timeline.
    \135\ See EPA, Clean Air Interstate Rule: Basic Information, 
http://www.epa.gov/cair/basic.html#timeline, and ``Fact Sheet: Clean 
Air Interstate Rule,'' http://www.epa.gov/cair/pdfs/cair_final_fact.pdf.
---------------------------------------------------------------------------

    Environmental organizations stated that the agency must attach some 
value to reducing greenhouse gas emissions, and adjust the benefits of 
more stringent CAFE standards accordingly. NRDC recommended a value of 
$10 to $25 per ton of CO2 emissions reduced by fuel savings 
from stricter CAFE, based on values assigned by the California Public 
Utilities Commission, Idaho Power Co., and the European Union emissions 
program. Environmental Defense stated that the agency should use a 
value of $50 per ton of reduced CO2 emissions. The Union of 
Concerned Scientists similarly objected to the zero value assigned to 
reduced emissions of greenhouse gases in the CAFE proposal, and instead 
recommended using a value of $50 per ton of carbon (corresponding to 
approximately $0.15 per gallon of gasoline).
    The estimated reductions in emissions of criteria pollutants from 
gasoline refining and distribution used in the PRIA analysis were 
adjusted to reflect only the fraction of fuel savings that is expected 
to reduce domestic refining, rather than imports of refined gasoline. 
They were also adjusted to include only reductions in emissions that 
occur during domestic extraction and transportation of crude petroleum 
feedstocks. The estimates of these reduced emissions from crude oil 
extraction and gasoline refining used in the FRIA continue to reflect 
these adjustments (see FRIA p. VIII-60).
    The agency continues to view the value of reducing emissions of 
CO2 and other greenhouse gases as too uncertain to support 
their explicit valuation and inclusion among the savings in 
environmental externalities from reducing gasoline production and use. 
There is extremely wide variation in published estimates of damage 
costs from greenhouse gas emissions, costs for controlling or avoiding 
their emissions, and costs of sequestering emissions that do occur, the 
three major sources for developing estimates of economic benefits from 
reducing emissions of greenhouse gases.\136\ Moreover, as stated above, 
commenters did not reliably demonstrate that the unmonetized benefits, 
which include CO2, and costs, taken together, would alter 
the agency's assessment of the level of the standard for MY 2011. Thus, 
the agency determined the stringency of that standard on the basis of 
monetized net benefits.
---------------------------------------------------------------------------

    \136\ Environmental Defense submitted studies regarding the 
valuation of greenhouse gases. However, the studies were submitted 
over three months after the close of the comment period and less 
than one month before the agency's statutory deadline for issuing a 
MY 2008 standard. These studies have been docketed (NHTSA-2005-2223-
2250, 2251).
---------------------------------------------------------------------------

    Additionally, costs for remediating gasoline spills are highly 
variable depending on the volume of fuel released, the environmental 
sensitivity of the immediate environment, and the presence of specific 
fuel additives. As a consequence, the agency has elected to include no 
monetary value for reducing greenhouse gas emissions or remediating 
fuel spills among the benefits of reducing gasoline use via more 
stringent fuel economy regulation.

K. Increased Driving Range and Vehicle Miles Traveled

    General Motors argued that the value of time spent refueling should 
be zero. General Motors stated that during the fuel economy test EPA 
requires fuel tanks to contain a fixed percentage of gasoline compared 
to tank capacity and that manufacturers have reduced gasoline tank 
volume on average in response to higher fuel efficiency.
    Sierra Research added that range is a design criterion and that 
there is no basis for assuming that this criterion will change in 
response to an increase in CAFE standards. Sierra Research provided 
illustrations purported to show the relationship between fuel capacity 
and fuel economy standards, and fuel economy and range for 2004 light 
trucks, in order to demonstrate that increased fuel economy standards 
might not result in increased vehicle range.
    The following reflects our understanding of vehicle driving range 
and tank size. Typically, the tank size for a model is determined when 
the model is designed, and the tank size does not change for small 
incremental improvements in fuel economy (as would occur by virtue of 
these standards) until the vehicle is redesigned. Thus, until redesign, 
increased fuel economy would result in increased driving range, and the 
value of time for reduced refueling is real. If tank downsizing does 
occur, then there is a cost savings to manufacturers which could be 
subtracted from technology costs. One way or another, there is a 
benefit. Thus, the agency is retaining its benefit estimates for 
increased driving range.
    General Motors questioned whether NHTSA's estimate of the average 
vehicle's lifetime mileage (152,032 miles) was overstated. NADA also 
cautioned that the agency's fuel conservation predictions should 
reflect an appropriate range of fuel price and vehicle-miles-traveled 
assumptions.
    In response to the comments by General Motors and NADA, the agency 
notes that the lifetime mileage estimate reported in the NPRM does not 
apply to the average vehicle; instead, it represents the average 
accumulated mileage of a vehicle that survives for a full 36 years. As 
the accompanying vehicle survival rates indicate, only a small fraction 
of vehicles originally produced in any model year are expected to 
survive to this age. The agency has recently updated its estimates of 
survival probabilities and average annual mileage by vehicle age, and 
these updated estimates are utilized to calculate the impacts of CAFE 
standards reported in the FRIA accompanying this final rule.\137\ 
Further, as discussed below in Section XII. Comparison of the final and 
proposed rule, the agency has adjusted the vehicle miles traveled 
schedule to reflect increases in the fuel price forecasts.
---------------------------------------------------------------------------

    \137\ The data sources and procedures used to develop these 
updated estimates of vehicle survival and usage are reported in 
NHTSA, ``Vehicle Survivability and Travel Mileage Schedules,'' 
Report DOT HS 809 952, National Center for Statistics and Analysis, 
January 2006, Docket NHTSA-2005-22223-2218. See FRIA p. VIII-11.
---------------------------------------------------------------------------

L. Added costs from congestion, crashes and noise

    General Motors agreed with the agency's cost estimates related to 
traffic congestion, crashes, and noise. However, the commenter again 
stated its belief that the proposed CAFE standards would result in a 
net externality cost--not benefit--in terms of consumer welfare. 
Specifically, General Motors stated that the costs associated with 
increased congestion, noise, and highway fatalities and injury costs 
resulting from increases in driving outweigh the benefits associated 
with

[[Page 17639]]

decreased oil import dependence and pollution reduction.
    NHTSA agrees that this is a true observation made by General Motors 
on the agency's analysis, although we believe the commenter overstates 
its significance. We say this because the savings in lifetime fuel 
expenditures significantly outweigh the combined net externalities 
costs and the costs of added technology, making this a cost-beneficial 
rule.

M. Employment Impacts

    The California State Energy Commission commented that the agency 
mentioned the potential for the CAFE proposal to result in job losses, 
but it did not discuss the issue of employment in detail. The 
Commission stated that increasing CAFE stringency may actually increase 
employment among automobile manufacturers and related sectors, although 
union employment and employment in the petroleum manufacturing industry 
might decline. Without going into detail, the commenter stated that 
several previous studies have concluded that increasing CAFE standards 
could increase U.S. employment and economic output. The Commission also 
suggested that by requiring U.S. automakers to produce more fuel-
efficient vehicles, stricter CAFE standards could enhance the 
competitive positions of those manufacturers in international markets 
where fuel prices are typically higher, thereby increasing total sales, 
production volumes, and domestic employment. The Commission asked the 
agency to address the issue of the employment impacts of its CAFE 
standards more explicitly in the final rule.
    The Marine Retailers Association of America (MRAA) expressed 
concern that increases in CAFE levels could lead to vehicle downsizing, 
which in turn could have a negative impact upon the boating industry. 
According to the MRAA, there are approximately 17 million recreational 
boats in the U.S., about 80 percent of which are pulled by a light 
truck or SUV. MRAA stated that to the extent vehicle downsizing occurs, 
manufacturers may find it more difficult to produce a vehicle with 
adequate horsepower and torque to tow a boat, and without an adequate 
vehicle to tow a boat, many consumers may simply decide not to purchase 
a boat. Accordingly, the MRAA asked NHTSA to carefully consider the 
employment, sales, and other impacts of its CAFE proposal upon the 
boating industry.
    The agency believes that the CAFE impact on jobs is fairly minor 
and there are counterbalancing impacts. The agency estimates that 
higher prices will result in a small loss of sales, which negatively 
impacts employment. On the other hand, in a few limited cases, the 
requirements could result in the use of additional new technology, 
which would increase employment. Both of these impacts on jobs are 
anticipated to be very minor, and the counterbalancing impacts will be 
near zero. Very few light trucks are exported for sale and we believe 
that the proposed increases in fuel economy are unlikely to change 
these sales volumes appreciably. Thus, we expect that there is little 
chance of improving the competitive position of the manufacturers in 
international markets as a result of revised light truck CAFE 
standards.
    The agency has not included changes in vehicle performance as part 
of its strategy for the manufacturers to improve fuel economy and 
changes in weight were not accompanied by changes in horsepower. Thus, 
our assumptions include no changes that would affect the boating 
industry. However, our assumptions do not require a manufacturer to 
follow our predicted course of action.

IX. MY 2008-2010 Transition Period

    As stated above, the agency is providing a transition period during 
MYs 2008-2010. During this period, manufacturers have the option of 
complying under the standard established under the Unreformed CAFE 
system or the standard established under the Reformed CAFE system.

A. Choosing the Reformed or Unreformed CAFE System

    As part of the transition to a fully phased-in Reform CAFE system 
in MY 2011, during MYs 2008-2010, manufacturers have the option of 
complying under the Reformed CAFE system or the Unreformed CAFE system. 
Manufacturers are required to announce their selection for a model 
year, and that selection will be irrevocable for that MY. However, a 
manufacturer is permitted to select the alternate compliance option in 
the following MY. Beginning MY 2011, a manufacturer must comply only 
under the Reformed CAFE system.
    In the NPRM, we proposed that a manufacturer would announce its 
selection as part of its mid-model year report, as filed according to 
49 CFR 537.7. In order to provide manufacturers a greater level of 
flexibility, the final rule does not require a manufacturer to elect 
one of the two compliance options until the end of the model year. This 
will permit a manufacturer to determine its actual fuel economy before 
determining whether to elect compliance under the Unreformed or 
Reformed CAFE system. Within 45 days following the end of the model 
year, a manufacturer must submit to the agency a report indicating 
whether it has elected to comply with the Reformed or Unreformed CAFE 
program for that model year.

B. Application of Credits Between Compliance Options

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

X. Impact of Other Federal Motor Vehicle Standards

A. Federal Motor Vehicle Safety Standards

    The EPCA 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.
    Several manufacturers commented on the evaluation of Federal motor 
vehicle

[[Page 17640]]

standards, generally stating that the agency's estimated weight impacts 
were too low. Our response to these comments and a summary of our 
evaluation are provided below. A detailed discussion of the evaluation 
is provided for in the FRIA (see FRIA p. IV-2).
    The agency has evaluated the impact of the Federal motor vehicle 
safety standards (FMVSS) using MY 2007 vehicles as a baseline. We have 
issued or proposed to issue a number of FMVSSs that become effective 
between the MY 2007 baseline and MY 2011. These have been analyzed for 
their potential impact on light truck fuel economy weights for MYs 
2008-2011: The fuel economy impact, if any, of these new requirements 
will take the form of increased vehicle weight resulting from the 
design changes needed to meet new FMVSSs.
    The average test weights (curb weight plus 300 pounds) of the light 
truck fleet for General Motors, Ford, and DaimlerChrysler in MY 2008, 
MY 2009, MY 2010 and MY 2011 are 4,744, 4,800, 4,792, and 4,786,\138\ 
respectively. Thus, overall, the three largest manufacturers of light 
trucks expect weight to remain almost unchanged during the time period 
addressed by this rulemaking. The changes in weight include all 
factors, such as changes in the fleet mix of vehicles, required safety 
improvements, voluntary safety improvements, and other changes for 
marketing purposes. These changes in weight over the three model years 
would have a negligible impact on fuel economy.
---------------------------------------------------------------------------

    \138\ This figure is for the fleet not including MDPVs for a 
more accurate comparison to the fleet numbers for MYs 2008 through 
2010. The figure including MDPVs is 4,832 lbs.
---------------------------------------------------------------------------

1. FMVSS 138, Tire Pressure Monitoring System
    As required by the Transportation Recall Enhancement, 
Accountability, and Documentation (TREAD) Act, NHTSA is requiring a 
Tire Pressure Monitoring System (TPMS) be installed in all passenger 
cars, multipurpose passenger vehicles, trucks and buses that have a 
Gross Vehicle Weight Rating of 10,000 pounds or less. The effective 
dates are based on the following phase-in schedule:
    20 percent of light vehicles produced between September 1, 2005 and 
August 31, 2006,
    70 percent of light vehicles produced between September 1, 2006 and 
August 31, 2007,
    All light vehicles produced after September 1, 2007 are required to 
comply.

Thus, for MY 2008, an additional 30 percent of the fleet will be 
required to meet the standard as compared to MY 2007. We estimate from 
a cost teardown study that the added weight for an indirect system is 
about 0.156 lbs. and for a direct system is 0.275 to 0.425 lbs. 
Initially, direct systems will be more prevalent, thus, the increased 
weight is estimated to be average 0.35 lbs. (0.16 kilograms). Beginning 
in MY 2008, the weight increase from FMVSS No. 138 is anticipated to be 
0.11 pounds (0.05 kilograms).
    As stated in the TPMS final rule,\139\ by promoting proper tire 
inflation, the installation of TPMS will result in better fuel economy 
for vehicle owners that previously had operated their vehicles with 
under-inflated tires. However, this will not impact a manufacturer's 
compliance under the CAFE program. Under the CAFE program, a vehicle's 
fuel economy is calculated with the vehicle's tires at proper 
inflation. Therefore, the fuel economy benefits of TPMS have not been 
considered in this rulemaking.
---------------------------------------------------------------------------

    \139\ 70 FR 18136, 18139; April 8, 2005; Docket No. 2005-28506.
---------------------------------------------------------------------------

2. FMVSS 202, Head Restraints
    The final rule requires an increase in the height of front seat 
outboard head restraints in pickups, vans, and utility vehicles, 
effective September 1, 2008 (MY 2009). If the vehicle has a rear seat 
head restraint, it is required to be at least a certain height.\140\ 
The initial head restraint requirement, established in 1969, resulted 
in the average front seat head restraints being 3 inches taller than 
pre-standard head restraints and adding 5.63 pounds \141\ to the weight 
of a passenger car. With the new final rule, we estimate the increase 
in height for the front seats to be 1.3 inches and for the rear seat to 
be 0.26 inch, for a combined average of 1.56 inches.\142\ Based on the 
relationship of pounds to inches from current head restraints, we 
estimate the average weight gain across light trucks would be 2.9 
pounds (1.3 kilograms).
---------------------------------------------------------------------------

    \140\ The compliance date for the upgraded requirements 
applicable to head restraints voluntarily installed at rear outboard 
seating positions recently was amended from September 1, 2008, to 
September 1, 2010 (see, 71 FR 12415; March 9, 2006).
    \141\ Tarbet, Marcia J., ``Cost and Weight Added by Federal 
Motor Vehicle Safety Standards for Model Years 1968-2001 in 
Passenger Cars and Light Trucks'', NHTSA, December 2004, DOT-HS-809-
834. Pg. 51. (http://www.nhtsa.dot.gov/cars/rules/regrev/evaluate/809834.html).
    \142\ ``Final Regulatory Impact Analysis, FMVSS No. 202 Head 
Restraints for Passenger Vehicles'', NHTSA, November 2004, Docket 
No. 19807-1, p. 74.
---------------------------------------------------------------------------

3. FMVSS 208, Occupant Crash Protection (Rear Center Seat Lap/Shoulder 
Belts)
    This final rule requires a lap/shoulder belt in the center rear 
seat of light trucks. There are an estimated 5,061,079 \143\ seating 
positions in light trucks needing a shoulder belt, where they currently 
have a lap belt. This estimate of seating positions is a combination of 
light trucks, SUVs, minivans and 15 passenger vans that have either no 
rear seat, or one to four rear seats that need shoulder belts. This 
estimate was based on sales of 7,521,302 light trucks in MY 2000. Thus, 
the average light truck needs 0.67 shoulder belts. The average weight 
of a rear seat lap belt is 0.92 lbs. and the average weight of a manual 
lap/shoulder belt with retractor is 3.56 lbs.\144\ Thus, the 
anticipated weight gain is 2.64 pounds per shoulder belt. We estimate 
the average weight gain per light truck for the shoulder belt would be 
1.8 pounds (0.8 kilograms).
---------------------------------------------------------------------------

    \143\ ``Final Economic Assessment and Regulatory Flexibility 
Analysis, Cost and Benefits of Putting a Shoulder Belt in the Center 
Seats of Passenger Cars and Light Trucks'', NHTSA, June 2004, Docket 
No. 18726-2, p. 33.
    \144\ Tarbet 2004, p. 84.
---------------------------------------------------------------------------

    A second, potentially more important, weight increase depends upon 
how the center seat lap/shoulder belt is anchored. The agency has 
allowed a detachable shoulder belt in this seating position, which 
could be anchored to the ceiling or other position, without a large 
increase in weight. If the center seat lap/shoulder belt were anchored 
to the seat itself, typically the seat would need to be strengthened to 
handle this load. If the manufacturer decides to change all of the 
seats to integral seats, having all three seating positions anchored 
through the seat, then both the seat and flooring needs to be 
strengthened. The agency requested information about manufacturer plans 
for complying with this requirement and after reviewing the 
confidential submissions, NHTSA estimates that the average weight gain 
per light truck for the shoulder belt would be 0.36 lbs (0.16 kg) 
compared to MY 2007. For the anchorage, the average weight increase 
would be 0.2 lbs (0.09 kg) or more.
    The effective dates are based on the following phase-in schedule:
    50 percent of light vehicles produced between September 1, 2005 and 
August 31, 2006,
    80 percent of light vehicles produced between September 1, 2006 and 
August 31, 2007,
    100 percent of light vehicles produced after September 1, 2007.

[[Page 17641]]

    Thus, for MY 2008, an additional 20 percent of the fleet will be 
required to meet the standard. We estimate the average weight gain per 
light truck for the shoulder belt would be 0.36 lbs (0.16 kg) [1.8 
pounds (0.8 kilograms) * 0.2] compared to MY 2007. For the anchorage, 
the average weight increase would be 0.2 pounds (0.09 kg) or more.
4. FMVSS 208, Occupant Crash Protection (35 mph Frontal Impact Testing)
    The advanced air bag rule requires 35 mph belted testing with the 
50th percentile male dummy with a phase-in schedule of:
    35 percent of light vehicles produced between September 1, 2007 and 
August 31, 2008,
    65 percent of light vehicles produced between September 1, 2008 and 
August 31, 2009,
    100 percent of light vehicles produced after September 1, 
2009.\145\
---------------------------------------------------------------------------

    \145\ The standard will be fully effective on September 1, 2010 
when it includes small manufacturers, multi-stage manufacturers and 
alterers.
---------------------------------------------------------------------------

    The impacts of this requirement were not considered in the 
evaluation for the NPRM. Evaluation of the 35 mph belted test has been 
added in response to comment from General Motors that raised the issue. 
About 85 percent of the fleet already meets the test based on NCAP 
results. It is assumed that pretensioners and load limiters would be 
the countermeasures used to pass the test. The estimated combined 
weight of these features is 2.4 pounds for the two front outboard 
seats. Thus, the average incremental weight would be 0.36 lbs (0.16 
kg).
5. FMVSS 301, Fuel System Integrity
    This final rule amends the testing standards for rear end crashes 
and resulting fuel leaks. Many vehicles already pass the more stringent 
standards, and those affected are not likely to be pick-up trucks or 
vans. It is estimated that weight added will be only lightweight items 
such as a flexible filler neck. We estimate the average weight gain 
across this vehicle class would be 0.24 lbs (0.11 kg).
    The effective dates are based on the following phase-in schedule:
    40 percent of light vehicles produced between September 1, 2006 and 
August 31, 2007,
    70 percent of light vehicles produced between September 1, 2007 and 
August 31, 2008,
    100 percent of light vehicles produced after September 1, 2008 are 
required to comply.
    Thus, 60 percent of the fleet must meet FMVSS 301 during the MY 
2008-2010 time period. Thus, the average weight gain during this period 
would be 0.14 lbs (0.07 kg).

B. Potential Future Safety Standards and Voluntary Safety Improvements

    There are several safety standards that have recently been 
proposed, or that the agency is required by Congress to propose in the 
near future that could impact some of the MY 2008-2011 vehicles. In 
most cases, these proposals or future proposals are already being met 
voluntarily by a part of the fleet.
    Additionally, the agency has historically considered the impact of 
voluntary safety improvements. The agency has expressed concern that 
overly stringent CAFE standards might discourage manufacturers from 
pursuing voluntary improvements (53 FR 39275, 39296; October 6, 1988). 
Currently, there are improvements that are being made voluntarily to 
meet market demand and/or to perform better on government or insurance 
industry tests involving vehicle ratings. In our analysis for this 
final rule, the potential future safety standards and voluntary 
improvements have been combined without regard to effective date, even 
though the final effective dates for the potential future safety 
standards may be later than MY 2011.
1. Anti-Lock Brakes and Electronic Stability Control (ESC)
    Many manufacturers are planning to install ESC on all their light 
vehicles. Recent congressional legislation contained in section 10301 
of the Safe, Accountable, Flexible, Efficient Transportation Equity 
Act: A Legacy for Users of 2005 (SAFETEA-LU)\146\ requires the 
Secretary of Transportation to ``establish performance criteria to 
reduce the occurrence of rollovers consistent with stability enhancing 
technologies'' and to ``issue a proposed rule * * * by October 1, 2006, 
and a final rule by April 1, 2009.'' A requirement by NHTSA in this 
area could potentially be effective with MY 2011.
---------------------------------------------------------------------------

    \146\ Pub. L. 109-59, 119 Stat. 1144 (2005).
---------------------------------------------------------------------------

    The ESC system needs anti-lock brakes to work appropriately. Anti-
lock brakes add about 20 pounds to the weight of a light truck. 
Currently, about 91 percent of all light trucks have anti-lock brakes. 
Thus, if all light trucks added anti-lock brakes, average light truck 
weight would increase by 1.8 pounds. ESC is estimated to add about 9 
pounds to a vehicle. In 2005, an estimated 23 percent of light trucks 
have ESC. Thus, if all light trucks added ESC, average light truck 
weight would increase by 6.9 pounds. So, the total weight increase is 
8.7 pounds (3.95 kg.).
2. Roof Crush, FMVSS 216
    On August 23, 2005, NHTSA published an NPRM proposing to upgrade 
the agency's safety standard on roof crush resistance. (70 FR 49223) 
The NPRM proposed to extend the standard to vehicles with a GVWR of 
10,000 pounds or less, increase the force applied to 2.5 times each 
vehicle's unloaded weight, and replace the current limit on the amount 
of roof crush with a requirement to maintain enough headroom for a mid-
size adult male occupant.
    The Alliance, Ford, DaimlerChrysler and Toyota commented that the 
agency should have included the weight impact of the FMVSS 216 
amendments in its analysis. The agency agrees. Manufacturers' estimates 
of the weight implications of compliance with the proposed FMVSS No. 
216 ranged from minimal to tens of pounds.
    As estimated at the time of the FMVSS 216 NPRM, the proposed 
upgrade was estimated to increase average vehicle weight by 6.07 
pounds. The proposed effective date was the first September 1 occurring 
three years after publication of the final rule.
    In addition to the comments on the CAFE NPRM, NHTSA received a 
number of comments on the weight estimates in response to the Roof 
Crush NPRM. Other manufacturers commented on the Roof Crush NPRM that 
the agency's weight estimates were too low. However, other commenters 
indicated that weight estimates were too high because they said that 
the agency did not consider alternative, lighter, materials that 
manufacturers could use to comply with the standard. The agency is 
still evaluating all of the comments to the Roof Crush NPRM and 
estimates that, if a final rule were issued, it would be in 2007. 
Therefore, for purposes of this CAFE rule, the agency is using the 
estimates made at the time of the Roof Crush NPRM and assuming an 
effective date of September 1, 2010.
3. Side Impact and Ejection Mitigation Air Bags (Thorax and Head Air 
Bags)
    Many manufacturers are installing side impact air bags (thorax 
bags, combination head/thorax bags, or window curtains). NHTSA proposed 
an oblique pole test as part of FMVSS 214 on May 17, 2004 (69 FR 
27990). Based on current technology, this NPRM would result in head 
protection by either a combination head/thorax side

[[Page 17642]]

air bag or window curtains. SAFETEA-LU also requires the use of window 
curtain air bags for ejection mitigation, which would result in taller 
and wider window curtains that would be tethered or anchored low to 
keep occupants in the vehicle.
    Assuming in the future that the typical system will be thorax bags 
with a window curtain, the average weight increase would be 11.55 
pounds (4.77 + 6.78) or 5.25 kg (2.07 + 3.08). In MY 2005, about 31 
percent of the fleet had thorax air bags, 7 percent had combination air 
bags and, and 25 percent had window curtains. The combined average 
weight for these systems in MY 2005 was 3.49 pounds (1.59 kg). Thus, 
the future increase in weight for side impact air bags and window 
curtains compare to MY 2005 installations is 8.06 pounds (11.55-3.49) 
or 3.66 kg (5.25-1.59).
    Another area that could result in an increase in weight is if the 
manufacturers include structure to get a higher score in the IIHS 
higher side impact barrier test. Public data is not available to 
estimate what voluntary weight increases have been added or will be 
added to get a better score in this test.
4. Offset Frontal Crash Testing
    IIHS has been testing and rating vehicles using an offset 
deformable barrier crash test at 64 km/h. Many manufacturers have 
redesigned their vehicles to do better in these tests and have 
increased the weight of their vehicles. Four light trucks that the 
agency has tested, which improved from a poor rating to a marginal or 
good rating in the IIHS testing, increased their weights, some with 
other redesigns, as follows:

                        Table 14.--Increases in Weight To Improve Offset Frontal Testing
----------------------------------------------------------------------------------------------------------------
                                              Before               After redesign          Increase in weight
----------------------------------------------------------------------------------------------------------------
SUV................................  1997 Chevrolet Blazer    2002 Trailblazer (5,181  \147\ 495 lbs.
                                      (4,686 lbs.).            lbs.).
SUV................................  1999 Mitsubishi Montero  2001 Mitsubishi Montero  69 lbs.
                                      Sport (4,646 lbs.).      Sport (4,715 lbs.).
Pickup.............................  2001 Dodge Ram 1500      2002 Dodge Ram 1500      39 lbs.
                                      (4,930 lbs.).            (4,969 lbs.).
Minivan............................  1996 Toyota Previa       1998 Toyota Sienna       127 lbs.
                                      (3,810 lbs.).            (3,937 lbs.).
----------------------------------------------------------------------------------------------------------------
\147\ Part of the explanation for the weight increase between the Blazer and Trailblazer is an increase of
  approximately 1,070 sq. in. in footprint.

    These weight increases have an affect on the vehicle's fuel 
economy. However, many vehicles have already been redesigned with this 
offset frontal test in mind. Whether increases in weight like this will 
continue for other vehicles in the future is unknown.

C. Cumulative Weight Impacts of the Safety Standards and Voluntary 
Improvements

    After making the changes in response to comments discussed above, 
NHTSA estimates that weight additions required by FMVSS regulations 
that will be effective in MYs 2008-2011, compared to the MY 2007 fleet 
will increase light truck weight by an average of 4.07 pounds or more 
(1.83 kg or more). Likely weight increases from future safety standards 
or voluntary safety improvements will add 22.83 pounds or more (10.37 
kg or more) compared to MY 2005 installations.
    The Alliance, DaimlerChrysler, Ford, General Motors and Toyota 
argued that the weight additions projected by NHTSA for FMVSS 
regulations that will be effective in MYS 2008-2011 is too low. NHTSA 
projected an average of 15.46 pounds (including both FMVSS requirements 
and voluntary safety improvements) and a CAFE impact of 0.04 mpg. Only 
Ford provided a total estimate which could be compared to this number, 
and their estimate was significantly higher.
    In some instances the manufacturers' weight estimates are similar 
to NHTSA's, in some instances they are less than NHTSA's, but often 
they are more than NHTSA's. The agency's estimates are based on cost 
and weight tear down studies of a few vehicles and cannot possibly 
cover all the variations in the manufacturers' fleets. The 
manufacturer's estimates of the fuel economy impact of added weight on 
mpg have typically been less than NHTSA's estimates. NHTSA estimated 
that an increase of 3-4 pounds \148\ results in a decrease of 0.01 mpg, 
the manufacturers' data show that an increase of up to 7 pounds results 
in a decrease of 0.01 mpg. The combination of the manufacturers 
estimating more safety weight impacts, but that weight having less 
impact on miles-per-gallon, has resulted in similar impacts being 
estimated by NHTSA and the manufacturers. The agency has not questioned 
the manufacturers' estimates closely because the differences in the 
overall fuel economy impact due to required safety standards as 
estimated by Ford, General Motors, and NHTSA is small. A more detailed 
discussion of the impact of safety improvements is provided in the FRIA 
(see FRIA p. IV-2).
---------------------------------------------------------------------------

    \148\ In reality, the fuel economy impact depends on the 
baseline weight of the vehicle.
---------------------------------------------------------------------------

D. Federal Motor Vehicle Emissions Standards

1. Tier 2 Requirements
    Pursuant to its authority under the Clean Air Act, on February 10, 
2000, the Environmental Protection Agency (EPA) published a final rule 
establishing new Federal emission standards for passenger cars and 
light trucks (see 65 FR 6698). Known as the ``Tier 2'' Program, the new 
emissions standards in EPA's final rule cover both light-duty vehicles 
(i.e., passenger cars and light trucks with a GVWR of 6,000 pounds or 
less) and medium-duty passenger vehicles (MDPVs) (i.e., vehicles with 
either a curb weight of more than 6,000 pounds or a GVWR of more than 
8,500 pounds and which otherwise meet the EPA definition (as discussed 
previously in this notice)).
    The ``Tier 2'' standards are designed to focus on reducing the 
emissions most responsible for the ozone and particulate matter (PM) 
impact from these vehicles (e.g., NOX and non-methane 
organic gases (NMOG), consisting primarily of hydrocarbons (HC)) and 
contributing to ambient volatile organic compounds (VOC). In addition 
to establishing new emissions standards for vehicles, the Tier 2 
standards also establish standards for the sulfur content of gasoline.
    For new passenger cars and lighter light trucks (rated at less than 
6,000 pounds GVWR), the Tier 2 standards' phase-in began in 2004, and 
the standards are to be fully phased in by 2007. For MDPVs, the phase-
in schedule under the Tier 2 Program requires that 50 percent of the 
MDPV fleet must comply in MY 2008 and that 100 percent comply by MY 
2009.
    Prior to model year 2008, EPA also regulates MDPVs under ``Interim-
Non-

[[Page 17643]]

Tier 2'' standards, applicable to MDPVs in accordance with a phase-in 
schedule beginning with MY 2004. The phase-in schedule requires 
compliance at the following levels: 25 percent in 2004, 50 percent in 
2005, 75 percent in 2006, and 100 percent in 2007. Thus, beginning in 
2008, half of new MDPVs are expected to comply with Tier 2 and the 
other half with ``Interim Non-Tier 2 Standards.'' (Once the Tier 2 
standards for MDPVs are fully implemented, the Interim-Non-Tier 2 
standards will be eliminated.)
    When issuing the Tier 2 standards, EPA responded to comments 
regarding the Tier 2 standard and its impact on CAFE by indicating that 
it believed that the Tier 2 standards would not have an adverse effect 
on fuel economy.
    In their confidential product plan submissions, several 
manufacturers stated that the Tier 2 requirements have an effect on 
fuel economy through additional weight and design requirements. 
However, after careful consideration, we have concluded that the 
impacts of the Tier 2 standards on fuel economy would not be 
significant for the following reasons. First, manufacturers themselves 
have estimated that the resulting reduction in fuel economy during MYs 
2008-2010, in comparison to MY 2007, would be no greater than 0.04 mpg. 
Furthermore, with the exception of MDPVs, the Tier 2 requirements will 
be fully implemented in MY 2007, prior to the MYs that are the subject 
of this rulemaking for CAFE.
2. Onboard Vapor Recovery
    On April 6, 1994, EPA published a final rule controlling vehicle-
refueling emissions through the use of onboard refueling vapor recovery 
(ORVR) vehicle-based systems (see 59 FR 16262). These requirements 
applied to light-duty vehicles (cars) beginning in the 1998 model year, 
and were phased in over three model years. The ORVR requirements also 
apply to light-duty trucks with a GVWR of 6,000 pounds or less 
beginning in model year 2001, being phased in over three model years. 
For light-duty trucks with a GVWR of 6,001-8,500 lbs, the ORVR 
requirements first applied in the 2004 model year and were phased in 
over three model years.
    The ORVR requirements impose a weight penalty on vehicles, as they 
necessitate the installation of vapor recovery canisters and associated 
tubing and hardware. However, the operation of the ORVR system results 
in fuel vapors being made available to the engine for combustion while 
the vehicle is being operated. As these vapors provide an additional 
source of energy that would otherwise be lost to the atmosphere through 
evaporation, the ORVR requirements do not have a negative impact on 
fuel economy, despite the associated weight increase.
    In its comments, Honda disagreed with the agency's assertion that 
ORVR systems do not have a negative impact on fuel economy because the 
systems make available for combustion vapors that would otherwise be 
lost to the environment. Honda stated that the agency's assertion is 
correct for ``in-use fuel economy,'' but it is not true for the test 
procedures used to determine fuel economy under CAFE, because the fuel 
economy test procedures rely on a carbon balance equation. Honda stated 
that the measured fuel economy of a vehicle under the fuel economy test 
procedures is exactly the same, whether or not the ORVR system makes 
fuel vapors available to the engine for combustion.
    NHTSA reiterates that ORVR provides a slight fuel economy benefit 
with respect to in-use fuel economy. NHTSA acknowledges that Honda's 
point is also correct--that this fuel economy benefit is not 
distinguishable in the Federal test procedure (FTP) or highway test 
cycle measurements. However, ORVR is not expected to have a significant 
effect on the fuel economy values measured on the FTP and highway 
tests. Further, the slight on-road fuel economy benefit realized is not 
utilized by NHTSA to set fuel economy standards.
    In its rulemaking proceedings for ORVR, EPA conducted an extensive 
analysis on increases in vehicle weight due to the addition of ORVR 
hardware and software. A discussion of the ORVR weight penalty is 
contained in EPA's ``Final Regulatory Impact Analysis: Refueling 
Emission Regulations for Light-Duty Vehicles and Trucks and Heavy-Duty 
Vehicles,'' January 1994; Chapter 5 Economic Impact, section 5.3.2.1. 
If mechanical seal ORVR systems are more widely used in the future than 
liquid seal ORVR systems (which represent approximately 95-98 percent 
of today's vehicles), the weight penalty could increase above that 
discussed in EPA's RIA. However, any increase in vehicle weight due to 
more widespread use of mechanical seal ORVR systems would be negligible 
and not be expected to be a major fuel economy design consideration.
3. California Air Resources Board--Clean Air Act Section 209 Standards
    The Clean Air Act (CAA) generally prohibits States or any other 
political subdivision from adopting any standard relating to the 
control of emissions from new motor vehicles (CAA section 209(a); 42 
U.S.C. 7543(a)). However, the statute provides that the State of 
California may issue such standards upon obtaining a waiver from the 
EPA (CAA section 209(b); 42 U.S.C. 7543(b)). The State of California 
has established several emission requirements under section 209(b) of 
CAA as part of its Low Emission Vehicle (LEV) program. California 
initially promulgated these section 209(b) standards in its LEV I 
standards, and it has subsequently adopted more stringent requirements 
under section 209(b) of the CAA in its LEV II regulations. The relevant 
LEV II regulations are being phased in for passenger cars and light 
trucks during the 2004-2007 model years.\149\
---------------------------------------------------------------------------

    \149\ As of the end of 2005, ten states have adopted the LEV II 
program, including Connecticut, Maine, Massachusetts, New Jersey, 
New York, Oregon, Pennsylvania, Rhode Island, Vermont, and 
Washington.
---------------------------------------------------------------------------

    The LEV II amendments restructure the light-duty truck category so 
that trucks with a GVWR rating of 8,500 pounds or less are subject to 
the same low-emission vehicle standards as passenger cars. The LEV II 
Program also includes more stringent (than LEV I) emission standards 
for passenger car and light-duty truck LEVs and establishes standards 
for ``ultra low emission vehicles'' (ULEVs).
    The LEV II Program also has requirements for ``zero emission 
vehicles'' (ZEVs) that apply to passenger cars and light trucks up to 
3,750 lbs. loaded vehicle weight (LVW), beginning in MY 2005. Trucks 
between 3,750 lbs. LVW and 8,500 lbs. GVWR are phased in to the ZEV 
regulation from 2007-2012. The ZEV requirements begin at 10 percent in 
2005 and ramp up to 16 percent for 2018 under different paths.
    Compliance with more stringent emission requirements of the section 
209 CAA requirements in the LEV II program is most often achieved 
through more sophisticated combustion management. The associated 
improvements and refinement in engine controls generally improve fuel 
efficiency and have a positive impact on fuel economy.\150\ However, 
such gains may be diminished because the advanced technologies required 
by the program can affect the impact of other fuel-economy improvements 
(primarily due to increased weight). The agency has considered this 
potential impact in our evaluation of manufacturers' product plans.
---------------------------------------------------------------------------

    \150\ Northeast States for Coordinated Air Use Management, 
``White Paper: Comparing the Emissions Reductions of the LEV II 
Program to the Tier 2 Program,'' October 2003.

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

[[Page 17644]]

XI. Need of the Nation To Conserve Energy

    EPCA specifically directs the Department to balance the 
technological and economic challenges related to fuel economy 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. U.S. energy consumption has been outstripping U.S. 
energy production at an increasing rate. This imbalance, if allowed to 
continue, will undermine our economy, our standard of living, and our 
national security. (May 2001 National Energy Policy (NEP) Overview, p. 
viii)
    As was made clear in the first chapter of the NEP, efficient energy 
use and conservation are important elements of a comprehensive program 
to address the nation's current energy challenges:

America's current energy challenges can be met with rapidly 
improving technology, dedicated leadership, and a comprehensive 
approach to our energy needs. Our challenge is clear--we must use 
technology to reduce demand for energy, repair and maintain our 
energy infrastructure, and increase energy supply. Today, the United 
States remains the world's undisputed technological leader: but 
recent events have demonstrated that we have yet to integrate 21st-
century technology into an energy plan that is focused on wise 
energy use, production, efficiency, and conservation.
(Page 1-1)

    The concerns about energy security and the effects of energy prices 
and supply on national economic well-being that led to the enactment of 
EPCA persist today. The demand for petroleum is steadily growing in the 
U.S. and around the world.
    The Energy Information Administration's International Energy 
Outlook 2005 (IEO2005)\151\ and Annual Energy Outlook 2006 (Early 
Release) (AEO2006) indicate growing demand for petroleum in the U.S. 
and around the world. U.S. demand for oil is expected to increase from 
21 million barrels per day in 2004 to 28 million barrels per day in 
2030. In the AEO2006 reference case, world oil demand increases through 
2030 at a rate of 1.4 percent annually, from 82 million barrels per day 
in 2004 to 118 million barrels per day in 2030 (AEO2006). Approximately 
67 percent of the increase in world demand is projected to occur in 
North America and emerging Asia. Energy use in the transportation 
sector is projected to increase at an annual rate of 1.8 percent 
through 2025 (AEO2006).
---------------------------------------------------------------------------

    \151\ See http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2005).pdf.
---------------------------------------------------------------------------

    To meet this projected increase in demand, worldwide productive 
capacity would have to increase by more than 36 million barrels per day 
over current levels. OPEC producers are expected to supply 40 percent 
of the increased production. In contrast, U.S. crude oil production is 
projected to increase from 8.4 million barrels per day in 2004 to 9.62 
million in 2015, and then begin declining, falling to 8.9 million 
barrels per day in 2025. By 2025, 60 percent of the oil consumed in the 
U.S. would be imported oil. \152\
---------------------------------------------------------------------------

    \152\ AEO2006, Table A20, International Petroleum Supply and 
Disposition Summary.
---------------------------------------------------------------------------

    Energy is an essential input to the U.S. economy, and having a 
strong economy is essential to maintaining and strengthening our 
national security. Secure, reliable, and affordable energy sources are 
fundamental to economic stability and development. Rising energy demand 
poses a challenge to energy security, given increased reliance on 
global energy markets. As noted above, U.S. energy consumption has 
increasingly been outstripping U.S. energy production.
    Conserving energy, especially reducing the nation's dependence on 
petroleum, benefits the U.S. in several ways. Improving energy 
efficiency has benefits for economic growth and the environment, as 
well as other benefits, such as reducing pollution and improving 
security of energy supply. More specifically, reducing total petroleum 
use decreases our economy's vulnerability to oil price shocks. Reducing 
dependence on oil imports from regions with uncertain conditions 
enhances our energy security and can reduce the flow of oil profits to 
certain states now hostile to the U.S. Reducing the growth rate of oil 
use will help relieve pressures on already strained domestic refinery 
capacity, decreasing the likelihood of product price volatility.
    We believe that the continued development of advanced technology, 
such as fuel cell technology, and an infrastructure to support it, may 
help in the long term to achieve reductions in foreign oil dependence 
and stability in the world oil market. The continued infusion of 
advanced diesels and hybrid propulsion vehicles into the U.S. light 
truck fleet may also contribute to reduced dependence on petroleum. In 
the shorter term, our Reformed CAFE final rule will encourage broader 
use of fuel saving technologies, resulting in more fuel-efficient 
vehicles and greater overall fuel economy.
    We have concluded that the increases in the light truck CAFE 
standards that will result from today's final rule will contribute 
appropriately to energy conservation and the comprehensive energy 
program set forth in the NEP. In assessing the impact of the standards, 
we accounted for the increased vehicle mileage that accompanies reduced 
costs to consumers associated with greater fuel economy and have 
concluded that the final rule will lead to considerable fuel savings. 
While increasing fuel economy without increasing the cost of fuel will 
lead to some additional vehicle travel, the overall impact on fuel 
conservation remains decidedly positive.
    We acknowledge that, despite the CAFE program, the United States' 
dependence on foreign oil and petroleum consumption has increased in 
recent years. Nonetheless, data suggest that past fuel economy 
increases have had a major impact on U.S. petroleum use. The NAS 
determined that if the fuel economy of the vehicle fleet had not 
improved since the 1970s, U.S. gasoline consumption and oil imports 
would be about 2.8 million barrels per day higher than they are today. 
Increasing fuel economy by 10 percent would produce an estimated 8 
percent reduction in fuel consumption. Increases in the fuel economy of 
new vehicles eventually raise the fuel economy of all vehicles as older 
cars and trucks are scrapped.
    Our analysis in the EA indicates that Reformed CAFE standards will 
result in an estimated 73 million metric tons of CO2 over 
the lifetime of the vehicles (see EA p. 31). They will further reduce 
the intensity of the greenhouse gas emissions generated by the 
transportation sector of the national economy, consistent with the 
President's overall climate change policies. However, NHTSA has not 
monetized greenhouse gas reduction benefits in this rule, given the 
scientific and economic uncertainties associated with developing a 
proper estimation of avoided costs due to climate change.

XII. Comparison of the Final and Proposed Standards

    The standards established in today's final rule are more stringent 
than those proposed in the NPRM. Moreover, the Final Rule subjects 
MDPVs to the light truck CAFE program beginning in MY 2011, where as 
the NPRM did not include the regulation of these vehicles. By applying 
more stringent standards to a more encompassing definition of light 
trucks, the final rule requires higher fuel efficiency from more 
vehicles than was proposed in the NPRM. The fuel savings estimated to 
result from the standards adopted today are 4.4 billion gallons from 
the MYs 2008-2010 Unreformed standards, 4.9 billion gallons from the

[[Page 17645]]

MYs 2008-2010 Reformed standards, and an additional fuel savings of 
over 2.8 billion gallons from the MY 2011 Reformed standard.

  Table 15.--Industry-Wide Fuel Economy Levels Required by Proposed and
                      Final Reformed CAFE Standards
------------------------------------------------------------------------
                 MY                    Proposed      Final     Increase
------------------------------------------------------------------------
2008................................        22.6        22.7        +0.1
2009................................        23.1        23.4        +0.3
2010................................        23.4        23.7        +0.3
2011................................        23.9        24.0        +0.1
------------------------------------------------------------------------

    The total fuel saving estimated to result from the Reformed CAFE 
standards for MYs 2008-2011 is approximately 7.8 billion gallons. 
However, in the NPRM the agency estimated that the Reformed CAFE 
standards as proposed would potentially save 10.2 billion gallons of 
fuel over the lifetimes of light trucks manufactured during these same 
model years. The lower estimated fuel savings of the final rule despite 
adopting more stringent standards can be explained by a number of 
factors that affected the agency's analysis. These include: changes in 
the Volpe model, higher fuel price forecasts, revisions to the Reformed 
CAFE standard, and changes to manufacturers' product plans.
    Some of these factors increased the estimated fuel savings for the 
final rule compared to the level reported in the NPRM, while others 
reduces the rule's estimated fuel savings. These factors are each 
discussed below.

A. Changes in the Volpe Model

    There were two changes made to the Volpe model between the analysis 
reported in the NPRM and the analysis conducted for the final rule, a 
revision to the maximum lifetime of light trucks and a revision to how 
the model applied technologies. First, the maximum lifetime of light 
trucks was extended from 25 to 36 years, and the fraction of vehicles 
originally produced during a model year that remain in service at each 
age was increased to reflect this longer lifetime. These changes were 
made in response to NHTSA's detailed analysis of R.L. Polk registration 
data for recent model year light trucks. These changes increase fuel 
savings resulting from any increase in CAFE standards because they 
increase the number of miles driven (and the amount of fuel consumed 
under the Baseline standard) during a vehicle's expected lifetime. This 
change increased the total fuel savings estimated to result from the 
Reformed CAFE standards by 0.2 billion gallons.
    The second change to the Volpe CAFE model was a revision to the way 
it applied technology to achieve increased fuel economy. The Reformed 
CAFE system establishes required fuel economy levels, in part, by 
setting fuel economy targets through a marginal cost-benefit analysis. 
As noted above, this analysis applies technologies until the marginal 
cost of the technology equals the marginal benefits of that technology. 
The higher fuel prices projected by EIA after the NPRM might be 
expected to cause the model to apply a greater amount of fuel saving 
technology in the final rule than in the NPRM, and potentially result 
in final standards that are more stringent than those adopted today. 
This did not occur, in part, because of the revised technology 
assumptions incorporated in the Volpe model, as explained below.
    The agency revised its technology assumptions to be more consistent 
with the estimates in the NAS report about the number of years needed 
to implement each of the various technologies and in response to 
comments from manufacturers. To achieve consistency with the NAS 
report, we reduced the projected rates of technology implementation 
employed by the model. In their comments, several manufacturers stated 
that greater leadtime than that provided in the NPRM is needed for the 
introduction of technologies across a manufacturer's fleet of vehicles 
and that some technologies would only be introduced or added to 
vehicles in conjunction with a major vehicle redesign or a vehicle 
introduction. Honda stated that it can take 10 years from the point of 
initial introduction of a technology until the point at which that 
technology is employed throughout a manufacturer's fleet. Honda and 
Toyota cite the NAS report which concluded that application of existing 
technologies will ``probably require 4 to 8 years.'' Honda further 
stated that phase-in rates have a critical impact on lead time 
requirements. Nissan, citing the NAS report, stated that overly 
aggressive implementation of technologies has the potential to 
``adversely affect manufacturers, their suppliers, their employees, and 
consumers.'' These concerns were echoed by Ford and the Alliance.
    In response to these comments, the agency re-evaluated the ``phase-
in'' assumptions used in the Volpe model. ``Phase-in'' caps represent 
the maximum fraction of a manufacturer's model line or fleet to which a 
technology can be applied when it is initially introduced. For example, 
we assumed that low friction lubricants could be fully implemented in a 
period of four years, with equal rates of implementation in each year. 
This translates to a ``phase-in'' cap of 25 percent (100 percent phase-
in divided by 4 years).
    The agency has decreased the implementation rate for most 
technologies to provide implementation rates consistent with the NAS 
estimate of 4 to 8 years. This resulted in decreasing phase-in caps, 
with many ranging from 25 percent (4 year introduction) to 17 percent 
(approximately 6 years, the midpoint of the NAS estimate). The agency 
assumed shorter implementation rates for technologies that did not 
require changes to the manufacturing line. For other technologies 
(e.g., hybrid and diesel powertrains) we employed phase-in caps as low 
as 3 percent, to reflect the major redesign efforts and capital 
investments required to implement these technologies. A detailed 
comparison of the phase-in caps used in the NPRM analysis and the final 
rule analysis is provided in Appendix B of this document.
    In addition to revisions based on the NAS report, the agency also 
made revisions to the Volpe model in response to specific 
manufacturers' comments. Changes to the Volpe model include deleting 
the use of some technologies for specific manufacturers and delaying 
implementation of some technologies to coincide with product redesigns/
model introduction. The changes instituted by the agency involve 
technology phase-in schedules and deleting some technologies from 
consideration. For the NPRM, the Volpe analysis excluded additional 
application of automatic transmissions with aggressive shift logic. In 
consideration of the extremely limited planned use of automatically-
shifted manual (i.e., clutch) transmissions (ASMTs) the revised Volpe 
analysis also excludes additional applications of ASMTs. Although these 
technologies may eventually appear on vehicles during the MY 2011 
timeframe, the agency is aware of technical and regulatory burdens that 
likely will be difficult to overcome during MYs 2008-2011.
    Manufacturers' updated 2005 product data showed that they plan to 
include some technologies on their MY 2008-11 light trucks that had 
previously been utilized in the agency's NPRM analysis to increase fuel 
economy from its baseline level originally specified in manufacturers' 
2004 product plans. Manufacturers claimed that because they added these 
technologies after submitting product plan data to the

[[Page 17646]]

agency in 2004, that the agency was double counting the effect of these 
technologies. The agency disagrees. The analysis for the NPRM was based 
on the product plans submitted in 2004. The analysis for the final rule 
is based on the updated product plans manufacturers provided the agency 
in response to the August 2005 RFC. If a technology was applied to a 
vehicle model in the NPRM, and that same technology was utilized by 
manufacturers on the same vehicle in their updated product plans, the 
agency did not apply that technology to that vehicle in the analysis it 
conducted for the final rule. In other words, the agency did not 
project the use of a technology on a model that a manufacturer stated 
was already equipped with that technology.
    Manufacturers also provided information stating that certain 
technologies, which the agency had projected in its NPRM analysis, were 
incompatible with their products. In response, the agency hasn't 
projected the use of certain technologies on specific products for 
specific manufacturers that claimed technology incompatibility. In 
almost all cases, these technologies were classified as being available 
for use on other products, both for the specific manufacturers that 
claimed incompatibility with some products and for other manufacturers' 
products. The computer model used to implement the Volpe Analysis, as 
well as the Stage analysis, used ``engineering constraints'' to apply 
general (i.e., industry-wide) limits on the application of some 
technologies in consideration of technical issues (as opposed to 
product planning or lead time considerations, which are addressed 
separately).
    Further, the agency constrained the introduction of two 
technologies (aerodynamic drag reduction and materials substitution) to 
coincide with a major vehicle redesign or a vehicle introduction. 
Constraining these technologies to major redesigns is consistent with 
manufacturer practice, given that applying such technologies requires 
changes to integral design components such as paneling. These 
constraints are in addition to the ``engineering constraints'' 
discussed above.
    Additionally, the agency itself has removed technologies included 
in the NAS report from consideration due to indications that these 
technologies will not be available for implementation nor are any 
manufacturers planning to incorporate these technologies in their 
vehicles during the MYs 2008-2011 time frame. For the NPRM, the Volpe 
analysis excluded additional application of automatic transmissions 
with aggressive shift logic. For the final rule the Volpe analysis also 
excluded application of automatically-shifted manual (i.e., clutch) 
transmissions in consideration of its limit planned application.
    The changes to the technology assumptions relied upon by the Volpe 
model reduced the estimated fuel savings for the final Reformed CAFE 
standards, in comparison to the proposed Reformed CAFE standards, by 
1.5 billion gallons of fuel. Considered together, the changes to the 
Volpe model reduced the fuel savings estimated for the Reformed CAFE 
standards, again in comparison with the proposed standards, by 1.3 
billion gallons of fuel.

B. Higher Fuel Price Forecasts

    As stated above, the agency is relying on the most recent EIA 
forecasts for fuel prices for the final rule. In the NPRM, the agency 
relied on gasoline prices ranging from $1.51-1.58 a gallon. In the 
final rule, the agency is relying on the updated fuel price forecast, 
which provides a range of gasoline prices of $1.96-2.39 a gallon. These 
higher fuel prices had the effect of raising the optimized fuel economy 
targets for MY 2011 under the Reformed CAFE standard.\153\ This, in 
turn, raised the estimate of fuel savings resulting from the Reformed 
standard by 0.7 billion gallons.
---------------------------------------------------------------------------

    \153\ Because the fuel economy targets for MY 2008-10 are set by 
equating industry-wide compliance costs for the Reformed CAFE 
standard to those under the Unreformed standard (rather than by the 
optimization process used in MY 2011), higher fuel prices do not 
affect the targets for those years.
---------------------------------------------------------------------------

    However, as discussed in Chapter VIII, higher fuel prices increase 
the per-mile cost of driving and therefore are expected to reduce the 
average number of miles driven each year by light trucks (an impact of 
the ``rebound effect,'' discussed above). The effect of the resulting 
reduction in lifetime use of MY 2008-11 light trucks is to reduce fuel 
savings resulting from the Reformed CAFE standard by 0.7 billion 
gallons, offsetting the gain that occurred due to higher fuel prices. 
However, this 0.7 billion gallon reduction results from the effect of 
higher fuel prices on usage of all four model years of light trucks 
affected by the Reformed CAFE standard (2008-11), while the 0.7 billion 
increase in fuel savings resulting from higher fuel prices resulted 
from higher fuel economy targets for only MY 2011 light trucks. The 
impact of higher standards for MY 2011 was thus offset by the combined 
impact of less driving over the 4 model years combined.

C. Revisions to the Reformed CAFE System

    The fuel savings estimates for the Reformed CAFE system reported in 
the NPRM and final rule also differ because the Reformed CAFE system 
adopted by the final rule differs in certain details from the Reformed 
CAFE system described in the NPRM. First, the Reformed CAFE system 
adopted in the final rule replaces the footprint category system for 
setting fuel economy targets with a continuous function. While the 
continuous function closely follows the shape of the step function of 
the category system, slight differences reduced the fuel savings 
estimate for the Reformed CAFE standard reported in the NPRM by less 
than 0.1 billion gallons.
    Second, as stated above, the Reformed CAFE standards adopted in the 
final rule set fuel economy targets for MY 2008-10 that are more 
stringent than those proposed in the NPRM. This occurs because the 
targets for those model years are set by equalizing total industry-wide 
compliance costs with those of the Unreformed CAFE standards. Estimated 
compliance costs for the Unreformed standards are higher in the final 
rule than in the NPRM because manufacturers' updated product plans 
already include several of the lower cost fuel improvement 
technologies, and therefore, the analysis applies technologies with 
higher costs in order to achieve the same fuel economy level under the 
proposed Unreformed CAFE system. Setting fuel economy targets under the 
Reformed CAFE system to equal these higher Unreformed CAFE compliance 
costs therefore results in more stringent targets. This change 
increased the estimated fuel savings resulting from the Reformed 
standard described in the NPRM by 1.6 billion gallons.
    Finally, the Reformed CAFE system adopted in the final rule 
includes MDPVs beginning in MY 2011, while the NPRM excluded MDPVs in 
all model years. Including MDPVs under the Reformed standard in MY 2011 
increased the estimate of fuel savings by 0.3 billion gallons.
    The net effect of changes to the Reformed CAFE system in the final 
rule, as opposed to the Reformed CAFE system in the NPRM, accounts for 
1.8 billion more gallons of fuel saved.

D. Updated Product Plans

    The most important factor contributing to the difference between 
the fuel savings estimated for the

[[Page 17647]]

proposed and final rules is changes in the product plans supplied by 
the manufacturers between the NPRM and final rule. In developing the 
NPRM, the agency relied upon manufacturer product plans provided in 
response to the 2003 ANPRM. Following publication of the RFC in 
association with the 2005 NPRM, manufacturers provided updated product 
plans. These updated product plans indicate that in comparison to their 
previous plans, several manufacturers intend to increase production of 
smaller vehicles, which typically have higher fuel economies, and to 
utilize more fuel-saving technologies across their fleets.
    Table 16 below illustrates a sampling of the fuel-economy baselines 
relied on in the NPRM and the baselines relied upon for the final rule.

                    Table 16.--Baseline Fuel Economies Relied Upon in the NPRM and Final Rule
----------------------------------------------------------------------------------------------------------------
                                                         MY 2008 (mpg)       MY 2009 (mpg)       MY 2010 (mpg)
                    Manufacturer                     -----------------------------------------------------------
                                                        NPRM      Final     NPRM      Final     NPRM      Final
----------------------------------------------------------------------------------------------------------------
General Motors......................................      21.2      21.3      21.4      21.4      21.4      21.6
Ford................................................      21.7      21.7      22.1      21.9      22.4      22.9
DaimlerChrysler.....................................      21.9      22.0      22.3      22.0      22.3      22.4
Toyota..............................................      22.9      22.5      22.9      22.4      22.9      22.9
Honda...............................................      24.5      24.5      24.5      24.5      24.5      24.5
Nissan..............................................      20.7      21.0      20.8      21.0      21.3      21.2
----------------------------------------------------------------------------------------------------------------

    The changes to product plans reflect a decrease in the planned 
production of larger light trucks, which typically have lower fuel 
economy performances. The product plans indicate that manufacturers are 
planningto produce less of the ladder-frame type of SUVs and more 
unibody crossover vehicles, which typically have higher fuel economy. 
This shift in the mix of vehicle sizes results in a higher overall 
average CAFE requirement for the entire vehicle fleet, which increases 
lifetime fuel savings for MY 2008-2011 light trucks by 2.4 billion 
gallons.
    At the same time, many of the technology improvements that the 
agency applied in setting standards for the NPRM are thus no longer 
available to increase fuel economy, because they are now being utilized 
to achieve the higher baseline fuel economy levels reflected in 
manufacturers' revised product plans. These technologies include a 
variety of engine improvements and upgraded transmissions, many of 
which were applied by the agency to increase baseline fuel economy to 
the level of the standards proposed in the NPRM, and others that 
represent changes in manufacturers' plans for technology introduction. 
Other changes in the revised product plans include an increase in the 
projected number of hybrid vehicles that manufacturers plan to produce. 
Not only do manufacturers plan to increase their production of current 
hybrid models, but they also are planning to introduce hybrid versions 
of both existing and new vehicles. As to be expected, the additional 
hybrid vehicles had a beneficial effect on manufacturers' baseline CAFE 
levels.
    If the agency's analysis for the NPRM applied a technology to 
improve the fuel economy of a light truck model but its manufacturer's 
updated product plan indicated that it now planned to utilize the same 
technology on that model, that technology was then unavailable to the 
agency in its analysis of how manufacturers could improve fleet fuel 
economy to meet the standards considered in the final rule. While the 
effect of that technology is still reflected in the vehicle's lower 
lifetime fuel consumption, that effect now appears to result from its 
manufacturer's decision to utilize it even in the absence of any action 
by the agency to increase CAFE standards, rather than from its efforts 
to comply with the standard established by the final rule.
    Thus the limited availability of technologies during the period 
subject to this rulemaking, in part, has resulted in the final 
standards being set at the same or similar levels as those initially 
proposed. The fuel savings attributable directly to the rule is the 
reduction in fuel consumption from the level that would occur with a 
manufacturer's planned baseline. Because the level of the final 
standards is close to what was proposed, but the fuel economy levels 
represented in manufacturers' baselines have generally improved, the 
amount of fuel savings directly attributable to the final standards 
appears to be less than that projected in the NPRM.
    The increase in baseline fuel economy of resulting from additional 
technologies accounts for a lifetime fuel savings of 5.3 billion 
gallons for MY 2008-2011 light trucks, which are no longer included in 
the fuel savings estimated for the Final Rule. Thus the net effect of 
revised manufacturer product plans is to reduce the fuel savings 
attributed to the Reformed CAFE standard in the NPRM by 2.9 billion 
gallons (5.3 minus 2.4 billion gallons).

E. Evaluating the Adopted Reformed CAFE System

    The variety of factors that contributed to the revised fuel savings 
estimate for the Reformed CAFE standard adopted in the final rule make 
it difficult to compare the fuel savings estimate reported in the final 
rule with the estimate reported in the NPRM for the proposed Reformed 
CAFE standards. The combination of changes to manufacturers' product 
plans with revisions to the Volpe model and its assumptions account for 
a decrease in the agency's estimate of fuel savings that will result 
from the Reformed CAFE standards from the 10.2 billion gallons reported 
in the NPRM to 7.8 billion gallons in this rule. Had these changes not 
been made, the adopted Reformed CAFE standards would likely have saved 
significantly more fuel than the 10.2 billion gallons reported in the 
NPRM.
    In a broader sense, the fuel efficiency of the light truck fleets 
that will be produced in MYs 2008-2011 will be significantly higher 
than that of the fleets that were originally planned when manufacturers 
submitted their initial product plans to NHTSA in 2004. This 
improvement in fuel efficiency reflects manufacturers' response to the 
higher fuel prices through fuel economy improvements to their fleets 
and a shift towards smaller vehicles, as well as the improvements in 
fuel economy required by the CAFE standards adopted in this rule. 
Because current and forecasted gasoline prices have risen dramatically 
since manufacturers submitted their initial plans, consumer preferences 
have shifted away from the largest models toward more modestly-sized 
and fuel efficient light trucks. Some of the fuel savings previously 
attributed to the proposed CAFE standards now appear

[[Page 17648]]

to result from manufacturers' responses to changed market conditions.
    In addition, the Reformed CAFE proposal announced in the NPRM put 
manufacturers on notice that fuel efficiency standards for light trucks 
would increase, and that future standards would challenge manufacturers 
to improve fuel efficiency for all light truck models, regardless of 
their size. The revised product plans that manufacturers submitted in 
response to the NPRM responded to these factors, and the changes to 
model assumptions discussed above, in conjunction with the more 
stringent Reformed CAFE standards adopted by the final rule, will 
significantly improve the fuel efficiency of light trucks produced in 
MY 2008-2011. The revised product plans that manufacturers submitted 
following publication of the NPRM responded to these changed 
conditions, and together with the more stringent standards adopted by 
this rule, the more fuel efficient vehicles that will be produced in 
MYs 2008-2011 will consume approximately 11 billion fewer gallons of 
fuel over their lifetimes than they would have based on the 
manufacturers' initial product plans.
    A more meaningful comparison can be made between the fuel savings 
estimates for the adopted Reformed CAFE standard and the NPRM Reformed 
CAFE standard when both are calculated using the modeling assumptions 
and manufacturer product plan data that were used in the analysis 
conducted for the Final Rule. We re-estimated fuel savings for the NPRM 
Reformed CAFE standards using the revised Final Rule modeling 
assumptions and product plans, and found that the Reformed standard 
presented in the NPRM would save 5.5 billion gallons under these 
revised assumptions. This contrasts with the previously-reported fuel 
savings estimate of 7.8 billion gallons for the adopted Reformed CAFE 
standard. Thus increasing the stringency of the final rule and 
including MDPVs in 2011 together increased lifetime fuel savings 
projected to result from the rule by 2.3 billion gallons (equal to 7.8 
billion minus 5.5 billion gallons).

XIII. Applicability of the CAFE Standards

A. Inclusion of MDPVs in MY 2011

    The agency is extending the applicability of the light truck CAFE 
program to include vehicles defined by the EPA as ``medium duty 
passenger vehicles'' (MDPVs) beginning in MY 2011. As explained below, 
the agency finds that standards for these vehicles are feasible, and 
that these vehicles are used for substantially the same purpose as 
vehicles rated at not more than 6,000 lbs. GVWR. Further, the inclusion 
of these vehicles in MY 2011 will result in a savings of 251 million 
gallons of fuel over the lifetime of those vehicles. The regulation of 
these vehicles under the CAFE program will begin with the 2011 MY.
    In the NPRM, the agency requested comment on extending the 
applicability of the CAFE program to include MDPVs. The EPA defines 
``MDPV''as a ``heavy duty vehicle'' \154\ with a GVWR less than 10,000 
lbs. that is designed primarily for the transportation of persons. The 
MDPV definition excludes any vehicle which:
---------------------------------------------------------------------------

    \154\ The EPA defines ``heavy duty vehicle'' as a motor vehicle 
that is rated at more than 8,500 lbs. GVWR; or that has a vehicle 
curb weight of more than 6,000 lbs.; or that has a basic vehicle 
frontal area in excess of 45 square feet.

    (1) Is an ``incomplete truck'' as defined in this subpart; or
    (2) Has a seating capacity of more than 12 persons; or
    (3) Is designed for more than 9 persons in seating rearward of 
the driver's seat; or
    (4) Is equipped with an open cargo area (for example, a pick-up 
truck box or bed) of 72.0 inches in interior length or more. A 
covered box not readily accessible from the passenger compartment 
will be considered an open cargo area for purposes of this 
definition.\155\
---------------------------------------------------------------------------

    \155\ 40 CFR 86.1803-01.

    The agency is incorporating the EPA MDPV definition into the 
definition of ``automobile'' in 49 U.S.C. 523.3, such that these 
vehicles will be regulated as light trucks. The MDPV definition 
essentially includes SUVs, short bed pick-up trucks, and passenger 
vans, which are within the specified weight and weight-rated ranges.
    Under EPCA, the agency can regulate vehicles with a GVWR between 
6,000 lb. and 10,000 lb. under CAFE if we determine that (1) standards 
are feasible for these vehicles, and (2) either that these vehicles are 
used for the same purpose as vehicles rated at not more than 6,000 lbs. 
GVWR, or that their regulation will result in significant energy 
conservation.
    In the NPRM, the agency discussed its preliminary analysis of the 
feasibility of including MDPVs and the impact of their inclusion on the 
fuel savings of the CAFE standards. The agency expressed its belief 
that fuel economy technologies applicable to vehicles with a GVWR below 
8,500 lbs. might be applicable to MDPVs, e.g., low-friction lubricants, 
6-speed transmissions and cylinder deactivation. In addition, since 
MDPVs are already required by EPA to undergo a portion of the testing 
necessary to determine fuel economy performance under the CAFE program 
(See 40 CFR Part 600 Subpart F), the agency expressed its belief that 
meeting the additional testing requirements would not be unreasonably 
burdensome.
    Moreover, the agency's preliminary estimate was that inclusion of 
MDPVs in the MY 2011 Reformed CAFE standard could save additional fuel. 
The agency stated that we were not considering inclusion of the heavier 
rated vehicles in MYs 2008-2010, as our estimates indicated that their 
inclusion would lead to a loss in overall fuel savings. The agency 
sought comment on whether MDPVs should be included in the final rule 
for MY 2011.
    Commenters were divided as to whether MDPVs should be included in 
the CAFE definition of light trucks. Although the NPRM requested 
comment on the inclusion of MDPVs, most responses addressed all 
vehicles up to 10,000 lbs. GVWR. Manufacturers and their trade 
associations were opposed to including these heavier vehicles in the 
CAFE program, stating that subjecting these vehicles to CAFE standards 
was not feasible and that these vehicles are used for substantially 
different purposes than vehicles with a GVWR under 6,000 lbs. 
Environmental organizations, States, and state organizations supported 
the inclusion of these vehicles, stating that including these vehicles 
is feasible, will result in significant fuel savings, and is 
appropriate as the primary use of most of these vehicles is to 
transport passengers. No commenter addressed the questions concerning 
alternate ways to encourage improving fuel economy of these vehicles.
    The Alliance, Ford, Nissan, General Motors, and the Recreational 
Vehicle Industry Association (RVIA) opposed establishing standards 
applicable to any vehicle with a gross vehicle weight rating (GVWR) 
greater than 8,500 lbs. (heavier light trucks). Manufacturers stated 
that subjecting such vehicles to the CAFE program was not feasible and 
that these vehicles are used for a substantively different purpose than 
vehicles with a GVWR less than 6,000 lbs. (lighter light trucks). 
Additionally, compared to the 120 billion gallons of fuel used by light 
trucks per year, General Motors stated that the estimated fuel savings 
cannot be considered significant. Moreover, the Alliance and Ford 
stated that inclusion of these vehicles would primarily impact only one 
manufacturer (a domestic manufacturer) and therefore would undercut the 
agency's goal of establishing a more equitable regulatory

[[Page 17649]]

framework. Therefore, these commenters argued, inclusion of such 
vehicles in the CAFE program is impermissible under EPCA.
    The Union of Concerned Scientists, NRDC, NESCAUM, Environmental 
Defense, U.S. PIRG, Sierra Club, National Environmental Trust, Rocky 
Mountain Institute, SUN DAY, Connecticut Department of Environmental 
Protection, AAA, Representatives Baldwin et al., Pennsylvania 
Department of Environmental Protection, ACEEE and STAPPA and ALAPCO 
supported expanding the definition of light truck to include all 
vehicles with a GVWR between 8,500 lbs. and 10,000 lbs.
    NRDC and Environmental Defense stated EPCA not only permitted the 
expansion of the light truck definition, but that the statute's 
directive to consider the Nation's need to conserve energy mandated an 
expansion. First, NRDC stated that many of the technologies evaluated 
in the NAS report could be applied to all vehicles with a GVWR between 
8,500 lbs. and 10,000 lbs. Second, NRDC stated the fuel savings from 
including MDPVs would be significant. However, NRDC did not provide any 
discussion as to why the savings would be considered significant. 
Third, NRDC stated that the EPA and CARB already recognize a segment of 
these vehicles as primarily passenger-carrying vehicles through the 
MDPV classification. UCS and Environmental Defense cited a Polk survey 
to support the proposition that the heavier light trucks are used for 
substantially the same purposes as the lighter light trucks.
    Environmental Defense stated that a separate class could be 
established for all vehicles with a GVWR between 8,500 lbs. and 10,000 
lbs., so as not to detract from the fuel savings of the fleet currently 
regulated. NESCAUM stated that by not including all vehicles with a 
GVWR less than 10,000 lbs in the CAFE program, the structure would 
maintain an incentive for manufacturers to ``upweight'' vehicles in 
order to remove vehicles from the standards.
    The agency concludes that inclusion of MDPVs in MYs 2008-2010 would 
lower the fleet-wide required fuel economy level for those years by 
approximately 0.3 mpg.\156\ The net effect of including MDPVs in the MY 
2008-2010 Reformed CAFE standards would be a reduction in overall fuel 
savings of almost 1.1 billion gallons.
---------------------------------------------------------------------------

    \156\ Under the Unreformed CAFE structure, maximum feasible 
standards are set with particular consideration given to the least 
capable manufacturer, which has been determined to be General Motors 
for this proposed rule. A large percentage of the MDPVs are produced 
by General Motors and, due to their weight, have very low fuel 
economy. The inclusion of these vehicles would lead to greater fuel 
savings by General Motors, but less by the other manufacturers. This 
would occur because the addition of the low fuel economy MDPVs in 
MYs 2008-2010 would depress the level of General Motors' CAFE and 
therefore depress the level of the Unreformed CAFE standards. Since 
the MY 2008-2010 Reformed CAFE standards are set so as to roughly 
equalize industry-wide costs with the MY 2008-2010 Unreformed CAFE 
standards, depressing the Unreformed CAFE standards for MYs 2008-
2010 would also depress the Reformed CAFE standards for those years.
---------------------------------------------------------------------------

    The agency has determined that regulation of the MDPV fuel economy 
beginning MY 2011 is consistent with the criteria set forth in EPCA for 
expanding the applicability of the light truck CAFE program. First, 
regulation of these vehicles is feasible. Second, in establishing the 
MDPV definition, the EPA determined that these vehicles are used 
primarily to transport passengers,\157\ a use substantially similar to 
vehicles with a GVWR less than 6,000 lbs. GVWR. Moreover, the analysis 
performed for the final rule indicates that inclusion of MDPVs in the 
light truck CAFE program for MY 2011 will lead to a savings of 251 
million gallons of fuel.
---------------------------------------------------------------------------

    \157\ 65 FR 6698; February 10, 2000.
---------------------------------------------------------------------------

    In 1977, the agency extended the definition of ``automobile'' under 
CAFE to include certain light trucks with a GVWR greater than 6,000 
lbs. The agency stated that for regulation of these vehicles to be 
feasible the expanded definition of ``automobile'' must be consistent 
with that adopted by the EPA for emissions purposes (42 FR 63184, 
63185-6; December 15, 1977). In 1976, the EPA established maximum curb 
weight (6,000 lbs.) and maximum frontal area (45 ft3) 
limitations on the trucks subject to emissions testing. The agency 
noted that the EPA concluded that vehicles that exceed those 
limitations are not used for the same type of service as those with 
smaller cab areas and curb weights (42 FR 63186). Consistent with the 
EPA regulations we amended the definition of automobile to include 
light trucks with a GVWR up to and including 8,500 lbs., that have a 
curb weight of less than 6,000 lbs. and a frontal compartment space 
less than 45 ft\2\ (49 CFR 523.3). As General Motors noted in its 
comments, the agency linked the feasibility of regulating vehicles to 
the existence of EPA emission test procedures and data.
    To generate data necessary to determine compliance with the fuel 
economy requirements, vehicles representative of manufacturer's model 
lines are subject to city and highway chassis dynamometer tests (40 CFR 
Part 600). Vehicles classified as ``light trucks'' under the current 
CAFE definition are required to undergo this testing for the EPA 
emissions requirements. Because both the fuel economy and emissions 
requirements rely on the same tests, the test burden to manufacturers 
is minimized.
    Under the EPA's Tier 2 requirements, requirements for MDPVs to 
undergo city chassis dynamometer emission testing under Tier 2 are 
being phased-in starting in MY 2008 (50 percent) with all MDPVs subject 
to the testing in MY 2009 (40 CFR 86.1811-04(j)). The Tier 2 regulation 
exempts MDPVs from highway chassis dynamometer testing. Therefore, 
MDPVs are not subject under Tier 2 to the complete set of tests 
necessary for the fuel economy requirements. However, we have 
determined that this additional testing will not be burdensome for the 
manufacturers.
    The EPA estimates that regulating MDPVs under the fuel economy 
standards would require approximately 50-100 city/highway paired tests 
at a cost of $2,000 per pair, plus an additional $50,000-100,000 per 
test vehicle for test preparation (i.e., a coast-down analysis \158\ 
and appropriate mileage accumulation). Based on these estimates, the 
industry-wide compliance test costs for MDPVs range from $2.1 million 
to $8.2 million. The EPA noted that this cost could potentially be 
further reduced due to carry-over tests and the fact that a 
manufacturer is permitted to certify up to 20 percent of its fleet 
through an analytical process that does not require vehicle testing.
---------------------------------------------------------------------------

    \158\ A coast-down analysis is used to determine a vehicle's 
horsepower for running the chassis dynamometer tests.
---------------------------------------------------------------------------

    The Alliance and Ford stated that the fuel economy of the heavier 
light trucks is currently not known; therefore the agency has no 
baseline from which to set standards. As MDPVs are not currently 
required to undergo chassis dynamometer testing, several manufacturers 
asserted that the agency did not have adequate information to determine 
a baseline fuel economy for these vehicles from which potential fuel 
savings could be projected. The EPA and several manufacturers provided 
the agency with data that has allowed us to estimate a fuel economy 
baseline for MDPVs. These data predominately cover MDPVs with gasoline 
power trains. NHTSA has developed additional data for MDPVs, including 
diesels, by extrapolating from the performance of sister vehicles with 
a GVWR less than 8,500 lbs. Since the data supplied by the EPA was 
based on emission testing

[[Page 17650]]

conducted on ``worst case'' vehicles, rather than best sellers as would 
be done for fuel economy, the baseline derived from this data is 
conservative.
    Vehicles with a GVWR greater than 8,500 lbs that are not defined as 
MDPVs (e.g., heavier rated long bed pick-up trucks) are not subject to 
EPA testing that provides the data necessary to determine compliance 
with the CAFE program. Inclusion of the heavier-rated-non-MDPVs would 
increase the test burden for manufacturers. These vehicles would be 
subject to a whole new testing regime. Moreover, because these vehicles 
are not subject to comparable testing requirements, there is not 
sufficient data to estimate a fuel economy baseline. Without a reliable 
baseline, the agency is unable to determine fuel economy targets that 
would result in required fuel economy levels that are economically 
practicable and technologically feasible.
    Aside from the ability to obtain test data and the determination of 
a baseline, technologies are available that can be applied to MDPVs in 
order to improve fuel economy performance. The agency recognizes that 
not all technologies that are applied to vehicles with lighter weight 
ratings are applicable to MDPVs. However, we have identified several 
technologies that could be applied, for example, 6-speed transmissions, 
multiple valves per cylinder, variable valve timing, and cylinder 
deactivation.
    Commenters provided a variety of survey data on the use of vehicles 
with a GVWR greater than 8,500 lbs and less than 10,000 lbs. The 
Alliance, General Motors, Ford, and Nissan stated that the heavier 
light trucks are used for commercial, agricultural and utility reasons 
distinct from the uses of vehicles with a GVWR less than 6,000 lbs. 
Ford cited recent Ford New Vehicle Customer Studies (NVCS) that 
determined that SUVs in the MDPV category are used for towing 80 
percent more often than midsize SUVs. In addition, Ford stated that for 
the 2004 MY, commercial and fleet users made up 63 percent of Ford 
Excursion buyers. However, Ford did not indicate as to whether the use 
of the Excursions in these fleets was primarily to transport people, or 
to perform more ``work-like'' functions. Ford also stated that full 
size vans in the MDPV category are used for significantly different 
purposes; of all the E-Series trucks sold, 84 percent are purchased for 
commercial purposes, and as commercial use of these full size vans 
increases, consumer use of these vehicles as passenger or conversion 
vans is decreasing. General Motors asserted that when considering 
vehicle use, the agency must focus on ``peak'' use.
    The Union of Concerned Scientists and Environmental Defense cited a 
Polk survey to support the proposition that the heavier light trucks 
are used for substantially the same purpose as the lighter light 
trucks. According to the Polk survey, the daily use light trucks, 
broken down by percentage, is as follows: Commuting (53.8 percent), 
personal trips (33.6 percent), carrying passengers (29.6 percent), 
hauling (4.3 percent), towing (4.0 percent), and off-road use (3.7 
percent). Union of Concerned Scientists stated that the Polk study 
found that use patterns of light, medium, and heavy pickup trucks are 
substantially the same overall, with a few notable exceptions. The 
Union of Concerned Scientists and Environmental Defense stated that 
this data demonstrate that vehicles with a GVWR greater than 8,500 lbs. 
and less 10,000 lbs are used for substantially similar purposes.
    As stated above, the EPA determined that MDPVs are used primarily 
to transport passengers. In establishing the definition, the EPA 
stated:

    We are defining medium-duty passenger vehicles as any complete 
heavy duty vehicle less than 10,000 pounds GVWR designed primarily 
for the transportation of persons. (65 FR 6698, 6849; February 10, 
2000; emphasis added).

    Additionally, the EPA noted that that in crafting the definition, 
it made a distinction based on bed length,

    [B]ecause a vehicle introduced with a shorter bed would have 
reduced cargo capacity and would likely have increased seating 
capacity relative to current pick-ups, making it more likely to be 
used primarily as a passenger vehicle. Id.

    In establishing the final rule, the EPA demonstrated an effort to 
distinguish vehicles that are used primarily to transport people from 
vehicles used for more ``work-like'' functions. The transportation of 
passengers is a use that is substantially similar to the use of 
vehicles with a GVWR less than 6,000 lbs. As in the 1977 final rule, we 
are amending the definition of automobile consistent with the EPA's 
determination.
    The agency also considered Ford's comment that inclusion of MDPVs 
would result in disparate impacts under Reform CAFE. Ford specifically 
stated that the target for a category containing MDPVs would have to be 
lowered to account for the reduction in the overall capability of the 
category fleet. Therefore, manufacturers that do not produce MDPVs, but 
that have other vehicles in that category, would receive a less 
stringent target. On the other hand, Environmental Defense stated that 
a separate class could be created for heavier vehicles so as to not 
reduce the target for vehicles which are already regulated.
    After considering these comments, the agency has decided not to 
regulate MDPVs as a separate class of light truck. First, we note that 
issues regarding the impact of MDPVs on the largest vehicle category 
are no longer applicable. Under the continuous function, vehicles will 
be compared to targets assigned to each vehicle's footprint value. 
Further, as the agency has stated previously when deciding whether to 
establish separate standards for 2WD and 4WD vehicles, ``the fact that 
standards must be average fuel economy standards indicates that the 
manufacturers should be given some opportunity to balance vehicles with 
different fuel economies to ensure, consistent with the need to 
conserve energy, that a reasonable variety of vehicle types can be 
produced to satisfy consumer demand.'' (42 FR 13807, 13811; March 14, 
1977)
    Since the manufacturers of MDPVs are all full-line manufacturers, 
the agency has decided that on balance it is advantageous to regulate 
these vehicles with all light trucks in order to provide manufacturers 
the flexibility of either improving the fuel economy of these vehicles, 
relying on improvements in other vehicles to offset the fuel economy of 
these vehicles, or some combination of these two strategies.
    Finally, we have determined that inclusion of MDPVs in MY 2011 will 
result in an additional fuel savings of 251 million gallons of fuel.

B. ``Flat-Floor'' Provision

    In the NPRM, the agency tentatively decided to amend the ``flat 
floor provision'' in the light truck definition (49 CFR 523.5) so that 
the definition expressly includes vehicles with seats that fold and 
stow in a vehicle's floor pan. The agency stated that we tentatively 
determined that these seats are functionally equivalent to removable 
seats and minimize safety concerns that arise from the potential to 
improperly re-installed seats. The agency said that its goal was 
treating passenger vans and mini vans in a similar fashion.
    In response to commenters, the agency is amending the flat-floor 
provision to accommodate certain folding seats, but also to restrict 
the group of vehicles relying on the flat floor provision to qualify as 
a light truck to those vehicles having at least 3 rows of designated 
seating positions as standard equipment. That is, a vehicle would 
qualify only if it had at least 3

[[Page 17651]]

rows of seats, the 2nd and 3rd of which are capable of creating a flat 
cargo surface through either folding or detachment.
    The current regulation classifies as a light truck any vehicle with 
readily removable seats that, once removed, leave a flat floor level 
surface. In pertinent part, the current regulatory text reads as 
follows:

    Permit expanded use of the automobile for cargo-carrying 
purposes or other nonpassenger-carrying purposes through the removal 
of seats by means installed for that purpose by the manufacturer or 
with simple tools, such as screwdrivers and wrenches, so as to 
create a flat, floor level, surface extending from the forwardmost 
point of installation of those seats to the rear of the automobile's 
interior.\159\
---------------------------------------------------------------------------

    \159\ See 49 CFR 523.5(a)(5).

    This definition is only one of several classifying light trucks, 
and historically, it has operated, as originally intended, to bring 
only minivans and full size passenger vans into the light truck 
category. Sport utility vehicles qualify as light trucks because they 
have the indices of off-road capability: a 4-wheel drive system and 
certain dimensional characteristics.\160\ While the criteria used for 
SUVs remain viable, the definition pertaining to minivans has become 
outdated in that it does not bring all minivans and passenger vans into 
the light truck category.
---------------------------------------------------------------------------

    \160\ Sport Utility Vehicles of different sizes qualify as light 
trucks because they are equipped with a 4-wheel drive system and 
because they have higher ground clearance and steeper approach and 
departure angles.
---------------------------------------------------------------------------

    The Alliance, Ford, Nissan, AIAM, and General Motors stated that 
the proposed revision to the flat floor provision reflects current 
market conditions and that the agency properly acknowledged the risks 
of improperly re-installed seats. However, Ford, Nissan, and General 
Motors, requested that the agency clarify the term ``stowing of 
foldable seats in the vehicle floor pan'' to appropriately capture 
minivans and exclude passenger vehicles with seats that have only the 
seatback fold (e.g., station wagons). DaimlerChrysler, Mitsubishi, and 
Johnson Controls raised concern that the proposed amendment would not 
capture all minivans, given that the design of folding seats is not 
limited to those that stow under the floor pan. DaimlerChrysler and 
Johnson Controls recommended that the agency adopt a flat loading 
surface requirement in conjunction with a minimum volume criterion.
    As discussed in the NPRM, minivans traditionally subject to light 
truck CAFE standards began offering various seat designs that are 
intended to be functionally similar to removable seats, while remaining 
attached at some point to the vehicle. In the NPRM we recognized seats 
that fold and stow in a vehicle's floor pan; i.e., flush with the 
vehicle's floor, thereby creating a flat surface that is dimensionally 
indistinguishable from the surface floor that would exist if the same 
seats were removed instead of being stowed.\161\ There are still other 
minivans that offer seats that fold so as to create a different/new 
continuous flat cargo surface that is located above the floor level. 
The current definition of light trucks has the potential of subjecting 
minivans that offer stowable seats to passenger vehicle CAFE standards, 
while subjecting very similar minivans featuring removable seats to 
light truck standards.
---------------------------------------------------------------------------

    \161\ For example, Chrysler Town and Country and Dodge Caravan 
feature ``Stow `n Go'' seating.
---------------------------------------------------------------------------

    In response to comments, we are adopting a revision to the flat-
floor provision that recognizes the various designs that permit seats 
to fold and stow. The provision adopted today replaces the ``flat, 
floor level surface'' language with a requirement that removal or 
stowing of seats creates a ``flat, leveled surface extending from the 
forwardmost point of installation of those seats to the rear of the 
automobile's interior.'' This new language eliminates the need to 
define ``floor pan'' and does not require seat designs to store in any 
particular manner.
    Several commenters raised concern with revising the flat-floor 
provision. The Union of Concerned Scientists, Environmental Defense, 
and the New York Department of Environmental Conservation opposed the 
proposed revision, stating that it would widen the existing light truck 
``loophole.'' Furthermore, the Union of Concerned Scientists stated 
that the original justification for the flat floor provision no longer 
applies. The Union of Concerned Scientists stated that the flat floor 
provision was established to reflect that passenger vans were derived 
from cargo vans, but that this is no longer true. (In the July 28, 1977 
rulemaking, the agency stated that station wagons should not be 
classified as light trucks because, in part, they are built on a car 
chassis rather than a truck chassis (see 42 FR 38362, 38367). The Union 
of Concerned Scientists stated that while cargo vans and pickup trucks 
currently share the same platform, minivans do not.
    First, the agency continues to conclude that in general, minivans 
are appropriately classified as light trucks. Minivans offer fuel 
economy compromising utility features normally associated with light 
trucks. Specifically, unlike the smaller passenger cars, all minivans 
feature three rows of seats, thus offering greater passenger carrying 
capability.\162\ Further, data from http://www.Edmunds.com, NHTSA CAFE 
Database, and the Automotive News Data Center indicate that minivans 
offer significantly larger cargo carrying capacity compared to 
passenger cars (see Table 17 below).
---------------------------------------------------------------------------

    \162\ Only one minivan, the Chrysler Pacifica, does not offer a 
third row as standard equipment.

                                  Table 17.--Maximum Cargo Capacity of Minivans
----------------------------------------------------------------------------------------------------------------
                Vehicle                             Type                        Maximum cargo capacity
----------------------------------------------------------------------------------------------------------------
DCX R-class............................  Minivan...................  85 cu. ft.
DCX Pacifica...........................  Minivan...................  80 cu. ft.
DCX Caravan/Town & Country SWB.........  Minivan...................  147 cu. ft.
Honda Odyssey..........................  Minivan...................  147 cu. ft.
Toyota Sienna..........................  Minivan...................  149 cu. ft.
Ford Freestar/Mercury Monterey.........  Minivan...................  137 cu. ft.
GM Uplander/Terraza/Montana............  Minivan...................  120 to 137 cu. ft.
Nissan Quest...........................  Minivan...................  149 cu. ft.
Mazda MPV..............................  Minivan...................  127 cu. ft.
Chevy HHR..............................  Wagon.....................  56 cu. ft.
Audi A4................................  Wagon.....................  59 cu. ft.
DCX E-class............................  Wagon.....................  69 cu. ft.
Saab 9-5...............................  Wagon.....................  73 cu. ft.

[[Page 17652]]

 
Volvo V70..............................  Wagon.....................  71 cu. ft.
Volvo V50..............................  Wagon.....................  63 cu. ft.
Jaguar X-type..........................  Wagon.....................  50 cu. ft.
BMW 530 ix.............................  Wagon.....................  58 cu. ft.
Dodge Magnum...........................  Wagon.....................  72 cu. ft.
Pontiac Vibe/Toyota Matrix.............  5-door hatchback..........  54 cu. ft.
Mazda 3................................  5-door hatchback..........  31 cu. ft.
----------------------------------------------------------------------------------------------------------------

    Both of these capabilities affect fuel economy because in order to 
accommodate additional seats and provide greater cargo carrying 
capacity, Minivans are made larger and heavier than passenger cars. The 
seats themselves add significant weight to these vehicles. In addition 
to fuel economy compromising utility features, we previously explained 
that continued inclusion of minivans in the light truck standard is 
justified, in part, based on their good performance in crash 
tests.\163\ The same cannot be readily said for a diverse population of 
station wagons and hatchbacks that may have flat-folding seats, because 
some of them are very small and potentially less safe.
---------------------------------------------------------------------------

    \163\ See August 2005 NPRM (70 FR 51414 at 51456).
---------------------------------------------------------------------------

    However, the agency recognizes the risk of expanding the light 
truck definition to include vehicles not intended to be in that class, 
i.e., station wagons and hatchbacks. In order to focus the definition 
only on those vehicles that the agency believes should be included in 
the light truck category, we believe it is appropriate to restrict the 
group of vehicles relying on the flat floor provision to qualify as a 
light truck to those also having at least 3 rows of designated seating 
positions as standard equipment. That is, a vehicle could qualify only 
if it had at least 3 rows of seats, the 2nd and 3rd of which are 
capable of creating a flat cargo surface through either folding or 
detachment. The regulatory text would read as follows:

    For vehicles equipped with at least 3 rows of designated seating 
positions as standard equipment, permit expanded use of the 
automobile for cargo-carrying purposes or other nonpassenger-
carrying purposes through the removal or stowing of seats so as to 
create a flat, leveled surface extending from the forwardmost point 
of installation of those seats to the rear of the automobile's 
interior.

    The agency has chosen to adopt the ``third row'' criterion for four 
reasons. First, this definition best advances our goal of subjecting 
all minivans to one CAFE standard, and eliminates an artificial 
distinction between minivans depending on whether they have folding 
seats or removable seats. Second, an obvious advantage of this approach 
is simplicity and objectivity. For example, this definition would not 
require complicated cargo capacity measurements in order to determine 
whether a vehicle is a light truck, as would be required under 
DaimlerChrysler's suggestion. Third, compared to geometric criteria, 
such as a minimum cargo volume, this approach is less susceptible to 
gaming, as it is unlikely that smaller vehicles that the agency 
believes should not be subject to the light truck standards would be 
equipped with 3rd row seats. Finally, the 3rd row seat criterion 
ensures that vehicles classified as light trucks continue to include 
those that offer added utility features contemplated by Congress when 
it created a separate CAFE standard for light trucks.
    In addition to furthering our goal of subjecting all minivans to 
the CAFE standard for light trucks, the provision adopted today limits 
the number of vehicles that will be reclassified as light trucks. After 
examining http://www.Edmunds.com, NHTSA CAFE Database, and the 
Automotive News Data Center, we found that only a Volvo V70 (<= 10,000 
annual sales) has a flat-folding 3rd row seat, and would thus qualify 
as a light truck. By contrast, other alternatives considered by the 
agency would not necessarily bring all minivans under one standard, and 
could also have the unintended effect of reclassifying a more 
substantial number of passenger cars as light trucks.
    We note that small sport utility vehicles without 3rd row seats 
would nevertheless qualify as light trucks based on other existing 
criteria; i.e., availability of 4-wheel drive or approach angles and 
minimum clearance. Thus, our approach is expected to have few 
unintended consequences. Nevertheless, some vehicles previously 
classified as light trucks would no longer be subject to the light 
truck CAFE standard. One such vehicle is a Chrysler PT Cruiser, which 
qualifies now as a light truck because it has a removable rear seat 
which creates a flat floor. However, the PT cruiser does not have a 3rd 
row of seats. Also, one minivan, the Chrysler Pacifica does not offer a 
third row as standard equipment. To provide manufacturers adequate time 
to adjust their product plans to the new provision we are making the 
new definition effective beginning in MY 2012, the change will not have 
any immediate impact on MYs 2008-2011 vehicles.
    In order to provide additional flexibility we are permitting 
manufacturers to rely on either the old or the revised definition of 
light trucks until MY 2012. This will ensure that a vehicle previously 
subject to light truck CAFE standards would not immediately become 
subject to the pasenger car standard thus upsetting the manufacturers' 
compliance plans. At the same time, those manufacturers currently 
offering minivans with folding seats would be able to take advantage of 
the new definition immediately.
    We do not anticipate that the provision adopted today will result 
in manufacturers installing third row seating for the sole purpose of 
compliance with the light truck CAFE program. Installing third row 
seats presents practical difficulties (e.g., limited headroom) and 
costs associated with making this change in vehicles with smaller 
interior volume. Specifically, we believe the costs of redesigning 
small vehicles to feature 3rd row seats will outweigh potential 
benefits of subjecting these vehicles to the light truck standard. 
Further, small vehicles such as hatchbacks, will likely be compared to 
fuel economy targets comparable to that of the passenger car CAFE 
standard, thus further reducing the incentive to make major design 
changes for the purpose of classifying such vehicle as a light truck.

XIV. Additional Issues

A. Limited-Line Manufacturer Standard

    Porsche requested that the agency establish a separate standard for 
limited-line manufacturers, stating that manufacturers that produce 
only one or two light trucks are not afforded the flexibility provided 
through fleet-wide

[[Page 17653]]

averaging. Porsche noted that it manufacturers only a single model of 
light truck that Porsche stated is designed to ``satisfy a specific 
consumer demand.'' Porsche argued that it would have even greater 
difficulty in complying under the Reformed CAFE system, as its light 
truck would fall within a category that has a target more stringent 
than the Unreformed CAFE standard. Porsche stated that the agency had 
authority to establish a limited-line manufacturer standard, and had 
previously done so for ``limited product line trucks'' for MYs 1980 and 
1981.
    When the agency first established the light truck CAFE program, we 
established a separate standard for limited product line light trucks. 
This standard was to accommodate light trucks manufactured by companies 
which did not produce passenger automobiles and thus did not have 
access to passenger automobile engine and emission control technology 
(43 FR 11995, 11996; March 23, 1978). The limited product line light 
truck standard was established primarily to address the unique 
compliance issues facing International Harvester, as International 
Harvester's engines were derivatives of medium duty trucks (above 
10,000 lbs GVWR). We noted that International Harvester did not have 
experience with ``state-of-the-art'' emission controls, which other 
manufacturers had obtained in the passenger car market, and that 
International Harvester would be at a disadvantage attempting to comply 
with both the emission and fuel economy standards then being 
established (43 FR 11995, 11998).
    While the limited product line light truck standard was established 
to address compliance difficulties of a limited line light truck 
manufacturer, the light truck class was defined, in part, by vehicle 
characteristic, i.e., it applied only to trucks with basic engines, as 
that term was defined by the EPA. The agency discontinued the limited 
line truck classification beginning in MY 1982, stating that the 
vehicle class was designated merely to provide a transition period (45 
FR 20871, 20877; March 31, 1980).
    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, or for vehicles 
of the type manufactured by limited-line manufacturers as was 
previously done in response to issues faced by International Harvester. 
Porsche stated that it faces a disadvantage because it makes only a 
single high performance truck and has no ``legitimate'' opportunity to 
comply, and that compliance is made more difficult by the reforms 
established today. 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 that in the very first years in which CAFE 
standards were in effect, the agency 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. As indicated above, the separate standard was not intended 
to provide International Harvester permit relief, but to provide it 
with additional time to gain the expertise necessary to comply with the 
standards.
    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 noted that the House Report 
for EPCA stated that ``the Secretary could, in setting classes of non-
passenger automobiles, establish separate classes for types of non-
passenger automobiles manufactured by small manufacturers.'' (H.R. Rep. 
No. 94-340 at 90.) However, we point out that the report refers to 
``types of vehicles.'' We question whether Congress intended for the 
agency to set standards based on manufacturer characteristics, as 
opposed to vehicle characteristics.
    When the agency established CAFE standards for limited product line 
light trucks, that class included only vehicles with a specific engine 
type. While the reform established today results in different required 
fuel economy standards for different manufacturers based on product 
mix, the standard still relies on differentiating vehicles based on a 
vehicle characteristic, i.e., footprint.

B. Credit Trading

    Nissan recommended that the agency implement a credit trading 
program that permits manufacturers to buy and sell credits. Nissan 
stated that such a program would allow manufacturers to earn credits 
for exceeding their fleet-wide fuel economy target, and sell or trade 
those credits to other manufacturers. Nissan believes that such a 
program is consistent with the goals of the EPCA statute and would 
improve overall fuel economy by providing added incentives for the 
achievement of greater fuel economy improvements. Nissan asserted that 
such a program also would allow greater flexibility in CAFE compliance 
without causing a negative overall impact on fuel economy, and in fact, 
it could successfully benefit the environment. Nissan provided an 
analysis in support of the agency's authority to establish such a 
credit trading program.
    The agency is not adopting a credit trading program as suggested by 
Nissan. While the agency has not explored in detail a credit trading 
program, we question whether the agency has authority for such a 
program. A review of 49 U.S.C. 32903--the specific provision addressing 
CAFE credits for exceeding fuel economy standards--does not appear to 
support credit trading. That section persistently refers only to ``a 
manufacturer'' or ``the manufacturer,'' thereby suggesting to us that 
Congress intended that only the particular manufacturer who earned the 
credits be permitted to use them. For example, section 32903(a) 
provides that

When the average fuel economy of passenger automobiles manufactured 
by a manufacturer . . . exceeds an applicable average fuel economy 
standard . . . the manufacturer earns credits. The credits may be 
applied to--(1) any of the 3 consecutive model years immediately 
before the model year for which the credits are earned; and (2) to 
the extent not used under clause (1) of this subsection, any of the 
3 consecutive model years immediately after the model year for which 
the credits are earned.

(Emphasis added.) Also, section 32903(d) states that,


[[Page 17654]]


The Secretary of Transportation shall apply credits to a model year 
on the basis of the number of tenths of a mile of gallon by which 
the manufacturer involved was below the applicable average fuel 
economy standard.

(Emphasis added.) Moreover, we believe that the Reformed CAFE program 
adopted today provides manufacturers with sufficient flexibility as to 
obviate the need for a credit trading program.

C. Reporting Requirements

    Today's final rule requires manufacturers to report on a model and 
configuration level, a vehicle's footprint. This information will be 
used to determine a vehicle's applicable fuel economy target.
    The Alliance opposed reporting footprint on at a vehicle-
configuration level. The Alliance suggested that footprint values 
should be reported by model on a body style and wheelbase level along 
with associated projected sales volumes. The Alliance stated that body-
style and wheelbase level of detail could be easily compiled and 
submitted. Conversely, for some manufacturers, the Alliance stated, 
reporting on a configuration level would require programming changes in 
corporate databases and reports.
    The agency is maintaining the footprint reporting requirements as 
proposed. If reporting were to be required at the level suggested by 
the Alliance, models that are offered with varying footprint values may 
not be captured. For example, the Ford base F150, is offered with in 
several versions with different body styles and wheelbases. However, 
these versions are each offered in with different engine, transmission, 
and drive type configurations. Each of these configurations may have a 
different fuel economy performance. Under the Alliance's suggestion, 
these configurations would not be captured.
    The Alliance also stated that the agency should eliminate some of 
data required for the CAFE reports, specifically: Catalytic converter, 
SAE net rated power in kilowatts, total drive ratio, axle ratio, 
frontal area, optional equipment, number of forward speeds (already 
indicated by transmission class). The Alliance stated that this 
information is no longer relevant.
    The NPRM did not propose to revise the data reporting requirements 
aside from requiring the footprint related data and elimination of data 
currently required to be reported is outside the scope of this 
rulemaking. Moreover, consideration of such revisions would require 
coordination with the EPA to ensure consistency between the two 
agencies' regulatory programs, given the joint responsibilities under 
EPCA. However, the agency will work to evaluate the necessity of the 
data currently required to be reported and will consider potential 
revisions in future rulemakings.

D. Preemption

Summary of NHTSA's position
    In mandating federal fuel economy standards under EPCA, Congress 
has expressly preempted any state laws or regulations relating to fuel 
economy standards. A State requirement limiting CO2 
emissions is such a law or regulation because it has the direct effect 
of regulating fuel consumption. CO2 emissions are directly 
linked to fuel consumption because CO2 is the ultimate end 
product of burning gasoline. Moreover, because there is but one pool of 
technologies for reducing tailpipe CO2 emissions and 
increasing fuel economy available now and for the foreseeable future, 
regulation of CO2 emissions and fuel consumption are 
inextricably linked. It is therefore NHTSA's conclusion that such 
regulation is expressly preempted.
    A State requirement limiting CO2 emissions is also 
impliedly preempted under EPCA. It would be inconsistent with the 
statutory scheme, as implemented by NHTSA, to allow another 
governmental entity to make inconsistent judgments made about how 
quickly and how much of that single pool of technology can and should 
be required to be installed, consistent with the need to conserve 
energy, technological feasibility, economic practicability, employment, 
vehicle safety and other relevant concerns.
NHTSA's statement in the NPRM about preemption
    In the NPRM, NHTSA reaffirmed its judgment that State regulation of 
motor vehicle tailpipe emissions of CO2 is both expressly 
and impliedly preempted by statute:

    We reaffirm our view that a state may not impose a legal 
requirement relating to fuel economy, whether by statute, regulation 
or otherwise, that conflicts with this rule. A state law that seeks 
to reduce motor vehicle carbon dioxide emissions is both expressly 
and impliedly preempted.
    Our statute contains a broad preemption provision making clear 
the need for a uniform, federal system: ``When an average fuel 
economy standard prescribed under this chapter is in effect, a State 
or a political subdivision of a State may not adopt or enforce a law 
or regulation related to fuel economy standards or average fuel 
economy standards for automobiles covered by an average fuel economy 
standard under this chapter.'' 49 U.S.C. 32919(a). Since the way to 
reduce carbon dioxide emissions is to improve fuel economy, a state 
regulation seeking to reduce those emissions is a ``regulation 
related to fuel economy standards or average fuel economy 
standards.''
    Further, such a regulation would be impliedly preempted, as it 
would interfere [with] our implementation of the CAFE statute. For 
example, it would interfere the careful balancing of various 
statutory factors and other related considerations, as contemplated 
in the conference report on EPCA, we must do in order to establish 
average fuel economy standards at the maximum feasible level. It 
would also interfere with our effort to reform CAFE so to achieve 
higher fuel savings, while reducing the risk of adverse economic and 
safety consequences.\164\
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    \164\ 70 FR 51414, 51457.

    During the comment period on the NPRM, some commenters questioned 
the correctness of NHTSA's judgment as well as the appropriateness of 
reaffirming it in the NPRM.
The appropriateness of our discussing preemption in the NPRM
    We discussed our views about preemption in the NPRM for several 
reasons. First, the agency was guided by Executive Order 13132, 
Federalism, and by Section 3(b)(1)(B) of Executive Order 12988, Civil 
Justice Reform. Second, we were guided by a desire to obtain comments 
from State and local officials and other members of the public in order 
to inform fully the agency's position on this important issue.
    Third, we were also guided by statements of the Supreme Court, 
which has encouraged agencies to consider the preemptive effects of 
their rulemakings during the rulemaking process, rather than waiting 
until litigation ensues to do so.\165\ Finally, from time to time over 
the years, NHTSA has raised the issue of preemption in its rulemaking 
notices when the agency judged it appropriate to do so, as have other 
agencies within the Department of Transportation. E.g., 54 FR 11765 
(March 1989); 58 FR 68274 (December 1993) and 70 FR 21844 (April 2005).
---------------------------------------------------------------------------

    \165\ See, e.g., Hillsborough County v. Automated Medical 
Laboratories, Inc., 471 U.S. 707, 718 (1985); Medtronic, Inc., v. 
Lohr, 518 U.S. 470, 506 (1996) (Justice Breyer, in concurrence); and 
Geier v. American Honda Motor Co., 529 U.S. 861, 908 (2000) (Justice 
Stevens, in dissent).
---------------------------------------------------------------------------

Public Comments About the Merits of Our Views on Preemption
    The motor vehicle manufacturers and their associations agreed with 
the agency's position regarding federal preemption under Sec.  32919(a) 
of EPCA. Nissan supported that position with a detailed legal analysis. 
Conversely, several of the environmental groups and

[[Page 17655]]

States,\166\ and a number of U.S. Senators and Representatives, 
disagreed with the agency's position that a State carbon dioxide 
(CO2) standard is expressly and impliedly preempted.
---------------------------------------------------------------------------

    \166\ California, Connecticut, Maine, Massachusetts, New York, 
New Jersey, Oregon, Pennsylvania, and Vermont.
---------------------------------------------------------------------------

    Nissan argued that California's proposed CO2 standard is 
expressly preempted by EPCA's broadly worded preemption provision. A 
State standard is preempted even if it does not directly address fuel 
economy; it is sufficient if it simply relates to fuel economy.
    That commenter noted that the text of EPCA's preemption provision 
is similar to that of the preemption provision in the Employee 
Retirement Income Security Act (ERISA). The Supreme Court has found 
that a state law is ``related to'' a benefits plan under ERISA and thus 
preempted by ERISA's preemption provision ``if it has a connection with 
or reference to such a plan.''
    Nissan said that California's greenhouse gas standard is connected 
to fuel economy. California's greenhouse gas regulation is, in effect, 
a fuel economy regulation. The emission of one greenhouse gas, 
CO2, is related to fuel economy. The only means for vehicle 
manufacturers to reduce vehicular CO2 emissions is through 
making improvements to fuel economy. This is evident from CARB's 
report, which discusses the maximum feasible and cost effective 
technologies available and the identification of technologies that are 
in fact fuel economy improvements.
    Nissan also said that California's standard also interferes with 
the nationally uniform plan that CAFE establishes for governing the 
fuel efficiency of the U.S. fleet and is therefore impliedly preempted. 
A state law or standard may be impliedly pre-empted because the federal 
interest is so dominant that Congress intends to occupy a regulatory 
field with no room for state supplementation (field preemption) or 
because the federal government has enacted a complete regulatory scheme 
in an area such that any state action would be inconsistent with the 
federal legislation (conflict preemption).
    Nissan concluded by arguing that individual state laws setting fuel 
economy standards would be impliedly as well as expressly preempted. It 
argued that those laws would conflict with EPCA, which authorizes DOT 
to develop and administer a national CAFE program. Neither the EPA, nor 
States are permitted to interfere with the CAFE regulatory regime 
currently established by Congress under EPCA. Because, as noted above, 
the emission of CO2 is related to fuel economy and because 
the only way to reduce CO2 is through fuel economy 
technologies, any effort to do so by EPA or the States would interfere 
with Congressional objectives under EPCA.
    Taken together, the primary arguments of the opponents of 
preemption were as follows:
    The opponents argued that the preemption waiver provision of the 
Clean Air Act expressly recognizes the right of California to adopt and 
enforce its own standards for ``air pollutants'' emitted by motor 
vehicles (i.e., emissions standards), and the right of the other States 
to adopt and enforce standards identical to California's 
standards.\167\ They said that Congress ratified and strengthened the 
preemption waiver provision in 1977, two years after the enactment of 
EPCA in 1975. Thus, they argue, Congress could not have intended EPCA 
to limit the rights they believe are recognized by the Clean Air Act.
---------------------------------------------------------------------------

    \167\ Clean Air Act Sec. Sec.  209(b), 177, 42 U.S.C. 7543 and 
7507.
---------------------------------------------------------------------------

    The opponents believe further that a State CO2 standard, 
including California's GHG/CO2 equivalent emissions 
standard, is not preempted under EPCA's express preemption provision, 
Section 32919(a). They offered two arguments in support of this belief.
    First, they argued that EPCA does not expressly preempt a State 
CO2 standard. They believe that statute's express preemption 
provision should be read narrowly, preempting State standards that 
regulate fuel economy itself, but not State standards that have a 
stated purpose other than improving fuel economy (i.e., reducing 
emissions) and merely have the effect of increasing fuel economy.
    Second, they argued that the intent of Congress concerning the 
relationship between State motor vehicle emissions standards and CAFE 
standards under EPCA is expressed in the Act's provision setting out 
the factors to be considered in setting CAFE standards 
(``decisionmaking factors provision''), Section 32902(f), not its 
express preemption provision. The decisionmaking factors provision 
requires NHTSA to consider technological feasibility, economic 
practicability, the effect of other Government standards on fuel 
economy, and the need of the nation to conserve energy, in determining 
the level at which it should set each CAFE standard. The opponents said 
the decisionmaking factors provision subordinates the CAFE standards to 
all State emissions standards, not vice versa.
    In addition, the opponents of preemption appear to have argued that 
there is no implied (conflict) preemption because State CO2 
standards and CAFE standards have different objectives and because 
NHTSA did not show how a State CO2 standard would adversely 
affect the CAFE standards. They argue further that, in the event of a 
conflict, CAFE standards must give way to the emissions standards per 
the decisionmaking factors provision.
NHTSA's Response to Public Comments on the Merits
Background
Fuel Economy Provisions of the Energy Policy and Conservation Act
    EPCA established the CAFE program, mandating the issuance and 
implementation of standards for passenger cars and light trucks. The 
statute specifies that the passenger car standard is 27.5 mpg unless 
the agency finds that the maximum feasible level for a model year is 
different, and sets it at that level. It directs NHTSA to establish 
light truck standards at the maximum feasible level, subject to four 
statutorily specified factors.\168\
---------------------------------------------------------------------------

    \168\ 49 U.S.C. 32902(a).
---------------------------------------------------------------------------

    The Act specifies that the agency is to determine the maximum 
feasible level after considering technological feasibility, economic 
practicability, the effect of other motor vehicle standards on fuel 
economy, and the need of the Nation to conserve energy.\169\ The agency 
has historically included the potential for adverse safety consequences 
when deciding upon a maximum feasible level. The overarching principle 
that emerges from the enumerated factors and the court-sanctioned 
practice of considering safety and links them together is that CAFE 
standards should be set at a level that will achieve the greatest 
amount of fuel savings without leading to significant adverse economic 
or other societal consequences.\170\
---------------------------------------------------------------------------

    \169\ 49 U.S.C. 32902(f).
    \170\ Average Fuel Economy Standards for Light Trucks; Model 
Years 2008-2011, 70 FR 51414, 51424 (August 30, 2005) (to be 
codified at 49 CFR pt. 533).
---------------------------------------------------------------------------

    EPCA specifies that compliance with CAFE standards is to be 
determined in accordance with test and calculation procedures 
established by EPA. 49 U.S.C. 32904(c). Under the procedures 
established by EPA, compliance with the CAFE standards is based on the 
rates

[[Page 17656]]

of emission of CO2, CO, and hydrocarbons from covered 
vehicles, but primarily on the emission rates of CO2. In the 
measurement and calculation of a given vehicle model's fuel economy for 
purposes of determining a manufacturer's compliance with federal fuel 
economy standards, the role of CO2 is approximately 100 
times greater than the combined role of the other two relevant carbon 
exhaust gases. Given that the amount of CO2, CO, and 
hydrocarbons emitted by a vehicle varies directly with the amount of 
fuel it consumes, EPA can reliably and accurately convert the amount of 
those gases emitted by that vehicle into the miles per gallon achieved 
by that vehicle.
    Congress explicitly and broadly preempted all state laws and 
standards relating to fuel economy standards:

[w]hen an average fuel economy standard prescribed under this 
chapter [49 U.S.C.S. Sec. Sec.  32901 et seq.] is in effect, a State 
or a political subdivision of a State may not adopt or enforce a law 
or regulation related to fuel economy standards or average fuel 
economy standards for automobiles covered by an average fuel economy 
standard under this chapter.\171\
---------------------------------------------------------------------------

    \171\ 49 U.S.C. 32919(a).

    Congress did not include a provision authorizing any waivers of 
that preemption provision for any State for any reason.
Clean Air Act
    Congress has also preempted all state standards relating to the 
control of motor vehicle emissions:

[n]o State or any political subdivision thereof shall adopt or 
attempt to enforce any standard relating to the control of emissions 
from new motor vehicles or new motor vehicle engines.\172\
---------------------------------------------------------------------------

    \172\ 42 U.S.C. 7543 (a).

    However, Congress has also expressly authorized EPA to waive the 
preemption provision under the Clean Air Act for states that adopted 
emissions control standards before 1966.\173\ While California is the 
only State that meets that criterion, and thus is the only state that 
can obtain a waiver of the preemption provision, the Clean Air Act 
permits other States to adopt California emission standards.\174\
---------------------------------------------------------------------------

    \173\ 42 U.S.C. 7543 (b).
    \174\ 42 U.S.C. 7507.
---------------------------------------------------------------------------

Current State GHG Standards \175\
    The GHG standard purports to regulate four motor vehicle climate 
change emissions:
---------------------------------------------------------------------------

    \175\ According to the National Academy of Sciences, 
Massachusetts, New York, New Jersey, Connecticut, Rhode Island, 
Vermont, and Maine have adopted the California GHG emissions 
standard. In addition, Washington State has adopted the standard 
contingent upon Oregon's adoption of it. Oregon ``has adopted 
temporary rules . . . and is scheduled to propose permanent rules in 
the summer of 2006.'' State and Federal Standards for Mobile Source 
Emissions, prepublication copy, 145 (2006).
    This discussion of preemption focuses on the details of the 
California standard in order to provide the clearest possible 
expression of the underlying technical rationale for why that 
standard is not consistent with NHTSA's authority to regulate fuel 
economy. This specific discussion should not be interpreted to mean 
that other standards would be acceptable.
---------------------------------------------------------------------------

     CO2, CH4 and N2O 
emissions resulting directly from operation of the vehicle,
     CO2 emissions resulting from operating the air 
conditioning system,
     HFC (refrigerant) emissions from the air conditioning 
system due to either leakage, losses during recharging, or release from 
scrappage of the vehicle at end of life, and
     Upstream emissions associated with the production of the 
fuel used by the vehicle.\176\
---------------------------------------------------------------------------

    \176\ Title 13, California Code of Regulations (CCR) Sec.  
1961.1(a)(1)(B)1.a. For vehicles certified on conventional fuels 
(e.g., gasoline), CARB's regulation does not encompass upstream 
emissions (i.e., emissions associated with the production and 
transportation of the fuel used by the vehicle). California 
Environmental Protection Agency, Air Resources Board, Regulations To 
Control Greenhouse Gas Emissions From Motor Vehicles, Final 
Statement Of Reasons (FSOR), at 6-7.
---------------------------------------------------------------------------

    As is shown later in the discussion of preemption, compliance with 
the GHG standards will be based primarily on the CO2 
emission rates of vehicles. The States will measure the amounts of 
emissions of these four gases and then convert them into 
``CO2-equivalent'' emissions.\177\ This reflects the status 
of CO2 as the reference gas for measuring the global warming 
potential of greenhouse gases.
---------------------------------------------------------------------------

    \177\ California Environmental Protection Agency, Air Resources 
Board, Regulations To Control Greenhouse Gas Emissions From Motor 
Vehicles, Initial Statement Of Reasons (ISOR), p. 48.
---------------------------------------------------------------------------

Constitutional basis for preemption
    Preemption results from Article VI of the U.S. Constitution, which 
provides that federal law ``shall be the supreme Law of the Land; and 
the Judges in every State shall be bound thereby, any Thing in the 
Constitution or Laws of any State to the Contrary notwithstanding.''
Principles of preemption
    The Supreme Court has held that preemption may be express or 
implied:

    State law may be preempted by express language in a 
congressional enactment,* * * by implication from the depth and 
breadth of a congressional scheme that occupies the legislative 
field * * *, or by implication because of a conflict with a 
congressional enactment.\178\

    \178\ Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 540 (2001).
---------------------------------------------------------------------------

Discussion
    In response to the public comments and letters from members of 
Congress, we have re-analyzed all issues carefully as set forth below, 
and determined, based on existing and foreseeable technologies for 
reducing CO2 emissions from motor vehicles, that the effect 
under EPCA and the Supremacy Clause of the U.S. Constitution is that 
State regulation of those emissions is preempted.
Any Regulation Governing Carbon Dioxide Emissions From Motor Vehicles 
Relates to Average Fuel Economy Standards and Is Expressly Preempted 
Under 49 U.S.C. Chapter 329
    EPCA contains a broadly worded provision expressly preempting any 
State standard or regulation that is ``related to'' a fuel economy 
standard:\179\
---------------------------------------------------------------------------

    \179\ 70 FR, at 51457 (August 30, 2005).

---------------------------------------------------------------------------
[49 U.S.C.] 32919. Preemption

    (a) General. When an average fuel economy standard prescribed 
under this chapter [49 U.S.C.S. Sec. Sec.  32901 et seq.] is in 
effect, a State or a political subdivision of a State may not adopt 
or enforce a law or regulation related to fuel economy standards or 
average fuel economy standards for automobiles covered by an average 
fuel economy standard under this chapter.

(Emphasis added.)

    While the express preemption provision on its face uses expansive 
language, any ambiguity regarding the appropriate reading of the 
provision, particularly in relation to other statutory provisions, must 
be resolved in light of the policy considerations embodied in EPCA. In 
NHTSA's judgment, this language includes, but is not limited to, 
explicit fuel economy standards issued by States. Because the only 
technologically feasible, practicable way for vehicle manufacturers to 
reduce CO2 emissions is to improve fuel economy,\180\ 
NHTSA's considered view is that a State regulation that requires 
vehicle manufacturers to reduce those emissions is a ``regulation 
related to fuel economy standards or average fuel economy standards.'' 
\181\ This view is consistent with the legislative history of the 
preemption provision, and with the

[[Page 17657]]

Supreme Court's interpretation of similar provisions.
---------------------------------------------------------------------------

    \180\ NHTSA recognizes that regulating the producers of motor 
vehicle fuels can contribute to the reduction of CO2 
emissions. The preemption provision of EPCA does not preempt State 
regulation of those fuels. However, it does preempt State regulation 
of the manufacturers of motor vehicles directly related to fuel 
economy, including regulation of CO2 emissions of their 
vehicles.
    \181\ Id.
---------------------------------------------------------------------------

    The legislative history of that provision confirms that Congress 
intended to be broadly preemptive in the area of fuel economy 
regulation. The Senate bill \182\ would have preempted State laws only 
if they were ``inconsistent'' with federal fuel economy standards, 
labeling, or advertising, while the House bill \183\ would have 
preempted State laws only if they were not ``identical to'' a Federal 
requirement. The express preemption provision as enacted preempts all 
State laws that relate to fuel economy standards. No exception is made 
for State laws on the ground that they are consistent with or identical 
to federal requirements.
---------------------------------------------------------------------------

    \182\ S. 1883, 94th Cong., 1st Sess., Section 509.
    \183\ H.R. 7014, 94th Cong., 1st Sess., Section 507 as 
introduced, Section 509 as reported.
---------------------------------------------------------------------------

    In interpreting the express preemption provisions of other statutes 
containing the identical ``relates to'' language found in EPCA, the 
Supreme Court has found this language to be very expansive. A State law 
relates to a Federal law if the State law ``has a connection with or 
refers to'' the subject of the Federal law. The Court made the latter 
finding first under ERISA \184\ and then, based on its ERISA cases and 
the use of identical language, under the Airline Deregulation Act 
(ADA).\185\ ``Since the relevant language of the ADA is identical, we 
think it appropriate to adopt the same standard here * * * ''\186\ 
Particularly since the Airline Deregulation Act's situation is a law 
involving transportation, we think its interpretation of the phrase 
``relates to'' is instructive here.
---------------------------------------------------------------------------

    \184\ Shaw v. Delta Airlines, Inc., 463 U.S. 85, 97 (1983).
    \185\ Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384 
(1992).
    \186\ Ibid.
---------------------------------------------------------------------------

    In particular, the Court has provided guidance on the ultimate 
limits of a strictly textual approach in interpreting either the phrase 
``relates to'' or the phrase ``has a connection with,'' given the 
existence of unending relationships and ``infinite connections'' and 
the resulting potential for an overly extensive application of ERISA's 
preemption provision, the Court declined to take that approach in 
interpreting that provision in Blue Cross & Blue Shield Plans v. 
Travelers Ins. Co.\187\ The Court said that to determine whether a 
State law has a forbidden connection, it would instead look ``both to 
the objectives of the ERISA statute as a guide to the scope of the 
state law that Congress understood would survive, as well as to the 
nature of the effect of the state law on ERISA plans. California Div. 
of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 
U.S. 316, 325 (1997), quoting Travelers, * * * , at 656 * * * '' 
(Emphasis added.) (Internal quotations omitted.) \188\
---------------------------------------------------------------------------

    \187\ 514 U.S. 645, 656, 658-662 (1995),
    \188\ Egelhoff v. Egelhoff, 532 U.S. 141, 147 (2001).
---------------------------------------------------------------------------

    Even under that sort of analysis, however, the results would be 
unchanged here. Congress had a variety of interrelated goals in 
enacting EPCA and has charged NHTSA with balancing and achieving them. 
Among them was the overarching one of improving motor vehicle fuel 
economy.\189\ To achieve that goal, Congress did not simply mandate the 
issuance of fuel economy standards set at whatever level NHTSA deemed 
appropriate. Nor did it simply say that levels must be set consistent 
with the criteria it specified in Section 32902(f). It went 
considerably further, mandating the setting of standards at the maximum 
feasible level.
---------------------------------------------------------------------------

    \189\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1340 (D.C. 
Cir. 1986).
---------------------------------------------------------------------------

    Congress also sought national uniform fuel economy standards ``[i]n 
order to avoid any manufacturer being required to comply with differing 
State and local regulations with respect to automobile or light-duty 
truck fuel economy.'' \190\ To that end, it expressly preempted State 
and local laws and regulations relating to fuel economy standards.
---------------------------------------------------------------------------

    \190\ S. Rep. No. 94-179, 25 (1975).
---------------------------------------------------------------------------

    Other congressional objectives underlying EPCA include avoiding 
serious adverse economic effects on manufacturers and maintaining a 
reasonable amount of consumer choice among a broad variety of vehicles. 
Congress was explicitly concerned that the CAFE program be carefully 
drafted so as to require levels of average fuel economy that do not 
have the effect of either ``imposing impossible burdens or unduly 
limiting consumer choice as to capacity and performance of motor 
vehicles.'' \191\ These concerns are equally applicable to the manner 
in which that program is implemented.
---------------------------------------------------------------------------

    \191\ H. Rep. No. 94-340, 87 (1975).
---------------------------------------------------------------------------

    To guide the agency toward the selection of standards meeting these 
competing objectives, Congress specified four factors that NHTSA must 
consider in determining which level is the maximum feasible level of 
average fuel economy and thus the level at which each standard must be 
set.
    These are technological feasibility, economic practicability, the 
effect of other Government standards on fuel economy, and the need of 
the Nation to conserve energy. In addition, ``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.'' \192\
---------------------------------------------------------------------------

    \192\ Competitive Enterprise Institute v. NHTSA, 901 F.2d 107, 
120 at n.11 (D.C. Cir. 1990).
---------------------------------------------------------------------------

    While the Court in Travelers said State laws found to have ``only a 
tenuous, remote, or peripheral connection'' to ERISA's purposes, 
especially in areas of traditional State regulation, are not 
preempted,\193\ NHTSA has concluded that a State GHG standard is not 
such a law. As explained at length below, to the extent that it 
regulates tailpipe CO2 emissions, a State GHG standard has a 
direct and very substantial effect on EPCA's objectives, placing it 
virtually at the very center of the reach of EPCA's express preemption 
provision, not at or even near its periphery. Thus, there is no need 
here to address issues about the definition or location of the outer 
reaches of the provision's application.
---------------------------------------------------------------------------

    \193\ Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 
U.S. 645, 658-662 (1995).
---------------------------------------------------------------------------

    As explained below, CO2 emissions account for over 90 
percent of all CO2 equivalent emissions from a motor 
vehicle. Accordingly, a State standard regulating GHG emissions 
expressed as CO2 equivalent emissions is, to a very 
substantial extent, a State CO2 emissions standard. To that 
extent, a State GHG standard is fuel economy standard in almost all but 
name and stated purpose. It would have virtually the same effects as a 
fuel economy standard. Thus, NHTSA has concluded that a State GHG 
standard does not incidentally affect vehicle manufacturers; it 
directly targets them.
    Likewise, in NHTSA's view, such a standard does not incidentally 
affect decisions by manufacturers to add fuel saving technologies to 
their vehicles. Because the only currently practical way for vehicle 
manufacturers to reduce CO2 tailpipe emissions is through 
application of fuel saving technologies \194\ and no technologies are 
even under development that would make possible reduction of 
CO2 emissions independent of reducing fuel consumption,\195\ 
such a standard directly targets manufacturers and compels the use of 
those technologies. Therefore, the agency has concluded

[[Page 17658]]

that the effect of a State GHG standard on vehicle design and 
performance is the same as that of fuel economy standards.
---------------------------------------------------------------------------

    \194\ Essentially all of the technologies identified by the 
California Air Resources Board for reducing CO2 emissions 
are among the technologies listed by the National Academy of Science 
in its 2002 report on reforming the CAFE program and improving fuel 
economy. The essential identity of the two lists confirms the fact 
that, currently, the only method for reducing CO2 
emissions is to reduce fuel consumption.
    \195\ EPA has reached a similar conclusion. See 68 FR 52922, 
52929.
---------------------------------------------------------------------------

    Commenters opposing preemption suggested that the purpose of a 
State law, not its effects, should determine whether there is 
preemption. Since the purpose of a State GHG regulation for motor 
vehicles is regulating CO2 and other GHG emissions from 
motor vehicles, not fuel economy, they suggest that there can be no 
preemption under EPCA's express preemption provision. This limited view 
regarding the extent of preemption under that provision is inconsistent 
with NHTSA's expert analysis, which is guided by and comports with the 
Supreme Court's discussion of the similarly worded express preemption 
provisions in ERISA and the ADA. As noted above, in resolving ambiguity 
regarding preemption under a Federal law, the Court looks at the 
effects of a State law on the subject addressed by the Federal law to 
aid in determining if there is preemption.\196\
---------------------------------------------------------------------------

    \196\ Egelhoff, at 147.
---------------------------------------------------------------------------

    A federal statute's broadly worded express preemption provision 
does not lose its preemptive effect because a State cites a purpose 
other than or in addition to the purpose of that federal statute.\197\ 
In Gade, the Supreme Court said that ``[i]n assessing the impact of a 
state law on the federal scheme, we have refused to rely solely on the 
legislature's professed purpose and have looked as well to the effects 
of the law.'' \198\
---------------------------------------------------------------------------

    \197\ Gade v. National Solid Wastes Management Ass'n., 505 U.S. 
88, 105 (1992).
    \198\ Id., at 106; see also Morales, at 386: ``petitioner 
advances the notion that only state laws specifically addressed to 
the airline industry are pre-empted, whereas the ADA imposes no 
constraints on laws of general applicability. Besides creating an 
utterly irrational loophole (there is little reason why state 
impairment of the federal scheme should be deemed acceptable so long 
as it is effected by the particularized application of a general 
statute), this notion similarly ignores the sweep of the `relating 
to' language. We have consistently rejected this precise argument in 
our ERISA cases: `[A] state law may ``relate to'' a benefit plan, 
and thereby be pre-empted, even if the law is not specifically 
designed to affect such plans, or the effect is only indirect.' '' 
(Citations omitted.)
---------------------------------------------------------------------------

    The agency's conclusions here that the EPCA preemption provision is 
expansive and preempts State emissions regulations that have the 
practical effect of regulating fuel economy are fully in keeping with 
earlier views expressed by the government. Further, they are consistent 
with views that EPA has articulated.
    In June 2002, the U.S. District Court for the Eastern District of 
California issued an order granting plaintiff automobile manufacturers' 
and dealers' motion for preliminary injunction and issuing a 
preliminary injunction in Central Valley Chrysler-Plymouth v. 
California Air Resources Bd., No. CV-F-02-5017 REC/SMS, 2002 U.S. Dist. 
LEXIS 20403 (E.D. Cal. June 11, 2002) (enjoining California zero-
emission-vehicle (ZEV) rule). The court found that the plaintiffs had 
shown that the ZEV rule was ``related to'' fuel economy standards 
because it had the purpose and practical effect of regulating fuel 
economy. The court also found that ``preemption cannot be avoided by 
intertwining preempted requirements with nonpreempted requirements.''
    In October 2002, the United States filed an amicus curiae brief in 
support of affirming the June 2002 order in Central Valley Chrysler-
Plymouth, Inc. et al. v. Michael P. Kenny, No. 02-16395, (9th Cir. 
2002), pointing out that EPCA contains a broadly stated provision 
expressly preempting state regulations ``related to'' fuel economy 
standards. The government further pointed out that, unlike the Clean 
Air Act, EPCA does not contain an exception allowing a state law that 
regulates fuel economy, regardless of the purpose of the law. Given 
that Congress had included some exceptions, but not that particular 
one, the government said that it would be inappropriate to read in or 
imply that exception.
    In December 2002, NHTSA published a CAFE NPRM for MY 2005-2007 
light trucks in which the agency addressed certain court filings by the 
State of California relating to CAFE preemption. The agency noted that 
California had:

    [I]n recent court filings, asserted that NHTSA has not treated 
the CAFE statute as preempting state efforts to engage in CAFE 
related regulation, stating that ``time and time again, NHTSA in 
setting CAFE standards has commented on the fuel economy effects of 
California's emissions regulations, and not once has it even 
suggested that these were preempted.'' See Appellants Opening Brief 
filed on behalf Michael P. Kenny in Central Valley Chrysler-
Plymouth, Inc. et. al. v. Michael P. Kenny, No. 02-16395, at p. 33 
(9th Cir. 2002). As a result, the State suggests that it may, 
consistent with federal law, issue regulations that relate to fuel 
economy.
    The State misses the point. The agency reviews emissions 
requirements to ensure that we do not establish a standard that is 
infeasible in light of other public policy considerations, including 
federal and state efforts to regulate emissions. Thus, we consider 
potential fuel economy losses due to more stringent emissions 
requirements when we determine maximum feasible fuel economy levels.
    This does not mean that a state may issue a regulation that 
relates to fuel economy and which addresses the same public policy 
concern as the CAFE statute. Our statute contains a broad preemption 
provision making clear the need for a uniform, federal system: 
``When an average fuel economy standard prescribed under this 
chapter is in effect, a State or a political subdivision of a State 
may not adopt or enforce a law or regulation related to fuel economy 
standards or average fuel economy standards for automobiles covered 
by an average fuel economy standard under this chapter.'' 49 U.S.C. 
32919(a).
    The fact that NHTSA had not expressly addressed this particular 
aspect of California's requirements should not have been interpreted 
as tacit acceptance. Indeed, the United States has taken the express 
position in the Kenny case that it has a substantial interest in 
enforcing the federal fuel economy standards and in ensuring that 
states adhere to the Congressional directive prohibiting them from 
adopting or enforcing any law or regulation related to fuel economy 
or average fuel economy standards.\199\
---------------------------------------------------------------------------

    \199\ Light Truck Average Fuel Economy Standards Model Years 
2005-2007, 67 FR 77015, at 77025 (Proposal to establish standards 
December 16, 2002).

    In its CAFE final rule for MY 2005-07 light trucks, NHTSA stated 
that its ``position with regard to the relationship between state laws 
and our federal fuel economy responsibility was set forth in the 
[December 2002] 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.''
    In September 2003, the Environmental Protection Agency specifically 
discussed the relationship between CO2 standards and fuel 
economy. In denying an October 1999 petition by the International 
Center for Technology Assessment (ICTA) asking the EPA to regulate 
CO2 and other greenhouse gas emissions from motor vehicles 
under the Clean Air Act for the purpose of addressing global climate 
change, the EPA included a discussion of how regulating CO2 
emissions would cause ``[i]nterference with Fuel Economy Standards:''

Even if GHGs were air pollutants generally subject to regulation 
under the CAA, Congress has not authorized the Agency to regulate 
CO2 emissions from motor vehicles to the extent such 
standards would effectively regulate the fuel economy of passenger 
cars and light duty trucks. No technology currently exists or is 
under development that can capture and destroy or reduce emissions 
of CO2, unlike other emissions from motor vehicle 
tailpipes. At present, the only practical way to reduce tailpipe 
emissions of CO2 is to improve fuel economy. Congress has 
already created a detailed set of mandatory standards governing the 
fuel economy of cars and light duty trucks, and has authorized DOT--
not EPA--to implement those standards. The only way for EPA to 
proceed with CO2 emissions standards without upsetting 
this

[[Page 17659]]

statutory scheme would be to set a standard less stringent than CAFE 
for cars and light duty trucks. But such an approach would be 
meaningless in terms of reducing GHG emissions from the U.S. motor 
vehicle fleet.\200\
---------------------------------------------------------------------------

    \200\ Control of Emissions from New Highway Vehicles and 
Engines, 68 FR 52922, 52929 (denial of petition September 8, 2003).

    EPA further explained this position in its brief filed in early 
2005 in the Court of Appeals for the D.C. Circuit in Commonwealth of 
Massachusetts v. EPA, No. 03-1361, in which 12 states and a number of 
environmental groups filed a petition for review challenging EPA's 
---------------------------------------------------------------------------
denial of ICTA's petition:

Further reinforcing both the legal and policy rationales for the 
ICTA Petition Denial is the fact that at present, the only practical 
way of making a meaningful reduction in motor vehicle emissions of 
CO2 (the most significant greenhouse gas) is by 
increasing fuel economy. See 68 FR at 52929. Consequently, even if 
EPA possessed CAA authority to regulate CO2 for climate 
change purposes, any motor vehicle standard EPA might set under the 
Act that required meaningful reductions in CO2 emissions 
would effectively require a corresponding increase in fuel economy. 
However, in the Energy Policy and Conservation Act (''EPCA''), 49 
U.S.C. 32901-18, Congress established a detailed program for 
regulating the fuel economy of passenger cars and light trucks--the 
bulk of the motor vehicle fleet--and it authorized DOT, not EPA, to 
implement that program. EPA thus reasonably concluded that it would 
be inconsistent with EPCA for EPA to set CO2 emission 
standards under the CAA that would effectively require significant 
increases in the fuel economy of vehicles subject to EPCA. 68 FR at 
52929. In arguing that EPCA does not expressly abrogate EPA's 
authority under the CAA, see Pet. Br. at 38-43, Petitioners ignore 
those EPCA provisions that clearly signal Congress' intent that 
regulation of motor vehicle fuel economy be governed by EPCA alone.

NHTSA Has Concluded That Any Effort to Regulate Carbon Dioxide 
Emissions From Motor Vehicles Is Related to Average Fuel Economy 
Standards for Motor Vehicles Under 49 U.S.C. Chapter 329
1. Motor Vehicle Fuel Economy Is Directly Related to Emissions of 
Carbon Dioxide
    Fossil fuels such as petroleum contain mostly hydrocarbons 
(compounds containing hydrogen and carbon). In the combustion process, 
these fuels are oxidized to produce heat. In perfect combustion, the 
oxygen (O2) in the air combines with all of the carbon (C) 
in the fuel to form carbon dioxide (CO2) and all of the 
hydrogen (H) in the fuel to form water (H2O).
    Most light trucks are powered by gasoline internal combustion 
engines. The combustion of gasoline produces CO2 in amounts 
that can be readily calculated. Based on its content (carbon and 
hydrogen), as a matter of basic chemistry, the burning of a gallon of 
gasoline produces about 20 pounds of CO2.\201\ \202\
---------------------------------------------------------------------------

    \201\ Most of that weight comes from the oxygen in the air. A 
carbon atom has an atomic weight of 12, and each oxygen atom has an 
atomic weight of 16, giving each single molecule of CO2 
an atomic weight of 12 + (16 x 2) or 44. Therefore, to calculate the 
weight of the CO2 produced from a gallon of gasoline, the 
weight of the carbon in the gasoline is multiplied by 44/12 or 3.7. 
Since gasoline is about 87% carbon and 13% hydrogen by weight, and 
since a gallon of gasoline weighs about 6.3 pounds, the carbon in a 
gallon of gasoline weighs (6.3 lbs. x .87) or 5.5 pounds. If the 
weight of the carbon (5.5 pounds) is then multiplied by 3.7, the 
answer is about 20 pounds. (Source: http://www.fueleconomy.gov/feg/co2.shtml. The website, http://www.fueleconomy.gov, is operated 
jointly by the Department of Energy and the Environmental Protection 
Agency.)
    \202\ In addition, CO2 emissions can be determined 
from the carbon content of the fuel by using a carbon content 
coefficient that reflects the amount of carbon per unit of energy in 
each fuel. CO2 emissions = energy consumption [e.g., in 
Btu] x carbon content coefficient for the fuel x fraction of carbon 
oxidized [99% for petroleum] x 3.67 [conversion of carbon to carbon 
dioxide (44/12) based on molecular weights]. T.J. Blasing, G. 
Marland and C. Broniak, Estimates of Annual Fossil-Fuel 
CO2 Emitted for Each State in the U.S.A. and the District 
of Columbia for Each Year from 1960 through 2001, at http://cdiac.ornl.gov/trends/emis_mon/stateemis/emis_state.htm. The 
carbon content coefficients for petroleum products have varied very 
little over time--less than one percent per year since 1990. Id. 
Reformulated gasoline introduced in the 1990s pursuant to the Clean 
Air Act Amendments of 1990 has a carbon emissions coefficient 
approximately one percent smaller than that of standard gasoline.
---------------------------------------------------------------------------

    In practice, the combustion process is not 100 percent efficient 
and engines produce several types of emissions as combustion byproducts 
or as a result of incomplete combustion. In an internal combustion 
engine, these include nitrogen oxides (NOX) (from nitrogen 
and oxygen in the atmosphere), carbon monoxide (CO) and hydrocarbons 
(HC), including methane. These emissions do not alter the fact that 
combustion of gasoline produces CO2. Moreover, the amounts 
of CO2 emitted per mile are far greater than the amounts of 
HC, CO, and NOX, singly or combined.\203\ \204\
---------------------------------------------------------------------------

    \203\ U.S. EPA, Average Annual Emissions and Fuel Consumption 
for Passenger Cars and Light Trucks, EPA420-F-00-013, April 2000. 
Available on the Internet at http://www.epa.gov/otaq/consumer/f00013.pdf.
    \204\ Good, David, U.S. EPA, 2006 test-car-list-and analysis for 
DD 206.xls, February 2006. (unpublished analysis of 2006 test car 
list available at http://www.epa.gov/otaq/tcldata.htm).
---------------------------------------------------------------------------

    CO2 emissions are always and directly linked to fuel 
consumption because CO2 is the ultimate end product of 
burning gasoline.\205\ The more fuel a vehicle burns or consumes, the 
more CO2 it emits.\206\ Viewed another way, fuel economy is 
directly related to emissions of greenhouse gases such as 
CO2.\207\ Fuel consumption and CO2 emissions from 
a vehicle are two ``indissociable'' parameters.\208\
---------------------------------------------------------------------------

    \205\ See also EPA's denial of petition to regulate 
CO2 tailpipe emissions from motor vehicles, 68 FR 52922, 
52931, September 8, 2003; Center for Biological Diversity (November 
22, 2005, NHTSA 2005-22223-1382) (p. 2-3); RAND Europe, Preparation 
of Measures to Reduce CO2 Emissions from N1 Vehicles, 
Final Report, at 4, prepared for the European Commission, 11th April 
2003.
    \206\ ``Vehicles with lower fuel economy burn more fuel, 
creating more CO2. Your vehicle creates about 20 pounds 
of CO2 (170 cu. ft.) per gallon of gasoline it consumes. 
Therefore, you can reduce your contribution to global climate change 
by choosing a vehicle with higher fuel economy. By choosing a 
vehicle that achieves 25 miles per gallon rather than 20, you can 
prevent the release of about 17 (260 thousand cu. ft.) tons of 
greenhouse gases over the lifetime of your vehicle.'' Model Year 
2006 Fuel Economy Guide, at 2, Department of Energy and 
Environmental Protection Agency, DOE/EE-0309.
    \207\ 68 FR 52922, 52931; Light-Duty Automotive Technology and 
Fuel Economy Trends: 1975 through 2005--Executive Summary, EPA420-S-
05-0001, July 2005, at http://www.epa.gov/otaq/cert/mpg/fetrends/420s05001.htm.
    \208\ P. Leduc, B. Dubar, A. Ranini and G. Monnier, Downsizing 
of Gasoline Engine: an Efficient Way to Reduce CO2 
Emissions, at 2, Institut Francais du Petrole, Division Techniques 
d'Applications Energetiques, 92852 Rueil-Malmaison Cedex--France).
---------------------------------------------------------------------------

2. The Most Significant Factor in Determining the Compliance of Motor 
Vehicles With NHTSA's Fuel Economy Standards Is Their Rate of Carbon 
Dioxide Emissions
    A manufacturer's compliance with the federal average fuel economy 
standards is based on the collective fuel economies of its covered 
vehicles. For purposes of determining compliance with federal fuel 
economy standards, EPA and manufacturers measure the amount of 
CO2, CO, and HC emitted from the vehicle. The regulations 
requiring this approach do so because of the scientific relationship 
between fuel consumption and carbon emissions.
    As noted above, gasoline is comprised of carbon and hydrogen in the 
form of HC compounds. Carbon and hydrogen are basic elements that are 
not converted to other elements in either internal combustion engines 
or catalytic converters. As a component of the fuel, the carbon is 
conveyed to the engine, where combustion occurs. Thereafter, the 
carbon, largely in different compounds than in gasoline, is emitted 
through the tailpipe. Thus, if the carbon content of the fuel is known, 
the amount of fuel consumed by the engine can be determined by 
measuring tailpipe emissions of carbon-containing compounds.\209\ Fully 
combusted carbon

[[Page 17660]]

takes the form of CO2. Partially combusted carbon takes the 
form of CO or HC (generally unburned hydrocarbons). Therefore, fuel 
consumption may be determined by measuring tailpipe emissions of 
CO2, CO, and HC.
---------------------------------------------------------------------------

    \209\ DOT FHWA, Perspectives on Fuel Consumption and Air 
Contaminant Emission Rates by Highway Vehicles. http:// 
www.tfhrc.gov/structur/pdf/01100.pdf.
---------------------------------------------------------------------------

    As a result of incomplete combustion, CO and HC are emitted from a 
vehicle's engine. However, in the years since vehicle manufacturers 
were first required to meet federal fuel economy standards, the 
manufacturers have also been required under the Clean Air Act to meet 
increasingly stringent standards for emission of CO, HC, 
NOX, and particulates.\210\ They have been able to meet 
these standards because fuels have been reformulated to burn cleaner, 
and vehicle manufacturers have applied many significant technological 
advances to the engines and vehicles (e.g., multipoint fuel injection, 
closed-loop computer-controlled mixture control, and close-coupled 3-
way exhaust catalysts). As a result, emissions of CO and HC have fallen 
dramatically. Moreover, the technologies that produce these reductions 
in air pollution do so by more completely converting CO and HC to 
CO2 (and water).\211\ Over the same time period, there has 
not been a corresponding decline in CO2 emissions, which, as 
noted above, are the necessary result of gasoline consumption. CO and 
HC play an increasingly and extremely minor role in the measurement of 
fuel economy, such that fuel economy has become virtually synonymous 
with CO2 emission rates.
---------------------------------------------------------------------------

    \210\ As explained below in the final section of the discussion 
of preemption, NHTSA does not believe that regulation of these 
emissions is preempted by EPCA since it is the agency's judgment 
that such regulation only tangentially affects fuel economy.
    \211\ Because carbon dioxide is, like water, an ultimate 
byproduct of combustion, it cannot be further converted on the 
vehicle to some other compound through any practical means.
---------------------------------------------------------------------------

    The fuel economy of a particular vehicle is determined by a formula 
promulgated by EPA. That formula (an equation) calculates fuel economy 
based on carbonaceous emissions from the vehicle, taking into account 
the normalization of the fuel to a standardized test fuel. Under the 
formula, in determining fuel economy, all carbon emissions--i.e., the 
CO2 emission rate, HC emission rate, and CO emission rate--
are considered.
    Significantly, as demonstrated by the example below, in determining 
fuel economy the role of CO2 emissions greatly outweighs 
that of these other exhaust gases. This is reflected by the relative 
magnitudes of the CO2 term and non-CO2 terms in 
the equation. In other words, calculating fuel economy is largely a 
function of CO2 emissions.
    Under 40 CFR 600.113, fuel economy (mpg) is calculated using the 
following equation:

[GRAPHIC] [TIFF OMITTED] TR06AP06.026

Where:

HC = hydrocarbon emission rate (grams per mile)
CO = carbon monoxide emission rate (grams per mile)
CO2 = carbon dioxide emission rate (grams per mile)
CWF = carbon weight fraction of test fuel
NHV = net heating value (by mass) of test fuel
SG = specific gravity of test fuel

    Under the regulation, separate measurements and calculations under 
the Federal Test Procedure (i.e., city cycle) and Federal Highway Fuel 
Economy Test Procedure (i.e., highway cycle) are required, with the 
resultant city (mpgc) and highway (mpgh) fuel 
economy values being harmonically averaged using weights of 0.55 and 
0.45, respectively.\212\
---------------------------------------------------------------------------

    \212\ 40 CFR 600.206-93.
---------------------------------------------------------------------------

    Determining the characteristics of a test fuel and inserting them 
into the above equation is a preliminary step toward assessing the 
relative importance of CO2 emissions in determining 
compliance with the fuel economy standards.
    For this purpose, we will use the characteristics of a test fuel 
set forth in the sample calculation in Appendix II to 40 CFR part 600:

CWF = 0.868
NHV = 18,478 Btu per pound
SG = 0.745

    These values are within about 8 percent of other values in the 
record (given relatively minor variations, particularly in heating 
value, in gasolines) and are reasonable for the purposes of this 
assessment, although very precise data would be collected for a test 
for compliance with the rule.\213\
---------------------------------------------------------------------------

    \213\ See, e.g., Fuel economy impact of reformulated gasoline 
(energy (NHV) of fuel, at http://www.epa.gov/otaq/rfgecon.htm; Motor 
Gasolines Technical Review, at http://www.chevron.com/products/prodserv/fuels/bulletin/motorgas/; Carbon Coefficients, at http://www.eia.doe.gov/oiaf/1605/87-92rpt/appa.html; and Specific Gravity--
Liquids, at http://www.engineeringtoolbox.com/specific-gravity-liquids-d_336.html.
---------------------------------------------------------------------------

    Substituting these values into EPA's general equation for fuel 
economy shown above yields
[GRAPHIC] [TIFF OMITTED] TR06AP06.027

 which algebraically reduces to the following:
[GRAPHIC] [TIFF OMITTED] TR06AP06.028


[[Page 17661]]


    Based on EPA data \214\ averaged across all MY 2006 truck test data 
available at http://www.epa.gov/otaq/tcldata.htm (which does not 
include production data), model year 2006 light trucks have the 
following city cycle emission rates as determined by testing by the 
Federal Test Procedure:
---------------------------------------------------------------------------

    \214\ Good, David, op. cit.

HC = 0.042 g/mi
CO = 0.056 g/mi
CO2 = 471 g/mi

    Substituting these values and the fuel characteristics noted above 
into the algebraically reduced equation shown above,
[GRAPHIC] [TIFF OMITTED] TR06AP06.029

which produces the following city fuel economy in miles per gallon:
[GRAPHIC] [TIFF OMITTED] TR06AP06.030

    The average model year 2006 light truck emission rates on the 
highway cycle were as follows: \215\
---------------------------------------------------------------------------

    \215\ Ibid.

HC = 0.011 g/mi
CO = 0.17 g/mi
CO2 = 316 g/mi

which, using the formula above, yields the following highway fuel 
economy in miles per gallon:
[GRAPHIC] [TIFF OMITTED] TR06AP06.031

    For both the city and highway calculations, the controlling 
independent variable is the large number (term) in the denominator, 
given that the numerator is a fixed number. That number is the 
CO2 term (86.268). The other numbers (denominated the HC 
term and the CO term) are not significant. More particularly, for the 
2006 model year light trucks, the typical city and highway 
CO2 terms for light trucks are more than four hundred and 
one thousand, respectively, times the magnitude of the corresponding 
non-CO2 terms. NHTSA has concluded that this proportion will 
not change, especially in light of its conclusion that emission 
limitations on the other types of emissions are permissible under EPCA.
    As shown above, in the measurement and calculation of a given 
vehicle model's fuel economy for purposes of federal fuel economy 
standards, the role of CO2 is controlling and far greater 
than the combined role of the other two relevant exhaust gases (CO and 
HC). A manufacturer's compliance with the applicable CAFE standard is 
determined by averaging model-specific fuel economy values. This 
demonstrates that compliance with federal fuel economy standards is 
based primarily on CO2 emission rates of covered 
vehicles.\216\
---------------------------------------------------------------------------

    \216\ The vast majority of vehicles covered by NHTSA's light 
truck CAFE standard are powered by gasoline fueled engines. Hybrids 
are expected to comprise from 1.7 to 2.9 percent of the fleet of new 
vehicles, while diesels are expected to comprise from 0 to 2.6 
percent. These non-gasoline fueled vehicles will have a minor effect 
on the average fuel economy of the overall fleet of new vehicles.
---------------------------------------------------------------------------

3. NHTSA Has Concluded That a Reduction of CO2 Emissions 
From Motor Vehicles Is Possible Only Through the Incorporation of the 
same Technologies That Would Be Employed To Increase Fuel Economy
    The technologies that would be employed to reduce CO2 
emissions are, in all relevant ways, the same technologies as underlie 
NHTSA's judgment about the appropriate CAFE standards for light trucks, 
as explained below.\217\
---------------------------------------------------------------------------

    \217\ The agency has not identified any technologies, let alone 
realistic ones, that could be added to vehicle exhaust pipes to 
reduce CO2 emissions. Above and beyond the application of 
the technologies addressed in this discussion of preemption, to meet 
CO2 standards, in theory the manufacturer could make the 
vehicle much smaller or substantially reduce the size of its engine, 
depending on the stringency of the CO2 regulation. P. 
Leduc et al., op cit. see fn above; see also, http://www4.nationalacademies.org/news.nsf/isbn/0309076013?OpenDocument
---------------------------------------------------------------------------

    The CAFE standards promulgated by NHTSA are performance standards. 
As such, they do not require the employment of any particular 
technology. But the standards are the maximum feasible average fuel 
economy level that NHTSA decides the manufacturers can achieve in a 
particular year.\ 218\ They are based on various technologies. Those 
technologies are addressed in the NHTSA CAFE rulemaking record. In 
large measure, they are summarized in Table 3-2 of the 2002 National 
Academy of Sciences (NAS) CAFE study, which is reproduced below in 
Tables 18 and 19 (numbered as Tables 3-2 and 3-3, respectively, in the 
NAS study).
---------------------------------------------------------------------------

    \218\ See 49 U.S.C. 32902(a).

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[[Page 17662]]

[GRAPHIC] [TIFF OMITTED] TR06AP06.032


[[Page 17663]]


[GRAPHIC] [TIFF OMITTED] TR06AP06.033

    If a state regulation required manufacturers to reduce 
CO2 emissions from motor vehicles, the state regulation 
would be predicated on the manufacturers' employment of the same 
technologies they would employ to meet federal fuel economy standards. 
As an example, for discussion purposes, we will consider a California 
regulation. In 2005, CARB adopted amendments to its regulations that it 
referred to as ``California Exhaust Emission Standards and Test 
Procedures for 2001 and Subsequent Model Passenger Cars, Light Duty 
Trucks and Medium Duty Vehicles.''\219\ In support of its regulations, 
CARB released a report that listed more than 20 technologies that 
manufacturers could be applied in order to achieve compliance with its 
CO2-based standards.\220\ The technologies identified in the 
State's report with respect to large trucks are identified in the 
second column of the table reproduced below from its report, which 
employs acronyms that are explained below.
---------------------------------------------------------------------------

    \219\ See http://www.arb.ca.gov/regact/grnhsgas/grnhsgas.htm. 
The regulations are codified at Title 13 of the California Code of 
Regulations (CCR). See 13 CCR Sec.  1961.1 (2006).
    \220\ California Environmental Protection Agency, Air Resources 
Board, Regulations To Control Greenhouse Gas Emissions From Motor 
Vehicles, Initial Statement of Reasons.
    \221\ California Environmental Protection Agency, Air Resources 
Board, Regulations To Control Greenhouse Gas Emissions From Motor 
Vehicles Initial Statement of Reasons (CARB ISOR) at 68.

[[Page 17664]]



                                Table 20.--CARB ``Technology Packages'' To Reduce CO2 Emissions From a Large Truck \221\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Potential                 Potential
                                                                                                          CO2         Retail        CO2         Retail
                                                                                                       reduction      price      reduction      price
                  Light truck                         Combined technology packages       CO2  (g/mi)   from 2002    equivalent   from 2009    equivalent
                                                                                                        baseline       2002       baseline       2009
                                                                                                       (percent)                 (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Near...........................................  CCP, A6, (2009 baseline)..............          484         -5.5         $126            0           0%
Term 2009-2012.................................  DVVL, DCP, A6.........................          442        -13.6          549         -8.6         $423
                                                 CCP, DeAct, A6........................          433        -15.4          480        -10.5          354
                                                 DCP, DeAct, A6........................          430        -15.9          845        -11.0          931
                                                 DeAct, DVVL, CCP, A6, EHPS, ImpAlt....          418        -18.4          789        -13.6          663
                                                 DeAct, DVVL, CCP, AMT, EHPS, ImpAlt...          396        -22.6          677        -18.1          551
Mid Term 2013-2015.............................  CCP, DeAct, GDI-S, AMT, EHPS, ImpAlt..          416        -18.6          827        -13.9          701
                                                 DeAct, DVVL, CCP, A6, ISG, EHPS, eACC.          378        -26.2         1885        -21.9         1759
                                                 ehCVA, GDI-S, AMT, EHPS, ImpAlt.......          381        -25.5         1621        -21.2         1495
Long Term 2015-................................  GDI-L, AMT, EHPS, ImpAlt..............          354        -24.4         1460        -20.0         1334
                                                 Mod HEV...............................          372        -44.5         2630        -41.3         2504
                                                 dHCCI, AMT, ISG, EPS, eACC............          362        -29.3         2705        -25.2         2579
                                                 GDI-L, AMT, ISG, EPS, ImpAlt..........          354        -30.7         2537        -26.7         2411
                                                 HSDI, AdvHEV..........................          244        -52.2         8363        -49.5         8237
                                                 AdvHEV................................          241        -52.5         5311        -49.8         5185
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The acronyms in the table above refer to the following 
technologies: \222\
---------------------------------------------------------------------------

    \222\ The acronyms appear in the CARB ISOR report at 205-06.

A5: 5-speed automatic transmission
A6: 6-speed automatic transmission
AdvHEV: Advanced hybrid
AMT: Automatic Manual Transmission
CCP: Coupled cam phasing
CVVL: Continuous variable valve lift
DCP: Dual cam phasing
DeAct: Cylinder deactivation
dHCCI: Diesel homogeneous charge compression ignition
DVVL:Discrete variable valve lift
eACC: Improved electric accessories
ehCVA: Electrohydraulic camless valve actuation
EHPS: Electrohydraulic power steering
EPS: Electric power steering
GDI-S: Stoichiometric gasoline direct injection
GDI-L: Lean-burn gasoline direct injection
HSDI: High-speed (diesel) direct injection
ImpAlt: Improved efficiency alternator
ISG: Integrated starter-generator systems
ModHEV: Moderate hybrid
Turbo: Turbocharging

    As is evident from a comparison of the excerpt from the NAS report 
above with the excerpt from the CARB statement of reasons above, nearly 
all of the technologies relied upon by CARB are technologies that NHTSA 
largely relies on in formulating the federal average fuel economy 
standards. Thus, vehicle manufacturers would have to install many of 
the same types of technologies under the NHTSA CAFE rule and under the 
CARB greenhouse gas rule.
California's Regulation of Greenhouse Gas/Carbon Dioxide Equivalent 
Emissions From Motor Vehicles Is Related to Average Fuel Economy 
Standards for Motor Vehicles Under 49 U.S.C. Chapter 329 and Therefore 
Preempted
    California's GHG regulations include new requirements on greenhouse 
gas emissions from motor vehicles including model year 2009 and 
subsequent model year light duty trucks (LDT) and medium duty passenger 
vehicles (MDPV). The CARB greenhouse gas rules include two sets of 
standards for motor vehicles. One set applies to all passenger cars and 
to LDTs with a loaded vehicle weight (LVW) up to 3750 pounds. The other 
set applies to LDTs with a loaded vehicle weight of greater than 3750 
pounds and to MDPVs with a gross vehicle weight of less than 10,000 
pounds.
    NHTSA's CAFE rulemaking covers MY 2008-2011 light trucks. It also 
includes MY 2011 MDPVs. Thus, the CARB regulations cover vehicles 
covered by NHTSA's rulemaking.
    As noted above, CARB's regulations govern the emission of 
greenhouse gases from passenger cars, light duty trucks and medium duty 
passenger vehicles. Greenhouse gases (GHG) is defined to ``mean[] the 
following gases: CO2, methane, nitrous oxide, and 
hydrofluorocarbons.'' \223\
---------------------------------------------------------------------------

    \223\ 13 CCR Sec. Sec.  1961.1(d), (e)(4)
---------------------------------------------------------------------------

    CARB's GHG regulation states that the fleet average greenhouse gas 
exhaust emission values from passenger cars, light-duty trucks and 
medium-duty passenger vehicles that are produced and delivered for sale 
in California shall not exceed specified values.\224\ Table 21 provides 
the following requirements for Fleet Average Greenhouse Gas Exhaust 
Emissions, specified in terms of grams per mile CO2--
equivalent:
---------------------------------------------------------------------------

    \224\ 13 CCR Sec.  1961.1(a)(1)(A).

      Table 21.--CARB Fleet Average Greenhouse Gas Exhaust Emission
                              Requirements
                      [In grams/mi CO2-equivalent]
------------------------------------------------------------------------
                                     LDTs 0-3750 lbs     LDTs 3751 LVW-
            Model  year             LVW and passenger     8500 GVW and
                                           cars              MDPVs
------------------------------------------------------------------------
2009..............................                323                439
2010..............................                301                420
2011..............................                267                390

[[Page 17665]]

 
2012..............................                233                361
2013..............................                227                355
2014..............................                222                350
2015..............................                213                341
2016+.............................                205                332
------------------------------------------------------------------------

    As explained in CARB's ``Final Statement of Reasons'' for its 
vehicular GHG regulations, the following emission sources are covered:

Vehicle climate change emissions comprise four main elements (1) 
CO2, CH4, and N2O emissions 
resulting directly from the operation of the vehicle, (2) 
CO2 emissions resulting from operating the air 
conditioning system (indirect AC emissions), (3) refrigerant 
emissions from the air conditioning system due to either leakage, 
losses during recharging, sudden releases due to accidents, or 
release from scrappage of the vehicle at the end of life (direct AC 
emissions), and (4) upstream emissions associated with the 
production of the fuel used by the vehicle. The climate change 
emission standard incorporates all of these elements.\225\

    \225\ California Environmental Protection Agency, Air Resources 
Board, Regulations To Control Greenhouse Gas Emissions From Motor 
Vehicles, Final Statement Of Reasons (FSOR), at 7-8.
---------------------------------------------------------------------------

For vehicles certified on conventional fuels (e.g., gasoline), CARB's 
regulation does not encompass upstream emissions (i.e., emissions 
associated with the production and transportation of the fuel used by 
the vehicle).\226\
---------------------------------------------------------------------------

    \226\ CARB, FSOR at 8.
---------------------------------------------------------------------------

    More particularly, under the CARB regulation, for each GHG vehicle 
test group, a manufacturer shall calculate both a ``city'' grams per 
mile average of CO2 equivalent value and a ``highway'' grams 
per mile average of CO2 equivalent value.\227\ The use of 
CO2 equivalence is an approximation that CARB used to place 
the gases included in CARB's definition of greenhouse gas on the same 
scale so that they could be added together. CARB based this on a 
statement of global warming potential: \228\
---------------------------------------------------------------------------

    \227\ 13 CCR 1961.1(a)(1)(B)1.a.
    \228\ The global warming potential is a relative index used to 
compare the climate impact of an emitted greenhouse gas, relative to 
an equal amount of carbon dioxide.

   Table 22.--GWP Values From CARB Initial Statement of Reasons, p. 48
------------------------------------------------------------------------
                                                                Global
                  Greenhouse gas compound                      warming
                                                              potential
------------------------------------------------------------------------
Carbon Dioxide.............................................            1
Methane....................................................           23
Nitrous Oxide..............................................          296
HFC 134a...................................................         1300
HFC 152a...................................................          120
------------------------------------------------------------------------

    Under the CARB GHG regulation, the basic calculation of a given 
vehicle model's GHG emission rate is as follows: \229\

    \229\ Ibid.
---------------------------------------------------------------------------

CO2 equivalent value = CO2 + 296 x N2O 
+ 23 x CH4 - A/C Direct Emissions Allowances - A/C Indirect 
Emissions Allowances.

    This calculation may be expressed as follows:
    [GRAPHIC] [TIFF OMITTED] TR06AP06.034
    
Where:

GHG = CO2-equivalent greenhouse gas emission rate (per FTP 
and highway tests)
CO2 = tailpipe carbon dioxide emission rate
N2O = tailpipe nitrous oxide emission rate
CH4 = tailpipe methane emission rate
[Delta]ACdirect = credit for reducing direct emissions from 
air conditioning system (refrigerant emissions from the air 
conditioning system)
[Delta]ACindirect = credit for reducing indirect emissions 
from air conditioning system use CO2 emissions resulting 
from operating the air conditioning system,

    As detailed in its ``Initial Statement of Reasons,'' CARB estimates 
demonstrated that of the total covered GHG emissions, vehicle tailpipe 
CO2 emissions would be a much larger component than 
CO2-equivalent baseline emission rates for all the other 
components combined. The following table shows CARB's estimates of the 
baseline emission rate for each covered GHG component \230\ (column 2) 
along with the NHTSA's arithmetic calculation of corresponding shares 
of baseline emissions reported by CARB (column 3).
---------------------------------------------------------------------------

    \230\ CARB ISOR at 48, 59, 70-72, 75 and 79.

   Table 23.--CARB Estimates of Baseline Greenhouse Gas Emission Rates
------------------------------------------------------------------------
                                                            Calculated
         GHG emissions component            Rate (CO2-    share (percent
                                           equiv. g/mi)       total)
------------------------------------------------------------------------
CO2 emissions resulting directly from            291-512           92-95
 the operation of the vehicle...........
CH4 emissions resulting directly from                0.1       0.02-0.03
 the operation of the vehicle...........
N2O emissions resulting directly from                1.8         0.3-0.6
 the operation of the vehicle...........

[[Page 17666]]

 
CO2 emissions resulting from operating         13.5-19.0               4
 the air conditioning system............
Refrigerant emissions from the air                   8.5             2-3
 conditioning system....................
------------------------------------------------------------------------

    As is evident from the above table, CO2 emissions 
resulting directly from the operation of the vehicle account for more 
than ninety two percent of the emissions potentially covered by CARB's 
vehicular GHG regulation.\231\ This demonstrates that CO2 
emissions from the operation of the vehicle are the predominant factor 
under CARB's greenhouse gas regulation.
---------------------------------------------------------------------------

    \231\ A CARB memorandum recognizes that CO2 emissions 
are by far the largest amount of emissions produced by motor 
vehicles. http://www.arb.ca.gov/msei/on-road/downloads/pubs/co2final.pdf.
---------------------------------------------------------------------------

    This is corroborated by data in the record. As discussed above, a 
reasonably representative MY2006 light truck emits 471 g/mi and 316 g/
mi of CO2 on the city and highway test cycles respectively. 
Like federal fuel economy standards, CARB's GHG regulation weights 
these cycles at 55% and 45% respectively,\232\ such that representative 
CO2 value would be 401 gr/mile for a MY 2006 light truck. 
According to CARB's ``Initial Statement of Reasons'',\233\ a typical 
baseline vehicle emits 0.005 grams per mile of CH4. Under 
the regulation, manufacturers may use a default value of 0.006 grams 
per mile for N2O in lieu of actually measuring emissions of 
that gas.\234\ Also according to the regulation, manufacturers could be 
granted as much as 9 and 11 grams per mile in direct and indirect 
emissions allowances, respectively, for improvements to air 
conditioners.\235\
---------------------------------------------------------------------------

    \232\ 13 CCR 1961.1.
    \233\ ISOR at 48.
    \234\ 13 CCR Sec.  1961.1(a)(1)(B)1.a.
    \235\ California Code of Regulations, Title 13, Sec.  
1961.1(a)(1)(B)(1)(b) allows a direct emissions allowance of up to 9 
grams per mile. Section 1961.1(a)(1)(B)(1)(c) allows an indirect 
emissions allowance of up to 11 grams per mile.
---------------------------------------------------------------------------

    Therefore, the CO2-equivalent GHG emission rate for a 
typical light truck granted the maximum credit for air conditioner 
improvements might be computed as follows:
[GRAPHIC] [TIFF OMITTED] TR06AP06.035

which reduces, with rounding, to:
[GRAPHIC] [TIFF OMITTED] TR06AP06.036

    Therefore, for a typical light truck, the term representing 
CO2 emissions that are also subject to regulation under 
federal CAFE standards (in the above equation, the term labeled 
``CO2 term'') would have a magnitude about 200 times that of 
the term representing its other emissions (``non-CO2 term'' 
in the above), and about 20 times that of the term account for 
improvements to its air conditioning system (``AC term'' in the above). 
Consistent with CARB's estimate, discussed above, that tailpipe 
CO2 emissions dominate total GHG emissions considered by 
CARB, this calculation indicates that CO2 emissions account 
for on the order of 95 per cent (1 -22/(401 + 2 + 20) = 0.95) of the 
emissions that enter into the calculation of total GHG emissions under 
CARB's regulation.
    Alternatively, using the MY2011 values of CARB's standards for 
total GHG emissions--267 and 390 grams per mile for lighter and heavier 
vehicles, respectively, corresponding CO2 emissions 
resulting directly from vehicle operation would be 285 and 408 grams 
per mile, respectively:
[GRAPHIC] [TIFF OMITTED] TR06AP06.037

    Solving these two equations for CO2 yields values of 285 
and 408 grams per mile, respectively. At these rates, CO2 
accounts for either 93% (1 -22/(285 + 2 + 20) = 0.93) or 95% (1-22/(408 
+ 2 + 20) = 0.95) of the emissions that enter into the calculation of 
total GHG emissions under CARB's regulation.
    Just as in the case of compliance with federal fuel economy 
standards, compliance with CARB's regulation is largely a function of 
tailpipe CO2 emissions.\236\ The same emissions provide the 
primary basis for determining compliance with federal fuel economy 
standards. In addition, CARB's own analysis anticipates that 
manufacturers would comply with its GHG regulation primarily by 
applying technologies that increase fuel economy.
---------------------------------------------------------------------------

    \236\ This conclusion follows even if the CO2 
emission rates in the examples are changed considerably, in line 
with the baseline estimates in CARB's ISOR.
---------------------------------------------------------------------------

    With only one exception--improvements to air conditioning systems--
those technologies would have a parallel impact on fuel economy as 
measured for purposes of determining compliance with federal fuel 
economy standards.\237\ For purposes of determining compliance with 
federal CAFE standards, testing is run with the air conditioning turned 
off. Thus, the federal CAFE rules do not ``credit'' improved air 
conditioning efficiency or reduced losses from air conditioners. CARB 
has included reductions in emissions associated with air conditioning 
(direct and indirect) in its GHG regulation, so the technologies it 
relies upon are in this one limited respect broader than those NHTSA 
relies on. However, those technologies are nevertheless fuel economy 
technologies in that they reduce CO2 emissions by reducing 
the load on a vehicle's engine and in turn reduce fuel consumption. 
Further, air conditioning improvements are not the predominant factor 
in reducing CO2-equivalent

[[Page 17667]]

emissions under the CARB regulation.\238\
---------------------------------------------------------------------------

    \237\ As demonstrated above, the CARB regulation would have the 
substantially the same effect as the Federal fuel economy regulation 
in terms of many of the technologies that manufacturers likely would 
have to install to meet the requirements. In addition to covered 
large trucks, addressed above, CARB's ISOR addressed the 
technologies that likely would be installed in small trucks and 
minivans. (ISOR, pp. 66-7). In general, those technologies are the 
same as in the NAS report referred to above.
    \238\ Based on its own analysis of warming-potential weighted 
emissions, CARB estimates that upgrading to a low-leak HFC-152a air 
conditioning system or a CO2 system would reduce GHG 
emissions by ``approximately 8.5 or 9 CO2-equivalent 
grams per mile, respectively.'' (ISOR, p. 72). CARB further states 
that ``upgrading to a VDC with external controls, air recirculation, 
and HFC-152a as the refrigerant, the estimated indirect emission 
reduction is 7 CO2-equivalent grams per mile for a small 
car, 8 CO2-equivalent grams per mile for a large car, and 
9.8 CO2-equivalent grams per mile for minivans, small 
trucks, and large trucks.'' (ISOR, p. 75). According to the 
regulation, combined direct and indirect emissions allowances for 
air conditioners could total as much as CO2-equivalent 20 
grams per mile. California Code of Regulations, Title 13, section 
1961.1(a)(1)(B)(1)(b) allows a direct emissions allowance of up to 9 
grams per mile. Section 1961.1(a)(1)(B)(1)(c) allows an indirect 
emissions allowance of up to 11 grams per mile.
---------------------------------------------------------------------------

    CARB's vehicle greenhouse gas regulation is, therefore, clearly 
related to fuel economy standards \239\ and thus subject to the 
preemption provision in EPCA.
---------------------------------------------------------------------------

    \239\ A CARB memorandum recognizes that CO2 emissions 
are related to fuel economy. It points out that CO2 
emissions can be modeled to estimate fuel economy. It also noted in 
the context of CO2 that emission rates for vehicles from 
a certain period (MY 1990--MY 1997) were assumed to be the same as 
the preceding model year (1989) because CAFE standards did not 
change dramatically after the initial model year (MY 1989). http://www.arb.ca.gov/msei/on-road/downloads/pubs/co2final.pdf (this 
document apparently was prepared in the late 1990s, based on its 
reference to the EMFAC7G model, which was approved by EPA on April 
16, 1998.) Similarly, a National Academies Press (NAP) release on 
Automotive Fuel Economy, recognized the relationship between 
automotive fuel economy and CO2 emission rates: ``Fuel 
economy improvements in new light-duty vehicles will reduce carbon 
dioxide emissions per mile because less fuel will be consumed per 
vehicle mile driven.'' http://www.nap.edu/openbook/0309045304/html/7html. (NAP was created by the National Academies to publish the 
reports issued by the National Academy of Sciences, the National 
Academy of Engineering, the Institute of Medicine, and the National 
Research Council.) See also NAP report at http://www.nap.edu/books/0309076013/html/7.html. In addition, CARB recognized that the GHG 
(CO2-equivalent emission standards are related to fuel 
economy in another way. CARB recognized that the standards would 
result in savings in reduced operating costs. Those lower costs are 
based on lower costs for fuel based on improved fuel efficiency. 
(ISOR, p. 196; FSOR, pp. 166, 168).
---------------------------------------------------------------------------

NHTSA Has Also Concluded That Regulation of Carbon Dioxide Emissions 
From Motor Vehicles Conflicts With and Is Impliedly Preempted Under 49 
U.S.C. Chapter 329
    Pre-emption principles also provide that if a state law or 
regulation stands as an obstacle to the accomplishment and execution of 
the full purposes and objectives of Congress in enacting a statute, 
that law or regulation may be preempted.\240\ The presence of an 
express preemption provision in a statute neither precludes nor limits 
the ordinary working of conflict pre-emption principles, particularly 
in the absence of a saving clause.\241\ Therefore, NHTSA has concluded 
that these principles are also fully operative under EPCA, in addition 
to its express preemption provision.
---------------------------------------------------------------------------

    \240\ Spriestma v. Mercury Marine, 537 U.S. 51, 64-5 (2002).
    \241\ Geier v. Honda, 529 U.S. 861, 869 (2000).
---------------------------------------------------------------------------

    NHTSA has concluded that the State GHG standard, to the extent that 
it regulates tailpipe CO2 emissions, would frustrate the 
objectives of Congress in establishing the CAFE program and conflict 
with the efforts of NHTSA to implement the program in a manner 
consistent with the commands of EPCA. Congress had a variety of 
interrelated objectives in enacting EPCA and has charged NHTSA with 
balancing and achieving them. Among them was improving motor vehicle 
fuel economy. To achieve that objective, Congress did not simply 
mandate the issuance of fuel economy standards set at whatever level 
NHTSA deemed appropriate. Nor did it simply say that levels must be set 
consistent with the criteria it specified in Section 32902(f). It went 
considerably further, mandating the setting of standards at the maximum 
feasible level.
    Other congressional objectives underlying EPCA include avoiding 
serious adverse economic effects on manufacturers and maintaining a 
reasonable amount of consumer choice among a broad variety of vehicles. 
Congress was explicitly concerned that the CAFE program be carefully 
drafted so as to require levels of average fuel economy that do not 
have the effect of either ``imposing impossible burdens or unduly 
limiting consumer choice as to capacity and performance of motor 
vehicles.'' \242\ These concerns are equally applicable to the manner 
in which that program is implemented.
---------------------------------------------------------------------------

    \242\ H. Rep. No. 94-340, 87 (1975).
---------------------------------------------------------------------------

    To guide the agency toward the selection of standards meeting these 
competing objectives, Congress specified four factors that NHTSA must 
consider in determining which level is the maximum feasible level of 
average fuel economy and thus the level at which each standard must be 
set. These are technological feasibility, economic practicability, the 
effect of other Government standards on fuel economy, and the need of 
the Nation to conserve energy.\243\ In addition, the agency had 
traditionally considered the safety consequences in selecting the level 
of future CAFE standards.
---------------------------------------------------------------------------

    \243\ 49 U.S.C. 32902(f).
---------------------------------------------------------------------------

    Congress expected the agency to balance these factors in a fashion 
that ensures the standards are neither too low, nor too high. The 
Conference Report for EPCA states that the fuel economy standards were 
to be the product of balancing the benefits of higher fuel economy 
levels against the difficulties individual manufacturers would face in 
achieving those levels:

Such determination 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 which 
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 automobile manufacturers. Such 
difficulties, however, should be given appropriate weight in setting 
the standard in light of the small number of domestic automobile 
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. However, it should 
also be noted that provision has been made for granting relief from 
penalties under Section 508(b) in situations where competition will 
suffer significantly if penalties are imposed.\244\

    \244\ S. Rep. No. 94-516, 154-155 (1975).
---------------------------------------------------------------------------

    NHTSA has concluded that were a State to establish a fuel economy 
standard or de facto fuel economy standard, e.g., a CO2 
emission standard, it would not choose one that has the effect of 
requiring lower levels of average fuel economy than the CAFE standards 
applicable under EPCA or even one requiring the same level of average 
fuel economy. Given that the only practical way to reduce tailpipe 
emissions of CO2 is to improve fuel economy, such a State 
standard would be meaningless since it would not reduce CO2 
emissions to an extent greater than the CAFE standards.\245\ Instead, a 
State would establish a standard that has the effect of requiring a 
higher level of average fuel economy.
---------------------------------------------------------------------------

    \245\ This is also EPA's conclusion. See 68 FR 52922, 52929.
---------------------------------------------------------------------------

    Setting standards that are more stringent than the fuel economy 
standards promulgated under EPCA would upset the efforts of NHTSA to 
balance and achieve Congress's competing goals. Setting a standard too 
high, above the level judged by NHTSA to be consistent with the 
statutory consideration after careful consideration of these issues in 
a rulemaking proceeding, would negate the agency's analysis and 
decisionmaking. NHTSA makes its judgments only after considering 
extensive technical

[[Page 17668]]

information such as detailed product information submitted by the 
vehicle manufacturers and NAS' report on the future of the CAFE program 
and conducting analyses of potential impacts on employment and safety.
    As noted above, manufacturers confronted with requirements for the 
reduction of tailpipe CO2 emissions would look at the same 
pool of technology used to reduce fuel consumption. NHTSA concludes 
that it is disruptive to the orderly implementation of the CAFE 
program, and to NHTSA's reasonable balancing of competing concerns, to 
have two different governmental entities assessing the need to conserve 
energy, technological feasibility, economic practicability, employment, 
vehicle safety and other concerns, and making inconsistent judgments 
made about how quickly and how much of that single pool of technology 
could and should be required to be installed consistent with those 
concerns. EPCA does not specify how to weight each concern; thus, NHTSA 
determines the appropriate weighting based on the circumstances in each 
CAFE standard rulemaking. More important, ignoring the judgments made 
by NHTSA at the direction of Congress could result in setting standards 
at levels higher than NHTSA can legally justify under EPCA, increasing 
the risk of the harms that that body sought to avoid, e.g., serious 
adverse economic consequences for motor vehicle manufacturers and 
unduly limited choices for consumers.
    Through EPCA, Congress committed the reasonable accommodation of 
these conflicting policies and concerns to NHTSA.\246\ ``Congress did 
not prescribe a precise formula by which NHTSA should determine the 
maximally-feasible fuel economy standard, but instead gave it broad 
guidelines within which to exercise its discretion.'' \247\ A state's 
adoption and enforcement of a CO2 standard for motor 
vehicles would infringe on NHTSA's discretion to establish CAFE 
standards consistent with Congress' guidance and threaten the goals 
that Congress directed NHTSA to achieve. The process of achieving those 
goals involves great expertise and care. The fuel economy standards 
delegated to NHTSA are to be the product of balancing the benefits of 
higher fuel economy levels against the difficulties individual 
manufacturers would face in achieving those levels.\248\
---------------------------------------------------------------------------

    \246\ 901 F.2d 107, 120-21.
    \247\ 901 F.2d 107, 120-21.
    \248\ 793 F.2d 1322, 1338.
---------------------------------------------------------------------------

    As EPA observed in its notice denying the petition to regulate 
motor vehicle CO2 emissions, its issuance of standards for 
those emissions would ``abrogate EPCA's regime,'' \249\ rendering 
NHTSA's careful balancing of consideration a nullity. This is equally 
true for State standards for those emissions.
---------------------------------------------------------------------------

    \249\ Id.
---------------------------------------------------------------------------

    There appear to be two misconceptions that have clouded proper 
analysis of these implied preemption issues. One is that since the term 
``average fuel economy standard'' is defined in EPCA as meaning ``a 
performance standard specifying a minimum level of average fuel economy 
applicable to a manufacturer in a model year'' \250\ (emphasis added), 
there can be no conflict or incompatibility between CO2 
standards and CAFE standards. Indeed, it has been suggested that in 
defining this term in this fashion, Congress endorsed the setting of 
other standards having the effect of regulating fuel economy.\251\ 
NHTSA does not interpret the statute in this manner, because EPCA 
requires that CAFE standards be set at the maximum feasible level, 
consistent with the agency's assessment of impacts on the nation, 
consumers and industry.
---------------------------------------------------------------------------

    \250\ 49 U.S.C. 32901(a)(6).
    \251\ This suggestion cannot be reconciled with Congress' 
decision to include an express preemption provision in EPCA. 49 
U.S.C. 32919(a).
---------------------------------------------------------------------------

    An interpretation that allowed more stringent State fuel economy 
standards would nullify the statutory limits that Congress placed in 
EPCA on the level of CAFE standards, and the efforts of NHTSA in its 
CAFE rulemaking to observe those limits. Congress expressly listed four 
analytical, decision guiding factors in EPCA because fuel economy was 
not the only value that Congress sought to protect and promote in the 
mandating the setting of CAFE standards. Congress did not want improved 
fuel economy to come at the price of adverse effects on sales, jobs, 
and consumer choice. Further, in choosing the level of future CAFE 
standards, NHTSA has traditionally considered the potential impact on 
safety.
    In selecting the maximum feasible level, NHTSA strives to set the 
standards as high as it can without causing significant adverse 
consequences for the manufacturers or consumers. Since NHTSA should 
not, as a matter of sound public policy, and in fact may not as a 
matter of law, set standards above the level it determines to be the 
maximum feasible level, EPCA should not be interpreted as permitting 
the States to do so. Indeed, NHTSA has concluded that, under EPCA, 
States may not set actual or de facto fuel economy standards at any 
level.
    Second, as noted above, regulating fuel economy and regulating 
CO2 emissions are inextricably linked, given current and 
foreseeable automotive technology. There are not two different pools of 
technology, one for reducing tailpipe CO2 emissions, and the 
other for improving fuel economy. Thus, there is nothing to be gained 
by setting both tailpipe CO2 standards and CAFE standards.
    If the technology does not improve fuel economy, it does not reduce 
tailpipe CO2 emissions. The technologies listed in Part 5 of 
CARB's Initial Statement of Reasons for its GHG standard for reducing 
tailpipe CO2 emissions reduce those emissions by improving 
fuel economy.
    This dichotomy of perception or characterization about fuel economy 
and CO2 emissions does not appear to exist in other 
countries. According to the International Energy Agency:

The existing approaches for achieving CO2 reduction 
through fuel economy improvement in new cars vary considerably, with 
both regulatory approaches (China, Japan, US, CA) and voluntary 
approaches (EU). Some systems include financial incentives as well 
(Japanese tax credit for hybrids, U.S. gas guzzler tax, various EU 
member country differential taxation schemes based on fuel economy, 
such as in the UK and Denmark).\252\
---------------------------------------------------------------------------

    \252\ FUELING THE FUTURE: Workshop on Automobile CO2 
Reduction and Fuel Economy Improvement Policies, WORKSHOP REPORT, 13 
October, 2004, Shanghai, China, http://www.iea.org/textbase/work/2004/shanghai/UNEP_IEA.PDF.

Further, in Europe, the studies conducted for the European Commission 
in support of efforts to provide public information on fuel economy and 
CO2 emissions to induce consumers to purchase vehicles with 
lower CO2 emissions uniformly reflect the view that fuel 
economy and CO2 emissions are directly related.\253\
---------------------------------------------------------------------------

    \253\ RAND Europe, at 4; D. Elst, N. Gense, I.J. Riemersma, H.C. 
van de Burgwal, Z. Samaras, G. Frontaras, I. Skinner, D. Haines, M. 
Fergusson, and P. ten Brink, Measuring and preparing reduction 
measures for CO2-emissions from N1 vehicles-final report 
the European Commission, Directorate-General for Environment, at 90, 
TNO TPD, (part of the Netherlands Organisation for Applied 
Scientific Research TNO), in partnership with Aristotle University 
of Thessaloniki and Institute for European Environmental Policy, 
Contract no. B4-3040/2003/364181/MAR/C1, December 2004 (observing 
that `` * * * reduction of CO2 is equivalent to fuel 
economy improvement * * * ''); and A. Gartner, Study on the 
effectiveness of Directive 1999/94/EC relating to the availability 
of consumer information on fuel economy and CO2 emissions 
in respect of the marketing of new passenger cars, Final report to 
the European Commission, Directorate-General for Environment, 
Contract No.: 07010401/2004/377013/MAR/C1, at 45 and 70, Allgemeine 
Deutsche Automobil-Club ADAC e.V., March 2005 (observing `` * * * 
that most consumers are not aware of the correlation of fuel 
consumption and CO2 emissions of passenger cars * * * '' 
and that `` * * * the CO2 emissions (g/km) can be 
calculated from fuel consumption * * * '').

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

[[Page 17669]]

    Similarly, in 2001, one of the leading U.S. environmental groups 
participating in this rulemaking issued a report that identified a 
vehicle's fuel consumption rate as the single vehicle design factor 
---------------------------------------------------------------------------
determining the amount of a vehicle's CO2 emissions:

The CO2 emitted by a motor vehicle is the product of 
three factors: the amount of driving, the vehicle's fuel consumption 
rate and the carbon intensity of the fuel consumed. The fuel 
consumption rate (e.g., the number of gallons needed to drive 100 
miles) is the inverse of fuel economy (miles per gallon, or 
mpg).\254\
---------------------------------------------------------------------------

    \254\ J. DeCicco and A. Feng, Automakers' Corporate Carbon 
Burden, Reframing Public Policy on Automobiles, Oil and Climate, at 
7-8, Environmental Defense, 2001. The article explained that carbon 
intensity is how much CO2 is emitted per unit of fuel 
consumed. For gasoline, this amounts to 19.4 pounds per gallon. Id. 
at 8.

    Later, in the same report, it was observed in a footnote 
(26) that ``it is actual CAFE that determines fuel consumption 
and CO2 emissions.'' \255\
---------------------------------------------------------------------------

    \255\ Ibid, at 22-23.
---------------------------------------------------------------------------

EPCA's Provision Specifying Factors To Be Considered in Setting Average 
Fuel Economy Standards Does Not Limit Preemption Under 49 U.S.C. 
Chapter 329
    EPCA does not include any exception to its preemption provision 
that would cover State GHG and CO2 standards. Nevertheless, 
some commenters opposing preemption suggested that Section 32902(f), 
which lists the factors that NHTSA must consider in determining the 
level at which to set fuel economy standards, prevents preemption by 
requiring consideration, by NHTSA, of the effect of other Government 
standards, including emissions standards, on fuel economy.
    EPCA's decisionmaking factor provision is neither a saving clause 
nor a waiver provision. Nor does NHTSA interpret it as saving state 
emissions standards that effectively regulate fuel economy from 
preemption. The agency interprets that provision only to direct NHTSA 
to consider those State standards that can otherwise be validly adopted 
and enforced under State and Federal law.
    The decisionmaking factors provision does reflect an expectation by 
Congress that some state emissions standards would not be preempted 
under the express preemption provision. However, as an initial matter, 
NHTSA does not read the provision to imply a savings clause. This is 
particularly so given that Congress has considered and provided a 
different saving clause, i.e., the one for a State law or regulation on 
disclosure of fuel economy or fuel operating costs for an automobile.
    Moreover, even if EPCA did contain the saving clause desired by 
those commenters, NHTSA would not give it effect here, as doing so 
``would upset the careful regulatory scheme established by federal 
law.'' \256\
---------------------------------------------------------------------------

    \256\ Geier v. American Honda Motor Co., 529 U.S. 861, 869 
(2000). (Citations omitted.)
---------------------------------------------------------------------------

    First, and most important in this context, such a reading would 
upset the carefully calibrated CAFE regulatory program under which 
NHTSA is with setting CAFE standards at the maximum feasible level, 
taking care neither to set them too high nor too low. Because of the 
need to conserve energy, Congress did not simply mandate the setting of 
appropriate fuel economy standards. Instead, it mandated the setting of 
maximum feasible ones. At the same time, Congress was aware that 
setting overly stringent standards would excessively reduce consumer 
choice about vehicle design and performance and threaten adverse 
economic consequences. As noted by EPA in its Federal Register document 
denying ICTA's petition to regulate CO2 emissions from motor 
vehicles, the setting of standards for CO2 tailpipe 
emissions would displace NHTSA and upset EPCA's regulatory regime for 
CAFE.
    Second, the requirement to consider these decisionmaking factors 
must be reconciled with the express preemption provision. NHTSA has 
concluded that reading the express preemption provision in the manner 
suggested by commenters opposing preemption would irrationally limit 
that provision and leave NHTSA's role in administering the CAFE program 
open to a substantial risk of abrogation. By the same token, in NHTSA's 
view, it is equally important that the ``relates to'' language in the 
express preemption provision should not be given so broad a reading 
that even State emissions standards having only an incidental effect on 
fuel economy standards are deemed to be preempted by it.
    NHTSA has concluded that these two extreme readings, with their 
unacceptable impacts on EPCA and on the Clean Air Act, including its 
waiving preemption provision, can be avoided under a carefully 
calibrated interpretation of EPCA's express preemption provision that 
harmonizes the two acts to the extent possible. NHTSA does not 
interpret EPCA's express preemption provision as preempting State 
emissions standards that only incidentally or tangentially affect fuel 
economy. These standards include, for example, given current and 
foreseeable technology, the existing emissions standards for CO, HC, 
NOX, and particulates. They also include the limits on 
sulfur emissions that become effective in 2007. NHTSA considers such 
standards under the decisionmaking factors provision of EPCA since, 
under applicable law, they can be adopted and enforced and therefore 
can have an effect on fuel economy.
    However, two groups of State emissions standards do not qualify 
under NHTSA's interpretation of the decisionmaking factors provision, 
and therefore would not be considered. One is State standards that 
cannot be adopted and enforced because there has been no waiver for 
California under the preemption waiver provision of the Clean Air Act. 
The other is the State emissions standards that are expressly or 
impliedly preempted under EPCA, regardless of whether or not they have 
received such a waiver. Preempted standards include, for example:
    (1) A fuel economy standard; and
    (2) A law or regulation that has essentially all of the effects of 
a fuel economy standard, but is not labeled as one (example: State 
tailpipe CO2 standard).
    This reading of EPCA's express preemption provision allows that 
provision to function in a consistent way, without irrational 
limitation, to protect the national CAFE program from interference by 
any State standard effectively regulating fuel economy. It also 
simultaneously maximizes the ability of EPCA and the Clean Air Act to 
achieve their respective purposes.
    NHTSA's judgment is that the agency should distinguish between 
motor vehicle emission standards for emissions other than 
CO2 (e.g., HC, CO, NOX and PM) and motor vehicle 
emission standards for CO2. Those other emissions are not 
directly and inextricably linked to fuel economy. NHTSA's current view 
is that standards for emissions other than CO2 merely affect 
the level of CAFE that is achievable and thus only incidentally affect 
fuel economy standards. Accordingly, we believe that regulation of 
these emissions is not rulemaking inconsistent with the operation of 
preemption principles under EPCA.
    HC, CO, and PM all result from incomplete combustion. Therefore, 
the first step toward controlling emissions of these pollutants 
involves improving

[[Page 17670]]

the combustion process. Doing so increases the production and emission 
of carbon dioxide. All three pollutants can also be substantially 
eliminated from tailpipe emissions by placing catalytic converters 
between the engine and the tailpipe. Catalytic converters reduce 
emissions of these pollutants through oxidation, which also increases 
the production and emission of carbon dioxide. PM emissions can also be 
controlled using PM traps, which temporarily trap and store PM. PM 
traps periodically regenerate by oxidizing away the stored PM. Doing so 
increases the production and emission of carbon dioxide.
    NOX results from the oxidation of nitrogen at the high 
peak temperatures that occur in an efficiently-operating engine. The 
exposure of nitrogen to peak temperatures can be reduced by increasing 
turbulence in the combustion chamber, changing ignition and/or 
injection timing, and recirculating some exhaust gases through the 
engine. Increased turbulence and changes to ignition and/or injection 
timing tend to increase the production and emission of carbon dioxide. 
Catalytic converters can substantially eliminate NOX from 
the exhaust stream. However, doing so requires chemical reduction--
oxidation in reverse. Modern catalytic converters perform both 
reduction and oxidation, reducing NOX to oxidize HC and CO, 
and further oxidizing HC and CO with oxygen available in the exhaust 
stream. These processes increase the production and emission of carbon 
dioxide.
    Gasoline vehicles also emit HC through the evaporation of fuel. 
These emissions are controlled using canisters that temporarily store 
evaporated fuel. Periodically, these canisters are purged, releasing 
the stored fuel vapors to the engine to be combusted. Compared to 
simply releasing evaporative emissions to the atmosphere, these 
processes increase the formation and emission of carbon dioxide.
    To summarize, the processes used to control HC, CO, NOX, 
and PM emissions increase the formation and emission of carbon dioxide. 
Because carbon dioxide is, like water, an ultimate byproduct of 
combustion, it cannot be further converted on the vehicle to some other 
compound through any practical means. Plants use sunlight to convert 
carbon dioxide and water to biomass (and oxygen) through 
photosynthesis, but vehicles produce far too much exhaust to be 
consumed by plants that could conceivably be sustained by the amount of 
sunlight to which vehicles are exposed. Even if enough sunlight were 
available, biomass would be produced at a rate requiring impractically 
frequent removal from the vehicle. Theoretically, on-board scrubbers 
could be used separate carbon dioxide from the exhaust stream. Chemical 
processes for removing carbon dioxide are currently used in underwater 
rebreathers and space applications (e.g., the international space 
station), and are contemplated for stationary applications (e.g., 
electric utilities). (See, e.g., http://www.nas.nasa.gov/About/Education/SpaceSettlement/teacher/course/co2.html, http://www.frogdiver.com, and http://www.netl.doe.gov/publications/proceedings/01/carbon_seq/5a5.pdf.) However, for a variety of reasons 
(e.g., size, cost, energy demands, use of dangerous reactants such as 
calcium hydroxide), these processes would not be even remotely 
practical for motor vehicles.
    Even if a practical process to separate carbon dioxide from the 
exhaust stream were available, the carbon dioxide would, to prevent its 
release, need to be compressed or solidified for temporary onboard 
storage, and frequently removed for disposal (e.g., in underground 
facilities). For example if fifteen gallons of gasoline are added at 
each refueling of a vehicle, about 290 pounds of carbon dioxide (or, 
without any separation of the carbon dioxide, about 1,400 pounds of 
exhaust gases) would be produced through the combustion of that fuel. 
(This example assumes gasoline with a density of 6 pounds per gallon 
and a carbon content (by mass) of 87%. Each pound of carbon dioxide 
contains 0.273 pounds of elemental carbon. The combustion of 1 pound of 
gasoline requires about 14.7 pounds of air.) At these rates of 
production, no practical means of onboard storage and periodic removal 
are foreseeable.
    For these reasons, a CO2 emissions standard stands apart 
from those other emissions standards. NHTSA has concluded that such a 
standard functions as a fuel economy standard, given the direct 
relationship between a vehicle's fuel economy and the amount of 
CO2 it emits. In contrast, no such relationship exists 
between a vehicle's fuel economy and the emissions currently regulated 
by EPA.
    Interpreting EPCA's preemption provision as preempting only those 
State regulations that directly regulate or have the effect of directly 
regulating fuel economy gives, to the extent possible, maximum effect 
both to EPCA and to the preemption waiver provision in the Clean Air 
Act. This is necessary and appropriate, especially considering the 
importance of the goals of the Clean Air Act and the attention paid by 
Congress in drafting EPCA to the relationship of the CAFE program to 
the Clean Air Act. EPCA's express preemption provision cannot be 
interpreted as preempting all State laws relating to a fuel economy 
standard, no matter how tangential the relationship. Such an 
interpretation would largely, if not wholly, negate the Clean Air Act's 
preemption waiver provision and leave few, if any, emission standards 
to be considered by NHTSA under EPCA's decisionmaking factor provision. 
Our approach to reconciling EPCA and the Clean Air Act appropriately 
distinguishes between emissions other than CO2 and 
CO2. The Clean Air Act authorizes the States to regulate 
emissions other than CO2, but not CO2 itself, 
because of the nature of combustion and the availability of different 
technologies for regulating those other emissions.
    Our approach also avoids interpreting EPCA's express preemption 
provision so narrowly as to produce the absurd and destructive result 
of preempting State fuel economy standards, but not State standards 
that are fuel economy standards in effect, but not in name. Giving EPCA 
this degree of primacy is particularly appropriate given the regulatory 
authority in this statute is quite narrow and specific: fuel economy 
standards, and their functional equivalents, CO2 standards 
and GHG standards, to the extent that the latter regulate 
CO2 emissions.

XV. 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

[[Page 17671]]

President's priorities, or the principles set forth in the Executive 
Order.
    The rulemaking adopted in this document is economically 
significant. Accordingly, OMB reviewed it under Executive Order 12866. 
The rule is also significant within the meaning of the Department of 
Transportation's Regulatory Policies and Procedures.
    We estimate that the total benefits under the Unreformed CAFE 
standards for MYs 2008-2010 and the Reformed CAFE standard for MY 2011 
will be approximately $7,554 million at a 7 percent discount rate and 
at fuel prices (based on EIA long-term projections) ranging from $1.96 
to $2.39 per gallon: $577 million for MY 2008, $1,876 million for MY 
2009, $2,109 million for MY 2010, and $2,992 million for MY 2011. We 
estimate that the total costs under those standards, as compared to the 
MY 2007 standard of 22.2 mpg, will be a total of $6,440 million: $536 
million for MY 2008, $1,621 million for MY 2009, $1,752 million for MY 
2010, and $2,531 million for MY 2011.
    Under the Reformed CAFE standards for MYs 2008-2011, as compared to 
the MY 2007 standard of 22.2 mpg, we estimate the total benefits under 
the Reformed CAFE system for MYs 2008-2011 at $8,125 million: $782 
million for MY 2008, $2,015 million for MY 2009, $2,336 million for MY 
2010, and $2,992 million for MY 2011. We estimate the total costs to be 
similar to the total costs under the Unreformed CAFE system, $6,711 
million: $553 million for MY 2008, $1,724 million for MY 2009, $1,903 
million for MY 2010, and $2,531 million for MY 2011.
    Because the final rule is significant under both the Department of 
Transportation's procedures and OMB's guidelines, the agency has 
prepared a Final Regulatory Impact Analysis and placed it in the docket 
and on the agency's Web site.

B. National Environmental Policy Act

    Consistent with the requirements of the National Environmental 
Policy Act (NEPA),\257\ the regulations of the Council on Environmental 
Quality,\258\ and relevant DOT regulations and orders,\259\ the agency 
has prepared a final Environmental Assessment (EA) of this action and 
concludes that this rulemaking action will not have a significant 
effect on the quality of the human environment. Both the final EA and a 
Finding of No Significant Impact (FONSI) have been placed in the 
docket.
---------------------------------------------------------------------------

    \257\ 42 U.S.C. 4321 et seq.
    \258\ 40 CFR part 1500.
    \259\ 49 CFR part 520, DOT Order 5610.1C, and NHTSA Order 560-1.
---------------------------------------------------------------------------

    In comments on the draft EA, the Attorneys General and the Center 
for Biological Diversity challenged the adequacy of the environmental 
analysis performed by the agency. These commenters stated that the 
agency is required to prepare an EIS.
    The agency disagrees that an EIS was required. Although not 
required to do so under NEPA, the agency first published a draft EA for 
comment, and carefully reviewed all comments.\260\ Appropriate 
adjustments have been made in the final EA.
---------------------------------------------------------------------------

    \260\ None of the commenters provided specific data to indicate 
that impacts from the proposed rule, final rule, or considered 
alternatives, would be significant.
---------------------------------------------------------------------------

    Based on the analysis in the final EA, which led to a determination 
that this rulemaking action will not have a significant effect on the 
quality of the human environment, the agency determined that it was not 
required to prepare an Environmental Impact Statement (EIS). The 
function of an EA is to present and analyze various alternatives so 
that an agency can consider the environmental concerns related to a 
particular action and other possible actions ``while reserving agency 
resources to prepare full EISs for appropriate cases.'' Sierra Club v. 
DOT, 753 F.2d 120, 126 (D.C. Cir. 1985). An EIS is required only when 
an agency has first determined that a major federal action will 
``significantly affect [] the quality of the human environment.'' 42 
U.S.C. 4332(2)(C). See also Sierra Club, 753 F.2d at 126, Town of Cave 
Creek, Arizona v. FAA, 325 F.3d 320, 327 (D.C. Cir. 2003) and Fund for 
Animals v. Thomas, 127 F.3d 80, 83 (D.C. Cir. 1997). This limitation 
reflects the courts' awareness of the time and expense involved in the 
preparation of an EIS. See River Road Alliance v. Corps of Engineers of 
the United States Army, 764 F.2d 445, 449 (7th Cir. 1985) (the decision 
to prepare an EIS is based on ``whether the time and expense of 
preparing an environmental impact statement are commensurate with the 
likely benefits from a more searching evaluation than an environmental 
assessment provides'') and Metropolitan Edison Co. v. People Against 
Nuclear Energy, 460 U.S. at 766, 776 (1983) (noting scarcity of time 
and resources in limiting the scope of NEPA review). The agency 
conducted a careful inquiry and assessed the potential environmental 
impacts of a variety of alternatives including the action adopted in 
this final rule. With respect to each alternative, the agency 
determined that projected impacts would be very small and generally 
constitute improvements compared to the baseline for this 
rulemaking.\261\
---------------------------------------------------------------------------

    \261\ See Section 4 Environmental Consequences, in the final EA, 
which has been placed in the docket for this rulemaking.
---------------------------------------------------------------------------

    The Attorneys General and the Center for Biological Diversity 
stated that the agency did not consider a reasonable number of 
alternatives, and therefore did not take the requisite ``hard look'' 
when analyzing environmental impacts.\262\ In particular, they asserted 
that Reformed CAFE creates incentives for manufacturers to build larger 
vehicles, ``which will jeopardize air quality and the climate'' and 
that NHTSA did not ``consider the environmental impact of its choices 
or the possibility of making other choices.''
---------------------------------------------------------------------------

    \262\ The term ``hard look'' refers to whether the agency fully 
evaluated, rather than cursorily examined, a particular issue. See 
Marsh v. Oregon Natural Resources Council, 490 U.S. 360, 374 (1989). 
Elements of a hard look include whether an agency demonstrated that 
``it had responded to significant points made during the public 
comment period, had examined all relevant factors, and had 
considered significant alternatives to the course of action 
ultimately chosen.'' Merrick B. Garland, Deregulation and Judicial 
Review, 98 Harv. L. Rev. 505, 526 (1985). See also Home Box Office 
v. FCC, 567 F.2d 9, 35 (D.C. Cir.) (requiring agencies to consider 
all relevant factors and demonstrate a ``rational connection between 
the facts found and the choice made'') (citing Burlington Truck 
Lines v. United States, 311 U.S. 156, 168 (1962)), cert. denied, 434 
U.S. 829 (1977).
---------------------------------------------------------------------------

    In determining the impacts of this rulemaking, the agency analyzed 
a reasonable number of alternative actions, as required under NEPA. As 
the Supreme Court has recognized, an agency is required to examine only 
reasonable alternatives, not those that might result in the worst-case 
scenario and that are unlikely to occur. See Robertson v. Methow Valley 
Citizens Council, 490 U.S. 332, 354-55 (1989).
    The agency recognizes that numerous alternatives exist, including 
alternatives with more stringent fuel economy requirements.\263\ 
However, the agency did not analyze these alternatives in the final EA 
because we determined from our analytical model that they would not be 
consistent with the statutory criteria of EPCA. We note that the agency 
is required to set fuel economy standards at the ``maximum feasible'' 
levels achievable by manufacturers in the applicable model years, 
taking into consideration four statutory factors: Technological 
feasibility; economic practicability; the impact of other Federal 
standards on fuel economy; and the need of the nation to conserve

[[Page 17672]]

energy. EPCA does not permit the agency to establish fuel economy 
standards at any chosen level, but instead requires NHTSA to balance 
these factors when setting an appropriate standard. For example, a fuel 
economy standard ``with harsh economic consequences for the auto 
industry * * * would represent an unreasonable balancing of EPCA's 
policies.'' Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1340 (D.C. 
Cir. 1986).
---------------------------------------------------------------------------

    \263\ Commenters suggested that the agency consider more 
stringent standards, but provided no substantive data to support the 
general assertion that unspecified, but more stringent, standards be 
adopted.
---------------------------------------------------------------------------

    The evaluated alternatives represent standards set under the 
traditional Unreformed CAFE process and under the marginal cost-benefit 
analysis previously described. These alternatives analyzed by the 
agency, which are described in greater detail in the final EA (see EA 
pp. 8-15), represent options that were reasonable, given the agency's 
authority under EPCA. All of these options were projected to result 
primarily in small emission reductions. We evaluated the selected 
alternatives against a reasonable baseline and we have evaluated the 
estimated cumulative impacts resulting from the alternative ultimately 
adopted in the final rule.\264\ The alternative adopted today reflects 
the technological capabilities of the industry within the applicable 
time frame and does not result in harsh economic consequences for the 
industry. After carefully considering the statutory criteria, the 
agency has determined that the standards adopted today represent the 
``maximum feasible'' levels achievable by manufacturers.\265\
---------------------------------------------------------------------------

    \264\ While a baseline typically represents the impact that 
would occur if an agency took no action (i.e., if NHTSA did not 
establish standards at all for MYs 2008-2011), 49 U.S.C. Sec.  
32902(a) precludes this possibility by affirmatively requiring the 
Secretary of Transportation to prescribe, by rule, average fuel 
economy standards for light trucks--in other words, the agency must 
promulgate some standard to apply to light trucks. For these 
purposes, we chose to use the MY 2007 (22.2 mpg) standard as the 
baseline to assess the impacts of the various alternatives.
    \265\ Separately, NRDC provided several scenarios purportedly 
demonstrating the impact of upsizing on fleet-wide fuel economy. 
While the agency does not agree that the scenarios presented by NRDC 
are probable, we note that the fleet-wide fuel economy estimates for 
each one remains within the range of alternatives considered in the 
Environmental Assessment. That is, under NRDC's analysis, the fleet-
wide fuel economy was not lower than the No Action Alternative 
evaluated in the final EA. Additionally, as discussed in the final 
EA, the range of impacts from the considered alternatives is very 
narrow and minimal. The projections for each of the alternatives 
examined by the agency indicated that none of them would result in a 
significant impact. An agency is only required to examine reasonable 
alternatives, not those that might result in the worst-case scenario 
and that are unlikely to occur. See Robertson v. Methow Valley 
Citizens Council, 490 U.S. 332, 354-55 (1989).
---------------------------------------------------------------------------

    Further, we considered, but did not evaluate, an alternative that 
would incorporate a backstop or ratcheting mechanism. There are several 
reasons for not including such a mechanism within the context of the 
Reformed CAFE system that we are adopting today. The suggestion that 
NHTSA must incorporate a backstop does not consider the fact, noted 
above several times, that CAFE does not command that NHTSA, in 
administering the CAFE program, either to ignore or seek to preclude 
mix shifts and design changes made due to consumer demand. NHTSA has 
traditionally considered consumer demand in setting new CAFE standards 
and likewise has considered it as necessary and appropriate in amending 
existing standards. The proponents of a backstop did not consider that 
the proposed Reformed CAFE system minimized the incentive for 
manufacturers to upsize vehicles. The Reformed system adopted in this 
final rule reduces that incentive even more. Further, manufacturers are 
limited in their ability to increase vehicle size by consumer demand 
and by other market forces, such as potential fuel prices. Adoption of 
a backstop would also undermine the benefits of attribute-based 
standards for some manufacturers and perpetuate the shortcomings of the 
Unreformed system.
    The Attorneys General also expressed concern about the potential 
for vehicle upsizing and stated that the agency should analyze the 
impact on fuel savings that would occur if manufacturers enlarged their 
vehicles, making them subject to a less stringent requirement. As 
explained above, the agency chose footprint as the vehicle metric on 
which to base the standard because it would be difficult for 
manufacturers to make short term adjustments solely in response to the 
fuel economy levels. We based our analysis on manufacturer product 
plans, which reflect vehicle designs through MY 2011. As also explained 
above, footprint is closely tied to a vehicle's platform, which 
manufacturers typically rely upon without change for a multi-year 
product cycle.
    The Center for Biological Diversity argued that the agency did not 
properly analyze the cumulative impacts of the light truck rule 
relative to greenhouse gas emissions and global warming. The commenter 
asserts that past, present and future actions must be adequately 
catalogued and considered, including a list and description of 
``sources of United States [greenhouse gas] emissions by category and 
percent of the total to place the [greenhouse gas] emissions into 
perspective.'' The Center for Biological Diversity also stated that the 
agency needs a full understanding of how its proposed action impacts 
the overall ability of the U.S. to reduce its greenhouse gas emissions.
    In the final EA, the agency has provided a discussion of the 
greenhouse gas emissions in the U.S. transportation sector, as well as 
in the U.S. generally, based on available data (see EA pp. 21, 31). 
Although the commenters urge the agency to promulgate a standard that 
results in larger reductions in CO2 emissions, such a course 
of action would not be consistent with the EPCA constraints discussed 
earlier. The extent of NHTSA's analysis is dictated by the goals and 
requirements of EPCA. Metropolitan Edison Co., 460 U.S. at 776 (noting 
that ``[t]he scope of the agency's inquiries must remain manageable if 
NEPA's goal of `ensur[ing] a fully informed and well considered 
decision' * * * is to be accomplished.'') (citations omitted). The 
agency considered the impacts to greenhouse gas emissions from fuel 
economy standards set according to the statutory directive of EPCA. 
Moreover, as illustrated in the final EA, all of the analyzed 
alternatives were projected to reduce CO2 emissions (see EA 
p. 30).
    The commenters also contend that the agency has not taken into 
account changed circumstances that have occurred since the last EIS was 
completed. In addition to citing the passage of time since the agency 
last prepared an EIS for the CAFE program, commenters said that higher 
gas prices, heightened concerns about foreign oil dependence, climate 
changes, and advances in hybrid technologies constitute ``changed 
circumstances'' that dictate a full evaluation of environmental impacts 
in an EIS.
    While we appreciate that changes have occurred since the last EIS 
was performed, we note that there must be sufficient information to 
show that this action will affect the quality of the human environment 
``in a significant manner or to a significant extent not already 
considered'' to require an EIS. Further, as explained in the FRIA, 
higher gasoline prices were factored into the model relied on by the 
agency (see FRIA p. VIII-26). The incorporation of hybrid technology is 
addressed elsewhere in this notice and in the FRIA (see FRIA p. V-12). 
Consideration of the nation's dependence on foreign oil raises policy 
questions that lie outside the scope of NEPA. We address that matter 
elsewhere in this notice.
    The setting of the MY 2005-2007 light truck standards in April 2003 
(68 FR 16868) was the agency's first effort to set CAFE standards since 
the lifting of prior

[[Page 17673]]

Congressional restrictions (other than the ministerial setting of 
standards at already prescribed levels during the intervening years). 
Based on the EA for that action,\266\ the agency concluded that no 
significant environmental impact would result from the rule. As 
explained in the MY 2005-2007 EA, we believe that adopting that 
approach in that rulemaking action is consistent with our prior 
evaluations assessing the impacts of changes to CAFE.
---------------------------------------------------------------------------

    \266\ See Docket NHTSA-2002-11419-18360 (Final Environmental 
Assessment for MY 2005-2007 Light Truck CAFE Standards).
---------------------------------------------------------------------------

    The final EA in the current action also considered the effects of 
the different alternatives on nonattainment areas as well as on those 
areas that could be at risk of nonattainment status (see EA p. 31). The 
agency determined that the changes projected from the various 
alternatives that were considered would not increase the risk of any 
geographic areas incurring nonattainment status. As the projections in 
the final EA show, the levels of criteria pollutants are expected to 
decrease, with the exception of CO, and the projected increases in CO 
are not sufficient to result in an increase in nonattainment areas (see 
EA p. 30).
    NRDC and the Center for Biological Diversity stated that the agency 
did not consider the impacts of the regulation on human health and 
endangered species. The final EA addresses human health issues. The 
final EA demonstrates that the changes in the emissions of criteria 
pollutants are not projected to result in any additional violations of 
the primary air standards, which are set at levels intended to protect 
against adverse effects on human health (see EA p. 31).
    With regard to endangered species, the commenters expressed concern 
about the potential impact of increased greenhouse gas emissions and 
global warming on various species and their habitat. We first note that 
the Endangered Species Act does not require review in every instance 
that could have an impact on a particular endangered or threatened 
species, however remote. 16 U.S.C. 1531 et seq. Rather, review is 
triggered in instances where it is likely that such an impact will 
occur. See Babbitt v. Sweet Home Chapter of Communities for a Great 
Oregon, 515 U.S. 687, 703 (1995). As noted in the final EA, the agency 
projected that the final rule would produce, compared to U.S. emissions 
of CO2, a small decrease in emissions of CO2, the 
primary component of greenhouse gas emissions, under the selected 
alternative (see EA p. 32). Accordingly, the agency determined that the 
action we are adopting today will not have a significant impact on the 
environment.
    In addition to commenting on the EA, the Center for Biological 
Diversity asserted that the Global Change Research Act (GCRA) requires 
the agency to rely on specific research in our analysis. The agency 
disagrees. The GCRA calls for the publication of a study on the effects 
of global climate changes every four years and to make these research 
findings available to agencies to use. It does not mandate, however, 
that Federal agencies rely on the research report. Instead, the statute 
only imposes a requirement that the report be made available to 
agencies. See 15 U.S.C. 2938 (ensuring that research findings are made 
available for use by Federal agencies in formulating policies 
addressing human-induced and natural processes of global change).

C. Regulatory Flexibility Act

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

D. Executive Order 13132 Federalism

    Executive Order 13132 requires NHTSA to develop an accountable 
process to ensure ``meaningful and timely input by State and local 
officials in the development of regulatory policies that have 
federalism implications.'' The Order defines the term ``Policies that 
have federalism implications'' to include regulations that have 
``substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government.'' Under 
the Order, NHTSA may not issue a regulation that has federalism 
implications, that imposes substantial direct compliance costs, and 
that is not required by statute, unless the Federal government provides 
the funds necessary to pay the direct compliance costs incurred by 
State and local governments, or NHTSA consults with State and local 
officials early in the process of developing the proposed regulation. 
The agency has complied with Order's requirements.
    The issue of preemption of State emissions standard under EPCA is 
not a new one; there is an ongoing dialogue regarding the preemptive 
impact of CAFE standards whose beginning pre-dates this rulemaking. 
This dialogue has involved a variety of parties (i.e., the States, the 
federal government and the public) and has taken place through a 
variety of means, including rulemaking. This issue was explored in the 
litigation over the California ZEV regulations in 2002 (in which the 
federal government filed an amicus brief) and addressed at great length 
in California's 2004-2005 rulemaking proceeding on its GHG 
regulation.\267\ NHTSA first addressed the issue in its rulemaking on 
CAFE standards for MY 2005-2007 light trucks.
---------------------------------------------------------------------------

    \267\ FSOR, pp. 358-68.
---------------------------------------------------------------------------

    In the current rulemaking proceeding, we sought again to engage the 
public in a discussion of the relationship between CAFE standards and 
State CO2 standards and the applicability of EPCA's 
preemption provision to the latter. In response to our discussion of 
preemption in the August 2005 NPRM, the agency received communications 
from a variety of States and their representative organizations.
    States objected generally to the preemption discussion in the NPRM. 
CARB, New Jersey Department of Environmental Protection, New York

[[Page 17674]]

Department of Environmental Conservation, STAPPA/ALAPCO, NESCAUM, and 
the Attorneys General (California et al.) each stated that the 
preemption discussion was irrelevant or beyond the scope of the light 
truck CAFE rulemaking. These commenters requested that the agency not 
address this issue in the final rule. The Connecticut Department of 
Environmental Protection, Pennsylvania Department of Environmental 
Protection, and STAPPA/ALAPCO made similar requests. These commenters 
also asserted that the issue of preemption should be left to the 
courts.
    The Attorneys General (California et al.) stated that Executive 
Order 13132 directs the agency to be ``deferential to States when 
taking action that affects the policymaking discretion of the States 
and should act only with the greatest caution where State or local 
governments have identified uncertainties regarding the constitutional 
or statutory authority of the national government.''
    We have carefully considered these comments, as well as closely 
examined our authority and obligations under EPCA and that statute's 
express preemption provision. For those rulemaking actions undertaken 
at an agency's discretion, Section 3(a) of Executive Order 13132 
instructs agencies to closely examine their statutory authority 
supporting any action that would limit the policymaking discretion of 
the States and assess the necessity for such action. This is not such a 
rulemaking action. NHTSA has no discretion not to issue the CAFE 
standards established by this final rule. EPCA mandates that the 
``Secretary of Transportation * * * prescribe by regulation average 
fuel economy standards'' for light trucks (49 U.S.C. 32902). Given that 
a State CO2 regulation is the functional equivalent of a 
CAFE standard, there is no way that NHTSA can tailor a fuel economy 
standard for light trucks so as to avoid preemption. Further, EPCA 
itself precludes a State from adopting or enforcing a law or regulation 
related to fuel economy (49 U.S.C. 32919(a)).
    For these reasons and those stated at greater length in the section 
above on preemption, we have not adopted the views presented by the 
States. Nevertheless, the agency continues to examine these issues and 
welcomes continued input.

E. Executive Order 12988 (Civil Justice Reform)

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

F. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires Federal agencies to prepare a written assessment of the costs, 
benefits, and other effects of proposed or final rules that include a 
Federal mandate likely to result in the expenditure by State, local, or 
tribal governments, in the aggregate, or by the private sector, of more 
than $100 million in any one year (adjusted for inflation with base 
year of 1995 to $115 million for 2003). All cost estimates in the FRIA 
are in 2003 economics. Before promulgating a rule for which a written 
statement is needed, NHTSA is generally required by section 205 of the 
UMRA 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 $115 million 
annually, but it will result in the expenditure of that magnitude by 
vehicle manufacturers and/or their suppliers. In promulgating this 
proposal, NHTSA considered whether average fuel economy standards lower 
and higher than those proposed would be appropriate. NHTSA is 
statutorily required to set standards at the maximum feasible level 
achievable by manufacturers and has tentatively concluded that the 
proposed standards are the maximum feasible standards for the light 
truck fleet for MYs 2008-2011 in light of the statutory considerations.

G. Paperwork Reduction Act

    Under the procedures established by the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501 et seq.), 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. For the transition period 
reporting requirements, and the additional pre-model year reporting 
requirements, NHTSA is submitting to OMB a request for approval of the 
following collection of information.
    In compliance with the Paperwork Reduction Act, this notice 
announces that the Information Collection Request (ICR) abstracted 
below has been forwarded to the Office of Management and Budget (OMB) 
for review and comment. The ICR describes the nature of the information 
collections and their expected burden. This is a request for an 
amendment of an existing collection.
    Agency: National Highway Traffic Safety Administration (NHTSA).
    Title: 49 CFR Part 537, Automotive Fuel Economy Reports (F.E.) 
Reports
    Type of Request: Amended collection.
    OMB Clearance Number: 2127-0019.
    Form Number: This collection of information will not use any 
standard forms.
    Requested Expiration Date of Approval: Three years from the date of 
approval.
    Summary of the Collection of Information: So that NHTSA can ensure 
that light truck manufacturers are complying with the CAFE 
requirements, NHTSA would require light truck manufacturers to provide 
information on their election of a compliance option during model years 
2008-2010, and provide light truck footprint data beginning model year 
2008.
    NHTSA established a transition period during MYs 2008-2010 during 
which manufacturers may opt to comply with light truck fuel economy 
standards established under the Reformed CAFE system. For each year of 
the transition period, manufacturers must, within 45 days after the end 
of the model year, provide to NHTSA information identifying the light 
truck CAFE system with which the manufacturer chooses to comply. The 
choice is irrevocable.
    Further, the Reformed CAFE system relies on vehicle footprint to 
determine a manufacturer's required average fuel economy level. 
Beginning in MY 2008, the agency would need to collect data on vehicle 
footprint to determine manufacturers' compliance with the Reformed CAFE 
system and to evaluate the new system.
    Description of the Need for the Information and Proposed Use of the 
Information: NHTSA need this information to ensure that vehicle 
manufacturers are complying with the light truck CAFE program and to 
evaluate the Reformed CAFE system.
    Description of the Likely Respondents (Including Estimated Number, 
and Proposed Frequency of Response to the Collection of Information): 
NHTSA estimates that 14 light truck manufacturers will be impacted by 
this amendment. The manufacturers are

[[Page 17675]]

makers of light trucks have gross vehicle weight ratings of 4,536 kg 
(10,000 pounds) or less. For each pre-model report currently required 
under 49 CFR 537.7, the manufacturer will provide data on vehicle 
footprint. Further, during MYs 2008-2010, the manufacturers will 
provide, in addition to its identity, a statement as to which light 
truck CAFE standard with which it has chosen to comply, 49 CFR 533.5(f) 
or 49 CFR 533.5(g).
    During the transition period, each manufacturer will provide 1 
additional report per year for three years, for a total of 3 additional 
reports over 3 years.
    Estimate of the Total Annual Reporting and Recordkeeping Burden 
Resulting from the Collection of Information: NHTSA estimates that each 
manufacturer will incur an additional 10 burden hours per year. This 
estimate is based on the fact that data collection will involve only 
computer tabulation. Further, this is consistent with the range of 
burden hours suggested by the Alliance in its comments. Thus, as a 
result of this final rule each manufacturer will incur an additional 
burden of ten hours or a total on industry of an additional 140 hours a 
year (assuming there are 14 manufacturers).
    NHTSA estimates that the recordkeeping burden resulting from the 
collection of information will be 0 hours because the information will 
be retained on each manufacturer's existing computer systems for each 
manufacturer's internal administrative purposes.
    NHTSA estimates that the total annual cost burden will be 0 
dollars. There would be no capital or start-up costs as a result of 
this collection. Manufacturers can collect and tabulate the information 
by using existing equipment. Thus, there would be no additional costs 
to respondents or recordkeepers.
    Comments are invited on:
     Whether the collection of information is necessary for the 
proper performance of the functions of the Department, including 
whether the information will have practical utility.
     Whether the Department's estimate for the burden of the 
information collection is accurate.
     Ways to minimize the burden of the collection of 
information on respondents, including the use of automated collection 
techniques or other forms of information technology. A comment to OMB 
is most effective if OMB receives it within 30 days of publication.
    Send comments to the Office of Information and Regulatory Affairs, 
Office of Management and Budget, 725 17th Street, NW., Washington, DC 
20503, Attention NHTSA Desk Officer. PRA comments are due within 30 
days following the publication of this document in the Federal 
Register.
    The agency recognizes that the amendment to the existing collection 
of information contained in today's final rule may be subject to 
revision in response to public comments and the OMB review. For 
additional information contact: Ken Katz, Lead Engineer, Fuel Economy 
Division, Office of International Policy, Fuel Economy, and Consumer 
Programs, National Highway Traffic Safety Administration, 400 Seventh 
St., SW., Washington, DC 20590. Mr. Katz can also be contacted at: 
telephone number (202) 366-0846, facsimile (202) 493-2290, electronic 
mail [email protected].

H. Regulation Identifier Number (RIN)

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

I. Executive Order 13045

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

J. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act (NTTAA) requires NHTSA to evaluate and use existing voluntary 
consensus standards in its regulatory activities unless doing so would 
be inconsistent with applicable law (e.g., the statutory provisions 
regarding NHTSA's vehicle safety authority) or otherwise impractical.
    Voluntary consensus standards are technical standards developed or 
adopted by voluntary consensus standards bodies. Technical standards 
are defined by the NTTAA as ``performance-based or design-specific 
technical specification and related management systems practices.'' 
They pertain to ``products and processes, such as size, strength, or 
technical performance of a product, process or material.''
    In meeting the requirement of the NTTAA, we are required to consult 
with voluntary, private sector, consensus standards bodies. Examples of 
organizations generally regarded as voluntary consensus standards 
bodies include the American Society for Testing and Materials (ASTM), 
the Society of Automotive Engineers (SAE), and the American National 
Standards Institute (ANSI). If NHTSA does not use available and 
potentially applicable voluntary consensus standards, we are required 
by the Act to provide Congress, through OMB, an explanation of the 
reasons for not using such standards.
    The final rule incorporates a function based on light truck 
footprint (average track width X wheelbase). For the purpose of this 
calculation, the agency based these measurements on those by the 
automotive industry. Determination of wheelbase is consistent with 
L101-wheelbase, defined in SAE J1100 SEP2005, Motor vehicle dimensions. 
The agency adopted a definition of track width consistent with SAE 
J1100 W101 SEP2005.
    There are no voluntary consensus standards on fuel economy 
performance.

K. Executive Order 13211

    Executive Order 13211 (66 FR 28355, May 18, 2001) applies to any 
rule that: (1) Is determined to be economically significant as defined 
under E.O. 12866, and is likely to have a significant adverse effect on 
the supply, distribution, or use of energy; or (2) that is designated 
by the Administrator of the Office of Information and Regulatory 
Affairs as a significant energy action. If the regulatory action meets 
either criterion, we must evaluate the adverse energy effects of the 
planned rule and explain why the planned regulation is preferable to 
other potentially effective and reasonably feasible alternatives 
considered by us.
    The final 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

[[Page 17676]]

not designated as a significant energy action.

L. 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.

M. Privacy Act

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

Regulatory Text

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

    Fuel economy and Reporting and recordkeeping requirements.


0
In consideration of the foregoing, 49 CFR Chapter V is amended as 
follows:

PART 523--VEHICLE CLASSIFICATION

0
1. The authority citation for part 523 continues to read as follows:

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


0
2. Section 523.2 is amended by adding a definition of ``footprint'' and 
``medium duty passenger vehicle'' to read as follows:


Sec.  523.2  Definitions.

* * * * *
    Footprint means the product, in square feet rounded to the nearest 
tenth, of multiplying a vehicle's average track width (rounded to the 
nearest tenth) by its wheelbase (rounded to the nearest tenth). For 
purposes of this definition, track width is the lateral distance 
between the centerlines of the tires at ground when the tires are 
mounted on rims with zero offset. For purposes of this definition, 
wheelbase is the longitudinal distance between front and rear wheel 
centerlines. In case of multiple rear axles, wheelbase is measured to 
the midpoint of the centerlines of the wheels on the rearmost axle.
* * * * *
    Medium duty passenger vehicle means a vehicle which would satisfy 
the criteria in Sec.  523.5 (relating to light trucks) but for its 
gross vehicle weight rating or its curb weight, which is rated at more 
than 8,500 lbs GVWR or has a vehicle curb weight of more than 6,000 
pounds or has a basic vehicle frontal area in excess of 45 square feet, 
and which is designed primarily to transport passengers, but does not 
include a vehicle that:
    (1) Is an ``incomplete truck'' as defined in this subpart; or
    (2) Has a seating capacity of more than 12 persons; or
    (3)Is designed for more than 9 persons in seating rearward of the 
driver's seat; or
    (4) Is equipped with an open cargo area (for example, a pick-up 
truck box or bed) of 72.0 inches in interior length or more. A covered 
box not readily accessible from the passenger compartment will be 
considered an open cargo area for purposes of this definition.
* * * * *

0
3. Section 523.3(b) is amended by adding (b)(3) to read as follows:


Sec.  523.3  Automobile.

* * * * *
    (b) * * *
    (3) Vehicles that are defined as medium duty passenger vehicles, 
and which are manufactured during the 2011 model year or thereafter.

0
4. Section 523.5(a)(5) is revised to read as follows:


Sec.  523.5  Light Truck.

    (a) * * *
    (5) Permit expanded use of the automobile for cargo-carrying 
purposes or other nonpassenger-carrying purposes through:
    (i) For light trucks manufactured prior to model year 2012, the 
removal of seats by means installed for that purpose by the 
automobile's manufacturer or with simple tools, such as screwdrivers 
and wrenches, so as to create a flat, floor level, surface extending 
from the forwardmost point of installation of those seats to the rear 
of the automobile's interior; or
    (ii) For light trucks manufactured in model year 2008 and beyond, 
for vehicles equipped with at least 3 rows of designated seating 
positions as standard equipment, permit expanded use of the automobile 
for cargo-carrying purposes or other nonpassenger-carrying purposes 
through the removal or stowing of foldable or pivoting seats so as to 
create a flat-leveled cargo surface extending from the forwardmost 
point of installation of those seats to the rear of the automobile's 
interior.''.
* * * * *

PART 533--LIGHT TRUCK FUEL ECONOMY STANDARDS

0
5. The authority citation for part 533 continues to read as follows:

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


0
6. Part 533.5 is amended by:
0
A. In paragraph (a) by revising Table IV and adding Figure I and Table 
V; and
0
B. Adding paragraphs (g) and (h).
    The revisions and additions read as follows:


Sec.  533.5  Requirements.

    (a) * * *

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

                                                              [GRAPHIC] [TIFF OMITTED] TR06AP06.038
                                                              
Where:

N is the total number (sum) of light trucks produced by a manufacturer,
Ni is the number (sum) of the ith model light 
truck produced by the manufacturer, and
Ti is fuel economy target of the ith model light 
truck, which is determined according to the following formula, rounded 
to the nearest hundredth:

[[Page 17677]]

[GRAPHIC] [TIFF OMITTED] TR06AP06.043

Where:

Parameters a, b, c, and d are defined in Sec.  533.3 Table V;
e = 2.718; and
x = footprint (in square feet, rounded to the nearest tenth) of the 
vehicle model

                         Table V.--Parameters for the Reformed CAFE Fuel Economy Targets
----------------------------------------------------------------------------------------------------------------
                                                                            Parameters
                   Model year                    ---------------------------------------------------------------
                                                         a               b               c               d
----------------------------------------------------------------------------------------------------------------
2008............................................           28.56           19.99           49.30            5.58
2009............................................           30.07           20.87           48.00            5.81
2010............................................           29.96           21.20           48.49            5.50
2011............................................           30.42           21.79           47.74            4.65
----------------------------------------------------------------------------------------------------------------

* * * * *
    (g) For model years 2008-2010, at a manufacturer's option, a 
manufacturer's light truck fleet may comply with the fuel economy level 
calculated according to Figure I and the appropriate values in Table V, 
with said option being irrevocably chosen for that model year and 
reported as specified in Sec.  537.8.
    (h) For model year 2011, a manufacturer's light truck fleet shall 
comply with the fuel economy level, calculated according to Figure I 
and the appropriate values in Table V.

0
7. Part 533 is amended by adding Appendix A to read as follows:

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

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

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


    Note to Appendix A Table 1. Manufacturer X's required corporate 
average fuel economy level under Sec.  533.5(g) would be calculated 
by first determining the fuel economy targets applicable to each 
vehicle as illustrated in Appendix A Figure 1.

Appendix A Figure 1

------------------------------------------------------------------------
                                                           MY 2008  fuel
                  Model                   Footprint  (ft  economy target
                                               \2\)            (mpg)
------------------------------------------------------------------------
A.......................................              42            26.2
B.......................................              44            25.5
C.......................................              46            24.8
D.......................................              50            23.3
E.......................................              55            21.7
F.......................................              66            20.3
------------------------------------------------------------------------


    Note to Appendix A Figure 1. Accordingly, vehicle models A, B, 
C, D, E, and F would be compared to fuel economy values of 26.2, 
25.5, 24.8, 23.3, 21.7, and 20.3 mpg, respectively. With the 
appropriate fuel economy targets calculated, Manufacturer X's 
required fuel economy would be calculated as illustrated in Appendix 
A Figure 2.

[GRAPHIC] [TIFF OMITTED] TR06AP06.040



[[Page 17678]]


    Note to Appendix A Figure 2. Manufacturer X's required fuel 
economy level is 23.1 mpg. Its actual fuel economy level would be 
calculated as illustrated in Appendix A Figure 3.

[GRAPHIC] [TIFF OMITTED] TR06AP06.041


    Note to Appendix A Figure 3. Since the actual average fuel 
economy of Manufacturer X's fleet is 23.2 mpg, as compared to its 
required fuel economy level of 23.1 mpg, Manufacturer X complies 
with the Reformed CAFE standard for MY 2008 as set forth in Sec.  
533.7(g).

PART 537--AUTOMOTIVE FUEL ECONOMY REPORTS

0
8. The authority citation for part 537 reads as follows:

    Authority: 49 U.S.C. 32907; 49 CFR 1.50.


0
9. Section 537.7 is amended by revising paragraphs (c)(4)(xvi) through 
(xxi) to read as follows:


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

* * * * *
    (c) Model type and configuration fuel economy and technical 
information * * *
    (4) * * *
    (xvi)(A) In the case of passenger automobiles:
    (1) Interior volume index, determined in accordance with subpart D 
of 40 CFR part 600, and
    (2) Body style;
    (B) In the case of light trucks:
    (1) Passenger-carrying volume,
    (2) Cargo-carrying volume;
    (3) Beginning model year 2008, track width as defined in 49 CFR 
523.2,
    (4) Beginning model year 2008, wheelbase as defined in 49 CFR 
523.2, and
    (5) Beginning model year 2008, footprint as defined in 49 CFR 523.2
    (xvii) Performance of the function described in Sec.  523.5(a)(5) 
of this chapter (indicate yes or no);
    (xviii) Existence of temporary living quarters (indicate yes or 
no);
    (xix) Frontal area;
    (xx) Road load power at 50 miles per hour, if determined by the 
manufacturer for purposes other than compliance with this part to 
differ from the road load setting prescribed in 40 CFR 86.177-11(d);
    (xxi) Optional equipment that the manufacturer is required under 40 
CFR parts 86 and 600 to have actually installed on the vehicle 
configuration, or the weight of which must be included in the curb 
weight computation for the vehicle configuration, for fuel economy 
testing purposes.
* * * * *

0
10. Section 537.8 is amended by adding paragraph (e) to read as 
follows:


Sec.  537.8  Supplementary reports.

* * * * *
    (e) Reporting compliance option in model years 2008-2010. For model 
years 2008, 2009, and 2010, each manufacturer of light trucks, as that 
term is defined in 49 CFR 523.5, shall submit a report, not later than 
45 days following the end of the model year, indicating whether the 
manufacturer is opting to comply with 49 CFR 533.5(f) or 49 CFR 
533.5(g).

    Note: The following Appendices will not appear in the Code of 
Federal Regulations

Appendix A--Comparison of Engineering Constraints Employed by the NPRM 
and the Final Rule Analyses

----------------------------------------------------------------------------------------------------------------
                                                    Engineering constraint
              Technology              --------------------------------------------------    Reason for change
                                                 NPRM                    Final
----------------------------------------------------------------------------------------------------------------
Low-Friction Lubricants..............  Do not apply if engine   Do not apply if engine   Availability of lower
                                        oil is 5W30 or better.   oil is better than       friction (e.g., 0W)
                                                                 5W30.                    oils.
Variable Valve Timing (VVT)..........  Do not apply to engines  Do not apply to OHV      OHV engines more likely
                                        with displacement        engines.                 to use cylinder
                                        greater than 4.7 l.                               deactivation.
Variable Valve Lift and Timing (VVLT)  Do not apply to engines  Do not apply to engines  Next logical step from
                                        with displacement        that do not already      VVT.
                                        greater than 3.0 l.      have VVT.

[[Page 17679]]

 
Cylinder Deactivation................  Do not apply to engines  As a general rule, do    Multivalve OHC engines
                                        with VVT, VVLT, and/or   not apply to engines     more likely to use VVT
                                        fewer than 6 cylinders.  with VVT, VVLT,          or VVLT.
                                                                 multivalve OHC, and/or
                                                                 fewer than 6 cylinders.
Continuously Variable Transmission...  Do not apply to frame    Apply only to FWD        Less likely to
                                        vehicles or 4WD SUVs.    unibody vehicles.        mistakenly apply CVT
                                                                                          to some RWD SUVs.
Front Axle Disconnect................  Apply only to 4WD        Apply only to 4WD        Expected to be more
                                        vehicles.                vehicles with cylinder   applicable to large
                                                                 count greater than six.  vehicles.
Electric Power Steering..............  No universal             For vehicles with curb   Higher power demands
                                        constraints.             weights over 4,000       for large vehicle
                                                                 pounds, do not apply     steering.
                                                                 unless 42-Volt systems
                                                                 are already present.
Integrated Starter-Generator.........  No universal             Start application with   Mild hybridization
                                        constraints.             the largest vehicles,    expected to be more
                                                                 which have lower fuel    suitable for large
                                                                 economy, prior to        vehicles due to
                                                                 applying to smaller,     packaging issues and
                                                                 more fuel efficient      fuel savings
                                                                 vehicles.                potential.
Weight Reduction.....................  Do not apply to          Do not apply to          Correction to placement
                                        vehicles with curb       vehicles with curb       of safety threshold.
                                        weights below 3,900      weights below 5,000
                                        pounds.                  pounds.
----------------------------------------------------------------------------------------------------------------

Appendix B--Changes to Technology ``Phase-In Constraints'' Employed by 
the Volpe Model

------------------------------------------------------------------------
                                               NPRM            Final
               Technology                    (percent)       (percent)
------------------------------------------------------------------------
Low Friction Lubricants.................              50              25
Improved Rolling Resistance.............              50              25
Low Drag Brakes.........................              50              17
Engine Friction Reduction...............              33              17
Front Axle Disconnect (for 4WD).........               5              17
Cylinder Deactivation...................              25              17
Multi-Valve, Overhead Camshaft..........              33              17
Variable Valve Timing...................              33              17
Electric Power Steering.................              33              17
Engine Accessory Improvement............              33              25
5-Speed Automatic Transmission..........              33              17
6-Speed Automatic Transmission..........              25              17
Automatic Transmission w/Aggressive                   33              17
 Shift Logic............................
Continuously Variable Transmission (CVT)              33              17
Automatic Shift Manual Transmission (AST/             10              17
 AMT)...................................
Aero Drag Reduction.....................              33              17
Variable Valve Lift & Timing............              25              17
Spark Ignited Direct Injection (SIDI)...               3               3
Engine Supercharging & Downsizing.......              25              17
42 Volt Electrical Systems..............              33              17
Integrated Starter/Generator............              33               5
Intake Valve Throttling.................              25              17
Camless Valve Actuation.................              25              10
Variable Compression Ratio..............              25              10
Advanced CVT............................              25              17
Dieselization...........................               3               3
Material Substitution...................              20              17
Midrange Hybrid Vehicle.................               3               3
------------------------------------------------------------------------


    Issued: March 28, 2006.
Jacqueline Glassman,
Deputy Administrator.

[FR Doc. 06-3151 Filed 3-29-06; 1:29 pm]
BILLING CODE 4910-59-U